Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible or intangible.
Blockchain continues to be a hot topic in the business world and news. Many people have heard of blockchain but may not be familiar with what it actually is.
What is blockchain? Blockchain technology represents an occasion for positive change and growth in the insurance industry. Many insurers remain oblivious to the opportunities that technologies such as the blockchain can open up for them, and those that are aware often have to cut through a lot of red tape for change to be implemented.
The insurance industry remains entrenched in traditionalism and bureaucracy. Beinsure Data indicates that nearly 90% of financial services firms worldwide, particularly traditional ones, fear FinTech challengers will erode their revenues.
Blockchain technology offers significant efficiency gains, cost savings, transparency, faster payouts, and fraud mitigation. It enables real-time, trusted, and traceable data sharing among various parties. This technology can also foster new insurance practices, enhancing product and market development.
Oleg Parashchak, CEO of Finance Media Holding, highlights the growing challenge of data authenticity and controls amid increasing regulatory data security requirements. Regulators often receive incorrect, incomplete, or outdated data from carriers, who share minimal information due to concerns over data security and privacy.
Blockchain addresses this by providing immediate, shared, and transparent information on an immutable ledger, accessible only by permissioned network members. This ensures data integrity and security.
The competitive insurance environment demands superior value and online experiences for both retail and corporate customers. Ethereum’s smart contracts and decentralized applications can automate insurance processes and create tamper-proof audit trails. The low cost of smart contracts makes insurance products more competitive, particularly in underinsured developing markets.
Blockchain technology will bring about significant efficiency gains, cost savings, transparency, faster payouts, and fraud mitigation while allowing for data to be shared in real-time between various parties in a trusted and traceable manner. Blockchains can also enable new insurance practices to build better products and markets, according to Beinsure Media research.
There are several ways that the blockchain can add value to insurance, allowing for the following services to become available, or more efficient:
- Smart contracts for insurance policies and faster claim processing;
- Payment verification—which will enable financial transactions such as claims collections or pay-outs to be faster, more accurate and auditable;
- Compliance—enabling insurers to reduce regulatory oversights and the associated costs.
Due to the transparent nature of blockchain in insurance, its application resolves many of the challenges arising from insurance policies; such as obtaining client consent or approval, and cooperation to collectively invest funds in shared resources and infrastructures. All information about a policy is recorded accurately and in real-time.
The emerging blockchain ecosystem itself will need insurance. Cyber insurance can serve as a template, with coverage extensions for financial loss (hot wallets and exchanges), specie and crime (cold wallets and vaults), professional liability (developers), and surety bonds (technology and software projects). Insurers can collaborate with tech companies like ConsenSys Diligence to assess risk and recommend loss control practices.
Despite these opportunities, many insurers remain unaware or hindered by bureaucratic obstacles. Insurers must explore blockchain’s potential to simplify and streamline operations to stay competitive.
Blockchain’s core benefit is building trust between parties sharing encrypted information. This information, recorded as blocks, cannot be erased or altered without changing all subsequent records, ensuring secure transactions. This feature is particularly valuable to the life insurance industry, ensuring information accuracy, security, and trust.
Looking at the market trends, the main challenge many insurance companies exploring blockchain technologies is the complexities required to make such a change.
The use of a smart contract in blockchain allows this type of payment contract to be completed without human interaction, as the information is secure and automated. With the automation of the contract, we can begin to see how this powerful technology can help large organizations.
Insurance companies can start by exploring blockchain within their organisations. Insurers can begin independently. For example, by running hackathons and building up a developer community to receive exposure to new technologies such as blockchain.
