Listen to the Article
In today’s competitive climate, insurers must remain competitive by providing excellent customer service and reducing the friction and pain points customers experience. Blockchain has long been heralded as the disruptive technology behind the fintech industry, and use cases for Insurtech have emerged.
The Insurtech industry is projected to reach $239.2 billion by 2033, and the companies that gain a competitive advantage by leveraging blockchain technology are likely to be the market leaders.
Blockchain technology is essential to tackling three massive issues: enhancing security, improving transparency, and creating a seamless claims process.
How Blockchain Enhances Transparency in Insurance
Claims Processing: Blockchain technology offers insurers the benefits of real-time verification, which solves one of the biggest customer pain points – slow claims processing. This is a global issue. Research shows that customers who are dissatisfied with poor claims experiences, represent $170 billion worth of policies over the next five years. Reducing the friction and improving the pace of claims payouts is crucial to sustaining business in the insurance industry and further building trust.
Fraud Prevention: Insurance fraud occurs in myriad ways across the various areas of coverage. From staged accidents to inflated values of household content, insurance fraud costs the industry approximately $308 billion annually. Using blockchain’s immutable ledger for recordkeeping ensures transparency as alterations or amendments would be detected. Blockchain provides a single source of truth that insurers can use to verify claims.
Customer Trust: Blockchain technology is uniquely placed to improve consumer trust within the insurance landscape. With a single source of truth comes greater transparency and convenient access to policy information. Using a blockchain ledger also enables policyholders to verify their policies and track claims in real time.
Improving Efficiency in Insurance Operations
Smart Contracts: Insurance is a contract-heavy industry, with paper trails required for signing up, making amendments, processing claims, and renewing policies. Any errors on either the customer or business side can significantly slow down processes. Smart contracts deployed off blockchain technology can improve efficiency by automating these processes. Using smart contracts reduces errors and increases operation speed.
Reduced Administrative Costs: By using blockchain technology to automate manual tasks, insurance companies can reduce their administrative burden. Reports indicate that by leveraging this technology, insurers can save up to 30% on admin costs. With the freed-up resources in time and money, companies can focus on solving pain points and improving customer satisfaction.
Streamlined Policy Management: Blockchain ensures that policy details are accurate and easily accessible. This streamlining simplifies policy management and improves customer service by allowing insurers to maintain up-to-date records that can be accessed quickly when needed.
Overcoming Adoption Challenges of Blockchain by the Insurance Industry
While Blockchain offers several notable benefits that improve customer experience and satisfaction, achieving a seamless integration can be challenging. From technological challenges to difficulties navigating the compliance landscape, insurers need to be mindful of the issues surrounding standardization and cooperation in the Insurtech industry.
Regulatory and Compliance Issues
There are a number of regulatory issues that must be addressed before deploying blockchain technology in insurance. Companies need to keep the following in mind:
Decentralization vs Jurisdiction
The decentralized nature of blockchain creates conflict with the jurisdictional constraints of insurance. Automotor insurance, for example, differs from state to state in the US. Insurers will need to ensure that they comply with all the various regulatory and legal frameworks in every area that they operate.
Insurers looking to leverage blockchain technology must confer closely with regulators to ensure compliance with all their products offered in various locations.
Industry-Wide Collaboration and Standards
Linked to the issue of compliance is the need to develop industry-wide standards supported by collaborative efforts. A common standard is required to manage the decentralized features, and the technology itself is best utilized when information is shared across multiple parties.
The ideal collaborators are not just other insurance companies and regulators but tech companies, customers, and middlemen (typically brokers and nearshore outsourcing agents).
The work that lies ahead is monumental, and includes the drafting and passing of a widely accepted standard agreement on the use of blockchain technology in the insurance industry. With various types of insurance products, differing regulatory frameworks, and several other interests to keep in mind, this is a complex task in the short term, and a major win in the long term.
Technological Barriers
One of the biggest barriers to implementing blockchain in the insurance industry is the integration of the technology into existing systems. Data accessibility isn’t just a privacy concern; there’s also a great deal of behind-the-scenes work that needs to be done to improve the interoperability of systems. The point of integrating blockchain technology is to streamline processes, but this requires interplay between various actors in the ecosystem: insurance companies, reinsurers, third-party service providers, regulators, and customers.
Blockchain integration is resource-intensive and insurance companies should be prepared to weigh the benefits of smart contracts and decentralized ledgers, against the cost and time to implement this technology.
Real-World Examples of Blockchain in Insurance
AXA’s Fizzy: Fizzy was a platform created by global insurance giant AXA. Using smart contracts deployed on the Ethereum blockchain, they offer customers policies against their flights. For £5, they can insure themselves against delays by purchasing the policy alongside the ticket. By using blockchain, the flight details are captured in real-time and a payout is made automatically if a flight is delayed by two hours or more. A £100 payout is issued to the policyholder without any claims being made or manual intervention.
Deloitte: The accounting firm has been working with insurance clients to create blockchain-integrated systems. Specifically, they’re exploring the way smart contracts can automate claims processing and enhance data security.
Additional Applications of Blockchain in Insurance
Peer-to-Peer Insurance: A new phenomenon in the insurance industry is peer-to-peer insurance which relies on direct transactions between consumers. Blockchain technology is key to establishing direct contact between the two parties and provides a transparent and secure process for the exchange of funds. The decentralized ledger is essential to establishing trust, and prevents fraud by creating an immutable record.
Risk Assessment and Loss Control: One of the biggest issues in insurance is the inability to accurately collect policyholder data, relevant to coverage. Blockchain technology is especially suited to enhancing risk assessment by collecting and collating comprehensive consumer data. With better data comes increased accuracy in premium calculations and improved risk management.
Know your customer/Anti-money laundering Processes: Know-your-customer and anti-money laundering processes are essential protocols that insurers must follow to verify customer identities. Blockchain enables process automation by providing a secure method for bank account verification. Blockchain’s decentralized ledger provides accessibility across multiple parties while maintaining data privacy and security.
Blockchain technology is revolutionizing the insurance sector by improving transparency and operational efficiency. It optimizes claims processing, minimizes fraud, and simplifies policy administration, making it a valuable asset for insurers. In an increasingly competitive market, leveraging blockchain can foster growth and strengthen trust with policyholders. As its adoption expands, the advantages—lower costs, enhanced customer experiences, and innovative business models—become increasingly apparent.
Conclusion
Blockchain technology is reshaping the insurance industry by enhancing transparency, security, and operational efficiency. By improving claims processing, preventing fraud, and automating administrative tasks, blockchain not only addresses longstanding challenges but also builds greater trust between insurers and policyholders.
While its integration presents significant regulatory, technological, and collaboration hurdles, the potential rewards are undeniable. As more companies adopt blockchain solutions, the industry will continue to evolve, offering faster, more reliable, and cost-effective services. Embracing blockchain in insurance is not just a competitive advantage—it’s a step toward a more secure and transparent future for both businesses and customers alike.
