3 Ways Blockchain Will Transform Insurance Operations in 2024
Hey there! If you‘re in the insurance industry, you‘ve probably been hearing a lot about blockchain technology. And for good reason – blockchain has the potential to profoundly transform insurance operations.
In this post, we‘ll explore three key ways blockchain will shake things up in 2024 and beyond:
- Preventing fraud through shared ledgers
- Streamlining claims with smart contracts
- Enhancing data sharing for underwriting
But first, let‘s quickly recap what blockchain is and why it matters.
Blockchain is a distributed digital ledger that records transactions in a secure, transparent way across a decentralized network. It powers things like Bitcoin but has many other use cases.
Here are a few reasons why blockchain is such a big deal:
- It creates an immutable record – transactions can‘t be altered or deleted
- All users access a single version of the truth
- Consensus mechanisms verify and approve transactions
- Cryptography and permissions provide security
- Smart contracts automate processes and payouts
When applied to the insurance industry, blockchain offers some major benefits:
- Reduced fraud through shared claims data
- Faster claims and improved efficiency
- More pricing accuracy with enhanced data
- Increased transparency between parties
- Lower administrative costs
According to MarketsandMarkets, blockchain in insurance will grow from $64.5 million in 2018 to over $1.3 billion by 2023. No wonder insurance companies are racing to explore blockchain solutions!
Now let‘s see exactly how blockchain will transform insurance in 2024.
1. Preventing Fraud through Shared Ledgers
Insurance fraud is a massive problem – as much as 10% of all claims are fraudulent, amounting to over $40 billion lost each year!
One common fraud technique is double-dipping, where a policyholder files multiple claims from different insurers for the same loss. Ouch!
But blockchain‘s distributed ledger technology makes this kind of fraud pretty much impossible.
Here‘s how it works:
Every transaction and claim is recorded on multiple synchronized versions of the blockchain ledger spread across many computers.
This means all participating insurers have access to the same tamper-proof, shared record of claims activity.
If a duplicate claim is submitted, it will be instantly rejected since it already exists on the ledger. No shenanigans!
And it‘s not just useful for detecting double-dipping claims. A blockchain ledger also brings new transparency that deters other types of fraud too.
That‘s because every insurer has access to the same unambiguous view of claims data. There‘s no contradicting versions of reality. This visibility reduces opportunities for fraudulent activity across the board.
According to a Celent report, using blockchain could result in a 5-10% reduction in fraudulent claims for insurers – that‘s up to $4 billion in savings each year!
In 2016, the RiskBlock Alliance tested using blockchain for first notice of loss reporting and found it could help insurers detect duplicate claims as well as track multiple claims related to a single loss.
Participants included major insurers like Liberty Mutual and State Auto along with brokers like Marsh and Willis Towers Watson.
The pilot demonstrated how easily insurers can collaborate on a shared ledger to improve fraud detection while reducing investigation costs.
And fraud prevention is just one exciting benefit of blockchain for insurance…
2. Streamlining Claims Processing with Smart Contracts
When you file an insurance claim today, it often takes weeks or even months to get settled. Why does it take so long?
There are many parties involved like you, claims adjusters, appraisers, repair shops, investigators, and more. Information moves slowly while paperwork piles up.
Blockchain smart contracts help solve this by automating much of the claims process.
Smart contracts are programmable scripts that run automatically when predefined conditions are met. The terms of the insurance policy can be programmed directly into a smart contract.
Here‘s how it streamlines the claims process:
Let‘s say you suffer some storm damage to your home. You simply submit proof of damages along with your claim to the blockchain.
The smart contract can be set up to automatically verify that:
- Your policy is active
- The damage estimate exceeds your deductible
- An authorized home inspector has validated the damage
With this criteria met, the smart contract automatically releases the claim payment – no back and forth needed!
The blockchain also provides real-time sharing of relevant claims data like repair documents, damage assessments, police reports and more between you, the insurer, and other parties.
By reducing delays, friction, and manual paperwork, smart contracts can decrease claims processing times by 99% according to an IBM case study.
One example is AXA Insurance, which launched a flight insurance product called Fizzy. It uses smart contracts to instantly pay out claims to customers whose flights are delayed. No claims forms needed!
For health insurance claims, blockchain-based smart contracts could check for eligibility, verify services delivered, assess appropriateness and automatically approve all or part of a claim in minutes rather than weeks.
