Blockchain technology in insurance has the potential to bring a solution to issues like insurance fraud, data security, and transparency. By using this innovative insurance industry technology, those in the field can leverage data sharing while maintaining security. With innovative tools such as AI accelerating claims processing tech, today’s insurers can gain traction by being proactive when it comes to using new technology.
Unpacking the Potential of Blockchain in Insurance
Using blockchain technology in the insurance industry may help root out fraud. Since fraud is one of the greatest concerns of the industry and the cause of tremendous loss, blockchain has the potential to be a cost saver for insurers.
Committing fraud with blockchain in place is nearly impossible due to the nature of this technology. One block of information is linked to the next block, forming a chain that is touted as impenetrable.
The Basic Concept of Blockchain Technology
Blockchain technology in simple terms is like a digital notebook or ledger that keeps track of all transactions involved in a claim. Because of its structure, immutability, and decentralized nature, it is highly secure.
Every transaction is verified and organized chronologically, creating a chain of processes. Each record is just one piece of the entire claim, but it is connected to the other pieces of data. So, if someone attempts fraud on one transaction of a claim, it is blocked due to the dependent nature of the entire chain. The attempt would be an intense undertaking and would set off red flags for blockchain monitors.
Blockchain’s Role in Transforming Insurance Claims
With blockchain’s ability to streamline much of the insurance operations and reduce fraud, it is fast becoming a top trend in the insurance industry. Some of the main ways that this technology is transforming the industry is as follows:
- Claims Processing
- Reinsurance
- Parametric Insurance
Key Advantages of Integrating Blockchain into Insurance
As you probably guessed, this technology offers several benefits. Some of these are:
- Transparency and Security: Data on the blockchain is visible to all permitted parties, ensuring both visibility and data integrity.
- Reduced Fraud: Reducing fraud saves insurance companies significant amounts of money, and these savings get passed down to the insurer.
- Greater Efficiency: Streamlining the claims process provides greater efficiency.
- Cost Savings: Less waste and fraud equals cost savings.
Enhanced Transparency and Trust among Stakeholders
With more transparency comes greater trust among stakeholders. Due to all the transactions being stored as a decentralized unit across several networks, stakeholders are assured of transparent information at any stage in the claims process. Fraud prevention is another aspect of earning stakeholders’ trust. With insurers and policyholders trusting the integrity of the system and process, payouts can occur quicker and more seamlessly.
Transparency is a critical building block for everyone involved. Blockchain and insurance fosters greater openness and accountability, earning the customer trust that is vital for success in the industry. Customers can easily view unalterable records, creating peace of mind.
Significant Reduction in Fraudulent Activity
Fraudulent activities in any business is a great concern. The insurance industry is no stranger to individuals attempting to file false claims or duplicate submissions. These types of activities end up costing billions annually. However, insurance blockchain technology can impede fraudulent activity. The main ways it does this are as follows.
Immutable Records
Blockchain consists of an electronic ledger that is permanent, making it highly unlikely that anyone can tamper with the claim’s transaction records. If someone attempts to do that, it is more obvious and easier to detect.
Identity Verification
Insurer identities are securely linked to a blockchain, allowing them to provide the necessary verification easily and more accurately. Insurers can rest easy knowing that the secure identity verification reduces the risk of identity fraud.
Data Sharing Across Stakeholders
Since all stakeholders are able to view the records and everyone sees the same information, blockchain enhances and leverages openness and the truth about all claims in the system. People are hindered from double-dipping claims.
Auditable Transactions
With blockchain technology, records receive an unalterable timestamp, making it simple to audit. People have greater accountability.
Boosting Efficiency with Smart Contracts
Smart contracts operate on a blockchain network and work automatically. These self-executing contracts are set up to occur automatically once terms are met. The terms, or conditions, are written into blockchain technology and remove the need for intermediaries.
Cost Savings from Eliminated Intermediaries and Overhead
Cost savings is a key feature of blockchain due to the elimination of intermediaries. When intermediaries are removed from the entire process, everyone pays less, including the insurer. The savings come from the following areas:
Third-Party Intermediaries
Third-party intermediaries are often used in traditional insurance. This includes people like brokers, agents, and third-party administrators who earn commissions or fees. You can think of intermediaries as the “middleman.”
Blockchain allows direct transactions or smart contracts, reducing or eliminating intermediary costs.
Administrative Costs
With automation at the forefront of blockchain, manual tasks are eliminated, saving time and money. Claims processing is completed without human intervention, cutting administrative expenses. There is also savings in the reduction of duplicate work, such as customer data verification, claim history analysis, and risk assessment.
Compliance and Regulatory Costs
Expect to also see a reduction in compliance and regulatory fees. These costs can be enormous since regulations can often be complex, requiring time and money to decode their meaning and to stay compliant.
Reinsurance
The reinsurance process involves substantial administrative coordination. With blockchain in place, reinsurance can occur effortlessly since data is shared easily between insurers and reinsurers, reducing operational costs.
Overcoming Challenges to Adoption of Blockchain Tech
As with any technology, there will be hurdles to overcome.
Technical and Regulatory Hurdles on the Road to Implementation
Some of the hurdles that must be overcome are staying aligned with regulatory laws. Blockchain can be a real game changer for the industry. However, it will need to have some oversight to ensure that regulatory compliance aligns with this innovative technology. Without legislation in place to provide clear guidelines for it, there could be potential clashes between compliance bodies and insurers.
Balancing Innovation with Security and Privacy Concerns
Innovation must always be balanced with any security issues. Privacy concerns are always top of mind with any industry. It will be critical for blockchain to have permission settings that allow for controlled access. A framework needs to be in place that allows policyholders to have appropriate access to modify data. Monitoring and auditing blockchain will be necessary to assess and detect possible security breaches.
Smart contracts need to be secured by regular audits to avoid exploitation and data breaches. Verification methods must be able to prove the contract is accurate to prevent errors.
Stay Ahead of Industry Trends – Discover How Confie is Leading the Future of Insurance
The blockchain insurance industry promises to deliver great results in claims processing and fraud prevention. Confie is on top of the many new technological innovations in insurance. Join one of the largest and most respected personal lines distributors in the United States. We’re here to provide leadership and guidance to our insurance partners. Find out more information by contacting Confie directly. You can contact us online or by calling (714) 252‑2500.
