By now, you’ve likely heard the term “blockchain”, but do you know how it could impact your day-to-day operations? Blockchain technology has the potential to transform a wide range of industries—and the insurance industry is no exception.
While still in its infancy, many insurance experts believe blockchain could increase consumer privacy, minimize fraud, reduce operational expenses and more. And the market for blockchain is huge. According to a report from Global Market Insights, the blockchain market is expected to reach $16 billion by 2024.
What Is Blockchain?
Blockchain is a new type of shared, encrypted recordkeeping system that can be seen in real time by everyone involved in a supply chain or other business operation. These systems work by recording a separate record, or “block,” every time a process is updated.
Essentially, each block in the system serves as a digital puzzle piece that verifies the next record, creating a digital chain. Each block is encrypted and can’t be changed, since altering any information in the record would be like taking a piece out of a finished puzzle and trying to change its shape.
Here’s how blockchain works:
4 Ways Blockchain Technology Could Impact the Insurance Industry
There are countless ways blockchain technology could benefit the insurance industry, but here are four major trends we’ve identified.
1. Security
As technology becomes more and more prevalent, more data is being collected by internet of things devices. While this data can help brokers and insurers calculate more accurate rates and provide faster customer service, it also opens the door to more data being compromised during a cyber attack or data breach. To protect this growing amount of data, many are looking to blockchain technology.
Because all blockchain records are verified with a cryptographic hash that cannot be altered, blockchain is very secure against tampering and cyber attacks. And even though blockchain networks are public, they cannot be altered or viewed without permission, helping to ensure consumer privacy. While this technology is still very much in its early stages, by leveraging blockchain technology in the future, brokers and insurers could reduce their risk of cyber attacks while promoting greater data transparency.
2. Fraud
By improving the security and accuracy of information, blockchain technology also has the potential to significantly reduce insurance fraud. The FBI estimates that insurance fraud costs the United States approximately $30 billion a year, and much of this expense is passed onto consumers in the form of higher insurance premiums. This fraud can be very difficult and time-consuming to detect though.
Consider the car insurance industry for example. Right now, it’s possible for fraudsters to try to claim the same damage twice or for repair shops to overcharge on simple fixes. However, with blockchain technology, auto claims could be cross-referenced to previous claims, police reports, accident photos and more—making the verification process simple.
Since validation is at the core of its public database, all blockchain records could be encrypted, verified and shared between relevant parties—helping to eliminate any suspicious or duplicate transactions. This, in turn, could help automate fraud detection and significantly reduce the amount of time and resources the insurance industry spends combatting fraud.
However, in order for to this technology to work, brokers, insurance companies, customers and third parties would all need work together to share and verify information related to policies, purchased products, claims and more.
3. Smart Contracts
Another potential application for blockchain is the future of contracts. While the notion of smart contracts has been around for a while, it wasn’t until the emergence of blockchain that they really moved from an idea to potential reality.
Compared to the traditional contracts used today, smart contracts have the ability to include real-time information from multiple systems. With blockchain-based smart contracts, claims processing and payouts could become automatic. Blockchain could help validate transactions and trigger payment without the need for human review.
For example, within the life insurance industry, a smart contract could automatically be connected to death registries. With smart contracts, rather than wait for an individual to file a claim, a smart contract could verify coverage and automatically pay out a claim to a beneficiary upon receiving information about a person’s death.
On the P&C side, similar automation could happen with crop insurance for example. In the case of a serious drought or flood, payments could automatically be made. This, in turn, could accelerate the resolution of claims, saving insurers both time and money and boosting customer satisfaction in the process.
4. Reinsurance
Another major way blockchain technology could impact the industry is when it comes to reinsurance. According to a report from PricewaterhouseCoopers, the cost savings for reinsurers from blockchain technology could exceed $5 billon.
With blockchain, insurers would know exactly how much money is available when it comes time to paying out claims. Blockchain would also allow them to more accurately rebalance their exposures against certain risks—allowing them to make smarter business decisions. Furthermore, since data is stored on a public ledger that each party has access to, data doesn’t need to be re-entered into multiple systems—helping to save time and reduce the chance of errors.
These are just a few of the ways that blockchain technology could impact the insurance industry. While this technology is very much in its early stages, the power for blockchain to transform the industry is undeniable.
Need Help Staying on Top of the Latest Market News?
Broker Briefcase’s unparalleled content library can help you stay on top of emerging trends in the insurance industry—including blockchain, artificial intelligence (AI) and more. To learn more about Broker Briefcase P&C, click here. To learn more about Broker Briefcase Benefits, click here.