Blockchain technology has the potential to revolutionize the way the insurance industry operates. While this distributed ledger technology has somewhat begun making waves in the banking sector with its ability to create reliability and reduce frauds, the unexplored domain is how this technology can transform the way the insurance industry works.
The insurance industry is all about managing massive financial risks and it’s driven by myriad transactions on a day-to-day basis. This makes the industry vulnerable to intrusions and cyber attacks that have the potential to disrupt business. This industry also has a complex business ecosystem comprising composite contracts with multiple stakeholders that calls for a massive processing potential.
Just like other industries, the insurance industry is also slow on the uptake of new technology, and Blockchain is no exception. While most insurers are actively evaluating this technology, they are also factoring in their existing processes, and trying to figure out the challenges they face in bringing in the transition.
Indicative Areas for Blockchain Play
However, Blockchain has the potential to optimize a whole range of processes that will increase the industry’s basic value proposition, namely, trust. There are a number of areas in the insurance sector where Blockchain technology can be applied to mitigate existing challenges. These include-
High Volume of digital transactions involving third parties: Blockchain will provide greater transparency into these transactions, significantly reducing the risks.
Identity Thefts and Frauds: The technology makes it difficult for intruders and cyber criminals to hack into the insurer’s data and steal information assets.
Delays in claims processing due to unreliable processes: Blockchain has the potential to help insurers refine processes, and reduce delays in claims processing while optimizing costs.
Managing Multi-party insurance (TPAs, Reinsurers etc.): The process becomes simpler, safer, and cost-effective.
However, the ideal application opportunity for Blockchain is when all insurers, and their associates are part of a consortium. Blockchain can potentially provide enormous benefits to all the stakeholders in the consortium, including the insured. It can address the basic challenge of managing and tracking distributed digital transactions of the problem scenario.
Limitations in Deploying Blockchain
Blockchain technology can be implemented under certain conditions only. There should be multiple stakeholders involved with the same goal, trust level, and the data on which the results are based should be accurate and unchangeable over time. Blockchain can have limitations in terms of:
Scalability due to continuously growing data that needs ongoing replications and validations.
Security as businesses are exposed to an evolving threat landscape, where there are newer threats that are emerging, but are not fully understood or mitigated.
Standardization as Blockchain is a new area where both technology providers and adopters are still experimenting.
The Road is Not All Bumpy Ahead
Despite its current limitations, Blockchain technology has the potential to significantly transform the insurance sector. We expect to see peer-to-peer (P2P) insurance, with Blockchain creating a potentially autonomous and self-regulated business model. This will ensure that there will be no single controlling authority, and a high level of transparency is present. We also believe more and more large insurance players; particularly re-insurers and consortiums will invest in Blockchain, especially for transactions and claims. In scenarios like this, smart contracts and digital assets will become a reality.
In closing, we recommend that insurers review existing collaborations and consortiums, and identify some of the critical challenges. This will allow them evaluate if Blockchain can help them in their collaborative environments.