Potential Uses of Blockchain Technology in the Insurance Industry
For the most part, blockchain technology is still in its experimental stages. The most widely known use of blockchain technology outside the insurance industry is with Bitcoin and other cryptocurrencies. But, there are also a host of potential uses in the insurance industry. In Part One, we explained blockchain technology and its benefits. This article will identify potential uses of blockchain in the insurance industry.
1. The “Smart Contract” and Claims Processing
Through the use of “smart contracts,” blockchain can assist insurers in managing claims in a transparent, responsive and irrefutable manner. It can also help reduce fraud by ensuring that only valid claims are paid and by eliminating suspicious and duplicate transactions. A smart contract is an automated contract. The contract is converted into computer code and stored in the blockchain network. The code defines the conditions to which all parties using the contract agrees, and if the required conditions are met certain actions are executed.
For example, one insurance company has launched an insurance product that automates the payment of late flight compensation for air passengers. The insurance premium and agreements are detailed on a smart contract and the flight is tracked in real time through global air traffic databases. Compensation is automatically paid into the customer’s bank account if the flight arrives more than two hours late. There is no need for the customer to make a claim to the insurer.
2. Blockchain and Underwriting
While still mostly in the research and development stage, Blockchain technology has the potential to make underwriting and risk assessment more efficient and accurate, and in return may reduce the cost of operations, and may even allow for the development of new products.
Because the data in the blockchain is from a verified, trusted source, underwriters can use blockchain technology to compile data from external sources to automate some aspects of underwriting. Further, by enabling shared visibility, blockchain technology also affords transparency and can build trust in the underwriting process.
3. Client On-Boarding and Regulatory Reporting
To comply with “know your customer” requirements, insurers need to collect, verify, and validate certain documents. Delays and errors can lead insurers to spend vast resources reconciling records. However, these delays and errors can be reduced with a blockchain platform that can communicate to other blockchain platforms to verify the identity of the user.
Blockchain technology could also contribute improvements in connection with regulatory reporting requirements. For example, there is one blockchain prototype for regulatory transaction reporting in which counterparties of the transaction will seal and report their deal using a smart contract, whose terms include all the aspects needed for transaction reporting. Regulators would be able to monitor and control the transaction data and their daily updates, which would be stored in the blockchain.
4. Proof of Insurance
One blockchain product expected to launch this year provides insureds with real-time verification that insurance coverage is accurate and allows for the verification of proof of insurance without relying on paper forms
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While there are a multitude of potential uses for blockchain technology in the insurance industry, blockchain technology can only reach its full potential in the industry if implemented in a consistent and compatible way. In the next installation of this blog series, we will discuss what is being done to develop and implement other uses of the technology across the insurance industry.