As blockchain technology transforms the insurance industry radically, helping it become more secure and streamlined, blockchain insurance will continue to provide many benefits for insurers in 2023.
From reduced costs to improved customer experience, the impact of blockchain on the insurance industry is impeccable. This a perfect opportunity for insurers to tap into the potential that blockchain technology provides; insurers looking forward to acquiring a competitive edge in the coming years and staying ahead of the competition can consider blockchain for insurance.
In this article, we will provide a detailed discussion of the benefits and limitations that blockchain can have on the insurance industry to help you have clarity on the subject. Read on to find out!
Benefits of implementing blockchain technology for the insurance industry
1. Fraud detection and blocking false claims
The insurance industry is highly susceptible to fraud, and even when insurers implement advanced security measures, fraudsters always find a way to hack into the system.
With the help of a blockchain database, insurers can largely determine factual and duplicate claims, reducing fraudulent activities. Using blockchain for insurance, time-stamped transactions will undergo complete trials, mitigating the chances for fraudsters to commit fraudulent transactions.
Moreover, online term plans are susceptible to fraud, as anyone can claim coverage by filing a fake term plan. However, with blockchain technology incorporated into the system, the database can identify bogus claims, and insurers can reject approval in real time.
2. Improved customer experience
With the rising competition, keeping up with the customer demands and retention rate is challenging for insurers these days! Especially with agencies offering instant coverage, the woes are ever-increasing for most insurers.
However, meeting customer demands is essential to continue business and to keep a profit margin. By incorporating blockchain technology, automated processing can be done with smart contracts. This method creates business agreements within the blockchain database, and claims are approved only when certain conditions are met. Safer and faster, this can offer client satisfaction while keeping fraudulent activities at bay for insurers.
3. Increases trustworthiness
As blockchain insurance technology works on a shared claims ledger approach, where regulators can monitor the necessary variables and approve claims with automated processing, the system's efficiency fosters client trust. Earlier, insurance companies used to take days to investigate the authenticity of a claim, and the waiting period consequently gave rise to doubts and trust issues in the client’s mind.
With a shared claims ledger, automation and audits can happen seamlessly, and the speediness of the process enhances the customer’s trust. They are less likely to look elsewhere during renewal and stay longer with a provider that nurtures a bond of trust.
4. Streamlines data collection
Blockchain technology can store and process a vast data load by IoT (Internet of Things) and AI(Artificial Intelligence). While the IoT collects essential data, AI can help insurers with insights to improve premiums and business performance.
Insurance companies thrive on data; therefore, insurers need to establish a mechanism that helps them process this data and offer insights that streamline the entire operation. With IoT technology, insurers can monitor a vehicle and qualify insureds to offer safe driver discounts and acquire details on driver habits and vehicle details to improvise premiums.
Blockchain technology has many prospects, and insurers can benefit mainly from it.
5. Secure data storage options
With the help of blockchain technology, insurers can ensure secure data storage in the blockchain database and easy retrieval. This technology allows the policy documents to be safely stored in multiple ledgers and immediately accessed for amendment or evaluation. The data is never lost; it can only be altered or removed from the database with client permission.
Therefore, with blockchain's help, insurers can securely store information such as claims history, premium payment history, rewards, etc. The system can also capture customer behavior and trends with AI and use the data to serve the customer better.
6. Improved product quality
One of the best parts about implementing blockchain for insurance is that insurers can make the most of their existing database and improve their products. For instance, with the help of IoT and AI, auto insurance companies can understand driving patterns, safety features, and speed and acquire more insights to improve their existing products and serve better.
Insurance companies have access to chunks of data that carries the considerable potential for the insurance business. By using this data through blockchain technology, insurers can scale their operations and deliver quality products that exceed customer expectations.
Now that we have understood blockchain technology's significant benefits, let’s explore some of the use cases for better understanding.
Popular use cases of blockchain in the insurance industry
1. Smart contracts
One of the top use cases of blockchain for insurance is smart contracts. They are eliminating the need for human intervention. Smart contracts are executed through blockchain automation, ensuring the terms and conditions are met.
Here, the terms between the insurer and policyholder are written in codes and recorded on the blockchain database, ensuring the highest level of transparency.
Reinsurance is conducted by insurance companies that offer coverage to insurers. With a shared ledger, reinsurance companies can stay updated with the claim details and updated premiums and operate seamlessly. They can automate claims processing and settlement, avoiding hours of manual work.
3. On-demand insurance
With a blockchain system, insurers can keep track of policyholders with thorough record-keeping facilities. This removes the burden on insurers to keep track of customer tenure and payment records individually and eases the entire process. The system can efficiently store customer data, premium details, and claims, enabling the insurer to keep track of the payments and leverage blockchain technology.
4. Health Insurance
With blockchain technology, accurate medical records can be shared with insurers, and policyholders can expect faster claims processing. The data is stored in an encrypted form; alterations would be impossible without an audit trail. This reduces fraud activities and speeds up the claims process.
5. Life insurance
The blockchain network involves participants such as funeral homes, the health and beneficiary department, hospitals, and insurers. Hence, data integrated into the system of a policyholder’s death by a funeral home would immediately notify the insurer as well, and they will be able to speed up the processing of the claim amount.
While blockchain technology can benefit the insurance industry, the crypto sphere is controversial and has limitations. Let’s look at these.
Limitations of blockchain use in insurance
Many of the population is still in the dark about how cryptocurrency works and its benefits. In such circumstances, while insurers may comprehend the benefits and incorporate them into their system, it is equally essential for policyholders to understand the processes and benefits of blockchain to proceed with an insurance provider that uses blockchain technology.
2. New technology
Blockchain technology is still budding, thus, insurers must find ways to manage issues such as transaction speed, data limits, and so on to work efficiently on blockchain technology.
3. Adaptive issues
The insurance industry is tangible and dynamic. The nature of premiums and coverage plans keeps changing with the market trends. As the landscape is dynamic, blockchain technology faces challenges with such extensive adoption scales.
While blockchain can be cost-saving for insurance, and insurers can expect high ROI with a blockchain investment, the initial cost is pretty high. This can deter insurers and keep them from investing in blockchain technology.
Incorporate blockchain into your operations for improved performance!
With cryptocurrency being adopted widely across industries, the insurance industry is also coming together to implement blockchain solutions and become scalable in this vying market. While this is not a one-solution-fits-all technology, it has many benefits that can remarkably help the insurance industry improve productivity, reduce costs, and deliver better.
However, policyholders and insurers must understand how blockchain technology works from scratch to make the most of this data-encrypted invention.
Before we conclude, it should be noted that this article does not intend to be a financial advisory guide and is merely informative. Financial institutions and policyholders must ensure they understand the comprehensive benefits of blockchain insurance and proceed with the same with confidence.