How can Blockchain Influence the Future of Insurance?
People buy insurance policies for many reasons: to indemnify their properties against damages, for health coverage, insurance against theft or even to insure precious possessions like gold. However, many insurance companies are never quick to offer compensation when you need them.
The blockchain, an increasingly popular innovation that originated from Bitcoin, is inspiring a new generation of insurers that use a social trust to promote peer to peer insurance schemes. Several startups have emerged where bitcoin owners can offer to insurance other cryptocurrency traders without the hassles associated with traditional insurance.
The blockchain technology also features several other benefits that may influence the future of the insurance industry.
Improving Trust and Transparency
A 2017 study in the UK showed that only half of the UK population trusted their insurers would honor claims after accidents or in case of health needs. Young people were even less trustful of insurance companies, with 37% of millennials between the age of 16 and 35 claimed not to trust insurers very much. In the US, more than 20% of the population does not trust insurers at all.
The blockchain technology is touted as able to improve trust between insurers and customers thanks to its immutable nature. Designed like a digital ledger of records, data added to this technology cannot be erased. Using the technology as the base point of referring to policies, terms and other aspects will lead to transparency and overall improvement in trust between clients and insurers.
Insurance companies have complicated data entry and verification systems. With health coverage, in particular, the processes go through different departments, and your private health information can easily get into wrong hands.
By using blockchain technology, individuals can add their information to the insurer’s systems and have it verified through the blockchain easily. Insurers can also use specially designed KYC systems to enhance the data entry and verification processes. The blockchain is a distributed network, meaning that anyone can add their data fast and efficiently.
The company’s officials can, later on, check for errors or cooperate with customers for additional details. In the end, the whole process becomes convenient for customers, secure and efficient for the insurance companies.
The Underwriting Process
Insuring a person or property is a risk to the insurance company. Insurers have to carefully evaluate your application to see what kind of person you are before accepting the risk of compensating you after an accident. The underwriting process is, therefore, like a test to see evaluate your trustworthiness and the risk involved in insuring your health or property.
In most cases, insurers charge higher premiums than the insured is really supposed to pay because of the complications related to the underwriting process. Fortunately, blockchain technology and the use of peer to peer lending can influence changes in the industry.
Blockchain insurance startups like InsurePal are already implementing the blockchain to promote social proof endorsements and peer to peer lending. InsurePal targets all major industries in its insurance programs including health, automobile, and property insurance.
Improving the Claims Process
Making claims with some insurance companies can be a nightmare. If the company has an inefficient management system, it can take weeks and months before you ever get compensated. A typical insurer deals with thousands of insured people making claims on a regular basis.
They have to look for accounts, determine who deserves compensations, arrange to assess your property for damage and much more. The fast and ease of retrieving data from the blockchain can make the claims processes much easier for everyone involved.
If you insure precious jewelry, for example, insurers simply need to register certain characteristics that can only be associated with the precious item. When the time comes to make a claim, it becomes easier to get compensated. Additionally, insurers can also incorporate smart contracts to make the process even much more efficient.
One of the reasons why the claims processing period takes long is because of the many fraudulent attempts made against insurance companies. The FBI estimates that nearly 10% of claims made in the US insurance industry fraudulent in nature. Where they succeed, false claims cost the insurance industry up to $40 billion every year.
The hack-resistant, public ledger of records can bring the much-needed sanity in the insurance industry by ensuring that only honest claims are honored. However, this would require the cooperation of insurers with customers, police and all other stakeholders involved so that only the correct information is added to the blockchain.
Improve Trust between Insurers and Reinsurers
Reinsurers insure insurance companies. They take part of the risk insurance companies are burdened with by insuring large properties in exchange for receiving part of the premiums paid by customers. Unfortunately, reinsurers do not interact with customers, meaning they may not always know when claims are made and paid for. They rely on trust when doing businesses with insurance companies.
To improve trust between the two types of companies, blockchain technology can be introduced to store data that either company may want to verify any time in the future. Many insurance companies have already automated their systems to foster mutual trust with their reinsurers, but these systems are not as security reassuring as the blockchain.
Companies like InsurePal are already doing it. Since the blockchain is designed to eliminate middlemen, new insurance companies are bringing together insurers closer to those who need their services.
To prove trustworthiness, businesses that want P2P insurance must seek social proof from other companies in the blockchain. With the use of smart contracts and other technologies, the whole process becomes more efficient, and both insurers and customers will have trust with all parties involved.
The blockchain technology is poised to bring a lot of changes to the insurance industry. Its high level of trust and distributed nature may even revolutionize the industry. However, the technology won’t eliminate the need for cooperation between insurers, customers, and other stakeholders.
The insurance industry asks for lots of honesty and cooperation among everyone involved. The blockchain may help improve security and transparency, but the fundamental principle of the insurance industry will remain unchanged.
Mark Schwarz is the author of abitgreedy.com. He is a cryptocurrency expert and a blockchain developer.
Mark started analyzing and investing in crypto in 2012.