6 Top Use Cases of Blockchain for Insurance
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The insurance industry plays a vital role in protecting businesses and individuals against potential losses. However, with technological advancements, customers expect faster and more personalized services, leading to increased complexity and challenges for traditional insurance systems.
Blockchain technology offers a promising solution that improves cost efficiency, transparency, fraud prevention, compliance, and real-time data sharing among various parties. Additionally, Blockchain can enable the development of new insurance practices, leading to innovative products, faster services, and expanded markets. Some of the most significant use cases for Blockchain in insurance include reducing costs, improving claim settlements, meeting customer demands, and promoting innovation.
Here are some of the top use cases of Blockchain in insurance.
- Automate Underwriting:
Efficient data analysis is a crucial aspect of the underwriting process. It determines a customer’s insurance coverage. Blockchain technology can aid this process by incorporating external data to reduce risk and offer semi-automated pricing. This automates and streamlines the underwriting process, and also reduces operational costs. Additionally, blockchains enhance transparency and trust in underwriting by allowing for shared visibility in complex transactional deals.
The data warehousing and analytical tools that blockchain provides technology have made the underwriting process faster, more efficient, and more secure. It also promotes transparency in the process, strengthening the relationship between insurance companies and their customers.
- Claims Processing:
The Claims Operation process involves the identification, assessment, and resolution of claims. By implementing Blockchain technology, insurance claims can be refined and streamlined through the creation of a distributed ledger, which records every transaction made on it. This ledger allows tracking of the progress of claims processing from the point of inception or First Notice of Loss (FNOL) until they are settled in court or otherwise resolved by the insurance company. This makes it easier for all parties involved to monitor their progress through each stage of the process.
Insurance companies need to perform filing, validation, and approval of claims. Blockchain technology in the insurance industry provides a secure identity verification process and uses smart contracts for the automatic execution of procedures. This significantly improves the speed of claims processing.
Payments are automatically made to the appropriate party when an event triggers a smart contract. In the past, claim approval would take up to a week or even a month, as it involved various web portal updates, paper attestations, and photocopying. However, smart contracts now allow for immediate claim approval.
- KYC/AML Processes and Anti-Fraud Solutions:
In the insurance industry, it’s crucial to verify the identity of customers and the source of their funds to comply with Know-your-customer/Anti-money Laundering (KYC/AML) regulations. Compliance-related processes are of utmost importance as there is a constant threat of hackers and criminals trying to steal money or personal information.
Blockchain technology also automates KYC/AML processes, such as verifying bank accounts. Blockchain helps validate records by multiple parties simultaneously, saving both time and money. The distributed nature of blockchain allows for the secure sharing of information across an organization and to relevant third parties. Moreover, if blockchain secures customer identities, insurers can efficiently verify their eligibility without the need to access multiple sources.
In addition, blockchain can be used as a cross-industry, distributed record for external and customer data. Blockchain also validates the authenticity, ownership, and provenance of goods and documents, checks for police theft reports and claims history, confirms a person’s verified identity, and detects patterns of fraudulent behavior related to a specific identity. It can demonstrate the date and time of policy issuance or purchase of a product/asset and confirm subsequent ownership and position changes.
- Real-time claims and payment automation:
By utilizing smart contract technology on the blockchain, insurance companies can approve customer claim requests instantly, eliminating the need for time-consuming paperwork and identity verification checks. Smart contracts can also be linked to significant events, triggering automatic claim settlements. Parametric insurance, which is event-based and involves minimal human intervention, can benefit from blockchain technology. This type of insurance can now become a standard in the industry, eliminating the need for human claim verification. As a result, customers can enjoy a smoother claims process, while insurance companies can reduce losses.
Reinsurance involves the transfer of risks between insurance companies, which helps mitigate risks, increase capacity, and distribute risks across multiple insurers. By utilizing Blockchain technology, it’s possible to simplify the reinsurance process and allow users to submit claims in a similar way to traditional insurance policies. However, the difference lies in the fact that the claims are recorded on an immutable ledger on the Blockchain, making it impossible to modify them once they are recorded.
- Peer-to-Peer Insurance:
Peer-to-peer (P2P) insurance is a unique insurance model where individuals can directly purchase insurance coverage from each other. This model takes care of various types of insurance, including auto, life, health, homeowner’s insurance, and more. Some companies are now leveraging Blockchain technology to improve their P2P insurance services. By utilizing Blockchain, both parties involved in the transaction can benefit from transparency and accountability throughout the entire process.
P2P insurance using Blockchain can make it easier for customers to compare quotes from different providers without worrying about hidden fees or surprises when purchasing or renewing policies through an agent or broker. Blockchain securely records transactions, which helps prevent fraudulent claims against either party. This is possible because all records are stored simultaneously on multiple computers worldwide.
Blockchain technology offers new ways to ameliorate the inefficiencies in insurance assiduity. It can help insurers by creating a more secure terrain, significant effective earnings, reducing costs, brisk payouts, fraud mitigation, and boosting trust. Blockchain in the insurance assiduity also provides real-time data that can be used in various ways similar as risk scoring, claims settlement, and much more.
Cigniti has end-to-end Blockchain solutions that guarantee business participation by insurance companies in the digital landscape. Cigniti’s extensive experience in Blockchain solutions (including testing) helps insurance companies gain a competitive advantage. Cigniti’s testing services portfolio and unparalleled track record have proved it a preferred technology partner for insurance clients.
Need help? Talk to our insurance domain experts to learn more about the opportunities that the blockchain solution brings to the insurance value chain.