Blockchain Insurance
Ivan Mikhaylov
Insurance is one of the industries affected by blockchain technology. Currently, insurance is a slow manual process prone to fraud and mistakes. Blockchain is set to maximise insurance efficiency and safety, thus improving user experience.
Chain 1: What is insurance?
Firstly, it is essential to understand the current insurance process to envision how blockchain will fit into this industry. Insurance is a way to protect yourself from a potential future accident, for example, your house burning down. Every month you pay premiums to the insurance company, and if your house suddenly burns down, the insurer will cover the cost of a new home. That money comes from a pool of premiums for all policyholders. However, since the chance of your house burning down is very unlikely, and many people are paying premiums, insurance companies make a significant profit.
Some measures prevent clients from faking their accidents to receive insurance money. Insurance companies hire investigators and install various data collectors in your house to monitor any suspicious activity and prevent accidents. This results in insurance companies having to process an enormous amount of data. This strains the company’s cloud servers and increases the processing time after the claim request.
Chain 2: How can blockchain improve insurance industry?
Blockchain can act as a saviour for this inefficient information-heavy industry. The main impact of blockchain on the insurance industry would be the introduction of ‘Smart Contracts. A ‘smart contract’ is a virtual contract between the insurer, the insured and any third parties involved, which is stored securely on the blockchain network. Smart contracts can be automatically enacted as soon as a claim is made. This would eliminate the need for humans to process the claim and payment data, leading to faster and more reliable service. This would be particularly useful in health insurance since if an accident happens, the quicker pay-out could be lifesaving when an expensive operation is needed. On the company side, a lower need for administrative and data processing labour would allow companies to lay off redundant employees and thus reduce wage costs. This extra money could be reinvested into R&D, leading to further blockchain integration, thus repeating the cycle.
Another advantage of blockchain is enhanced data security which is vital for an industry that is heavily reliant on trust. All the necessary information about the accident and any relevant information collected by data sensors will be uploaded to the blockchain. The proof of work algorithm will prevent anybody from tampering with the files. So, the insurance process will become more transparent, protecting companies and customers from fraud. Also, there will be an online audit trail of the claim process that can be used to confirm the validity of the transactions.
Blockchain would also be beneficial for reinsurance. Insurance companies could transfer all the necessary information about their customers to reinsurance firms. This would solve the information gap between insurance and reinsurance. This means that reinsurance companies would be more aware of their risk, reducing the price of premiums insurance companies must pay due to the lack of information.
To summarise, Blockchain insurance will be cheaper, more efficient, and more secure and provide a better overall customer experience. In addition, reinsurance will become more accessible.
Chain 3: What are the newest developments?
Most major insurance firms are aware of the blockchain revolution and recognise its potential benefits for the industry. In 2017 they launched ‘The institutes RiskBlock Alliance’ – a blockchain consortium (association of several companies). It comprises 30 members, including established insurance companies such as ‘Nationwide’. It aims to encourage cooperation in blockchain research. Already this blockchain is being used by companies to process insurance data and contracts.