By optimizing claims handling, studies have estimated blockchain could:
- Reduce loss adjustment expenses by 30%
- Lower claims administration costs by 20%
- Improve claims cycle times by over 90%
Clearly, smart contracts have huge potential to save both time and money for insurers and customers.
3. Enhancing Data Sharing for Underwriting
Insurers rely on lots of data to assess risk levels and properly price policies. But today, critical data often resides in isolated silos.
This leads to poor underwriting decisions, inefficient processes, and inaccurate pricing.
Blockchain offers a secure way for insurers to share data and collaboratively build more complete risk profiles.
Here are just a few examples of how blockchain improves data sharing for underwriting:
In home insurance, connected IoT devices like smoke detectors, security cameras and appliances can feed real-time data about home conditions to the blockchain. This provides enhanced transparency into property risks.
In health insurance, clinical data like medical histories can be integrated from hospitals, labs, wearables and other sources to give a 360-degree view of a customer‘s health profile during underwriting.
In car insurance, insurers can access comprehensive driving data from telematics devices installed in vehicles. This enables usage-based insurance pricing based on actual driving risk profiles.
In life insurance, applicants already share access to medical records, pharmacy records, lab test results and other health data. Blockchain takes it further by allowing fluid data sharing with underwriters to reduce decision delays.
Standard data formats and encrypted data transmission enabled by blockchain facilitate smooth data exchange between insurers during underwriting. This eliminates friction while safeguarding privacy.
A 2019 McKinsey survey found that 67% of insurance executives believe blockchain could improve underwriting and pricing by boosting data sharing capabilities.
Enhanced data insight allows insurers to accurately match risk to premiums, offer more competitive pricing, and improve customer satisfaction.
It‘s a huge win-win for both insurers and policyholders!
Blockchain is Already Transforming Insurance
The insurance industry is quickly waking up to the disruptive potential of blockchain.
Here are examples of how leading insurance companies are already exploring blockchain initiatives:
- Allianz tested blockchain solutions across areas like payments, fraud detection, and catastrophe bonds.
- AIG partnered with IBM to pilot a smarter claims solution using blockchain for transparency and efficiency.
- Generali is working with blockchain accelerators to improve operations across underwriting, claims and reporting.
- Prudential incorporated an e-commerce blockchain platform from NUTS to enable frictionless transactions between insurers, producers, and customers.
- Metlife ran an insurance industry hackathon in Singapore where all 10 finalist teams presented blockchain solutions.
A survey by EY in 2020 revealed over 60% of insurance executives said their companies are already using blockchain technology in some form.
The most common applications were for automation of processes, detecting fraud, securing sensitive data and enabling real-time analytics.
It‘s clear that blockchain is moving past the hype and being put into production across the insurance industry.
The Future Looks Blockchain Bright
While we are already seeing benefits from blockchain today, adoption is still in the early stages.
Here are a few predictions for how blockchain will continue impacting insurance over the next 5 years:
- More industry consortiums will form as insurers collaborate on shared blockchain infrastructure to reduce costs and duplication.
- Real-time claims handling will become widespread as smart contracts automate approvals and payments for many common claims.
- Micropolicies based on real-time IoT data will enable usage-based coverage and dynamic pricing of risks.
- Data marketplaces will emerge where insurers can easily tap third party data from sensors, weather data, credit bureaus and more to enhance underwriting.
- Decentralized peer-to-peer insurance models will grow, leveraging blockchain for payments and collateral without traditional intermediaries.
- AI and machine learning combined with blockchain data will enable extremely accurate automated underwriting and claims assessments.
As legacy processes are reimagined and optimized, insurance companies will need to redefine their roles and business models.
The future promises exciting opportunities for both incumbents and disruptive startups embracing blockchain‘s potential.
Companies that lag behind in blockchain adoption will face major competitive threats. But insurers that leverage blockchain now have a chance to become true innovators.
The Bottom Line
Blockchain is ready to shake up insurance in some amazing ways:
- Preventing fraud through shared claims data
- Speeding up claims processing with smart contracts
- Enhancing underwriting data for more accurate pricing
These practical blockchain applications solve key pain points for both insurers and customers.
No wonder insurers like Allianz, AIG and Prudential are already investing in real-world blockchain solutions!
As the technology keeps advancing, blockchain will bring even more transformative improvements to insurance in efficiency, security and transparency. Exciting times are ahead!
So what do you think? How will blockchain impact the insurance industry over the next few years? I‘d love to hear your perspectives.
