Blockchain's insurance applications in claims and beyond
For most technologists, blockchain is the future. While this new technology can be confusing to the layman, it has the potential to disrupt much of what we know about the digital world. Nowhere is this dynamic more relevant than in the insurance and financial service categories.
If you’re perplexed by blockchain, you’re not alone. But since blockchain technology is expected to resolve many of the insurance industry’s pressing challenges, studying up on it is a worthy use of time. It promises to streamline processes like claim management, pricing transparency and actuarial management.
Currently, these processes face a few constraints:
- Lack of transparency. Most customers don’t understand how insurance works, especially as it pertains to pricing and claim processing. Open blockchains enable a transparent framework for conducting transactions.
- Interoperability and data-sharing standards. Existing methods of storing and reconciling data remain complex and fragmented. Legacy systems adopted by providers often fail to communicate, resulting in manual workflows. Example: 31 percent of healthcare providers still rely on manual claims management. Add this to the lack of transparency, and blockchain becomes a relevant technology strategy.
- Inefficiencies and human error. Insurance is rife with confusion and human error because (no surprise) much of the insurance process is manual. This creates inefficiencies, which leads to increased costs for consumers. Blockchain can eliminate the need for many manual processes that add cost, time and waste.
- Claim fraud remains high. A number of insurers tend to associate higher data transparency with increased data theft. Underlying all this is a cultural dynamic pertaining to “castle thinking.” Many insurers avoid openly sharing their data in the first place. These data-restrictive policies are underpinned by important concerns:
- Data-sharing requires compliance with multiple regulators
- Companies are afraid that sensitive information may become available to competitors
- Sharing customer information increases the risk of data theft
The insurance industry needs better standards for operationalizing and securing data, eliminating zero-profit processes and improving accuracy. Placing claims management processes on the blockchain can help.
How blockchain can improve claims workflows
Blockchain is a distributed, peer-to-peer ledger that is virtually immutable. This technology allows users to automate any type of value exchange in a secure, easy-to-audit manner. Businesses can choose to develop solutions atop public blockchains (Bitcoin, Ethereum, etc.), create private permissioned networks with restricted access to data or create “hybrid” solutions across both public and private chains.
Blockchain technology can enhance and simplify a multitude of common business processes, including recordkeeping, claims registration and assessment, contract management, payment processing and closure. For insurance providers, it has high potential to reduce administrative costs.
Smart contracts automate and improve data exchanges
Blockchain technologies facilitate the formation of a secure connection between two parties who don't fully trust one another, without the need for an intermediary. This makes blockchain a solid solution to current interoperability issues, and eliminates the need for carrier-centric processes like subrogation. Central to the future of blockchain for insurance are “smart contracts” — lines of code which represent the terms of a contract in executable computer code. Those who agree to the contract agree to a series of “if/then” statements that automatically trigger when a certain condition is met. This allows unified data standards to apply the information recorded on the blockchain through a set of programmable instructions designed to automatically facilitate, enforce and verify the execution of a created agreement, resulting in an accessible and consistent data-exchange environment.
All recorded data can be verified automatically with code. The networks' participants can choose to set different permission standards to avoid any privacy violations. Once the data is recorded on the blockchain, it becomes tamper-proof. Insurance providers will be able to automatically track and reconcile all submitted claims with the data shared by a provider.
In short, blockchain technology can ensure that valid claims are paid in a matter of seconds, rather than days or weeks. The benefits of deploying smart contracts for claims management are threefold:
- Smart contracts can replace traditional human-supported operations and ensure timely assessments and payments to or from policyholders.
- Transactions on the blockchain are fully automated and require little to no approval by third-parties, thus resulting in lower administrative costs and higher accuracy.
- Blockchain eliminates the chances of fraud while enabling higher industry-wide data transparency and interoperability.
The blockchain facilitates data reconciliation from multiple sources
Processing a larger influx of external data — aggregated from multiple sources such as IoT sensors or mobile gadgets — is a simple task for a blockchain network. The decentralized nature enables effective, near-real time data processing from devices located in different geographies. Imagine this: You get into an accident in your new car. Your vehicle would recognize the impact and immediately send a signal to your carrier with the accident details. The smart contract would execute a series of automatic terms. Do you have towing and labor coverage? A tow truck is immediately sent to your location. Rental coverage? Your rental car is dispatched. Worried about claim accuracy? Your vehicle already knows what repairs it needs, as well as the cost of those repairs.
Within minutes, your claim is settled automatically because the terms of your policy are codified in an open smart contract, and all the data needed to complete the appraisal is in your vehicle.
While blockchain is still new, leading companies can't ignore these innovations if they want to remain competitive in the near future.