Cutting Costs in Insurance with Blockchain
The insurance industry has been eyeing blockchain for a while already. Running claim processing on smart contracts opens amazing opportunities both for insurance companies and their customers. When an insurance company stores its data on a blockchain and uses smart contracts to handle claims and remittances, it can achieve a much higher efficiency and save time. Customers will also feel the difference, as they will not need to gather tons of papers to claim their compensations and wait for months until their claims are checked and double-checked.
However, there is one more aspect to be considered – costs. On a broader scale, blockchain can help to cut costs for enterprises in almost any industry as it is generally more cost-effective than the traditional infrastructures. In this post, we will analyze how the insurance sector may benefit from implementing blockchain and how it can cut costs by adopting this technology.
Benefits of blockchain for insurance companies
In this post, we intended to discuss the cost-saving opportunities that the blockchain technology offers to the insurance sector. However, blockchain’s cost-saving capabilities are sometimes not directly translated into lower bills. If blockchain allows the insurance business to reduce the amount of paperwork or manual labor, that’s cost-cutting, too. And blockchain can do that!
Shared customer base
While insurance companies are natural competitors on the market, they can truly profit from sharing a common database of customers. Whenever a new customer appears and is willing to purchase a policy, the insurance company is to do a thorough investigation of them. They usually do a complete Know-Your-Customer procedure to analyze the customer’s background and, especially, their previous insurance records.
With multiple insurance companies joining a single distributed database and contributing information on their clients, such investigations become easier and less time-consuming. The information in the blockchain is immediately updated among all the participating nodes, thus everyone has the latest copy. The immutability of distributed ledgers allows all participants to trust that the data is authentic.
Such method of keeping customer records, on the one hand, saves the costs of manual research for each new client and, on the other hand, prevents double claims by the same client.
Faster claim processing
Many insurance companies are already considering running claim processing on a smart contract. Smart contracts receive the information on the insurance policy terms from the company and, on the other hand, are fed the data from the corresponding services about the insured events.
A smart contract can be connected to the police database or the records of emergency services or health institutions. Whenever the event specified in the policy occurs, the corresponding action will be triggered automatically.
Replacing manual claim investigation with a smart contract can save a lot, both in terms of money and time. A piece of code handling simple cases can relieve insurance company workers for more complex tasks requiring manual intervention. At the same time, customers will not need to collect papers supporting their claim, as everything will be available from the distributed ledger.
Frauds are a true pain of insurance companies. According to the statistics, the total amount of money lost in insurance frauds in the US is as high as $80 billion per year. Of course, the insurance companies account for such losses when they adjust their policy prices and compensation amounts. Ultimately, both the companies and their clients suffer.
By moving claim investigation and processing to blockchain, the insurance sector can reduce the possibility of fraud considerably. Of course, it is the easiest to control fraud when the insured event is clearly verifiable, such as a flight delay. However, blockchain developers work closely together with insurance companies to enable the prevention of more complicated fraud cases.
For example, it is common practice to insure precious stones and jewelry. However, when the owners claim their insurance, it is very hard to establish whether the gem or the piece of jewelry is actually the “real” one. The history knows dozens of cases when precious stones were substituted with fakes.
A blockchain platform joining the manufacturers, sellers, buyers, and insurers of precious stones can become an answer to this problem. When each gem can be traced all the way from the mine to the current owner, it will be next to impossible to switch it and claim insurance.
There is, for example, a project in which IBM provides the blockchain development services – TrustChain. Other participants include producers and suppliers of diamonds and precious metals who are committed to ensuring transparency and traceability of their products. Such a platform can also help insurers to prevent fraudulent claims.
Of course, the fraud prevention possibilities of blockchain reach much farther than that. Property ownership, identity verification, insured work specifications – all those can be managed via blockchain, thus cutting the time and labor needed to verify that the insured event, indeed, took place.
As we said already, insurance companies include the costs they face due to frauds and intensive manual investigations in the cost of insurance premiums, that is, the cost of their policies. This is the normal way of doing business, but the logical consequence of it is that reducing the costs will lead to lowering the premiums.
With reduced premiums, the company may expect to have more clients, while the clients will obtain more attractive conditions from the beginning.
Better customer experience
Being able to claim remittance without the hassle of collecting papers from half a dozen different agencies and services will be a satisfactory experience for the customer. Insurance claims are, by nature, based on unpleasant experiences, thus exposing the customer to a rigmarole of proofs, verifications, confirmations, and rejections will boost their anxiety even higher. Some of them may think of switching insurance providers afterwards.
The blockchain can take over the lion’s share of verification and confirmation work, simply by storing the required data in a common database. The claim processing becomes easier and takes less time. When the customer gets their remittance shortly after the event, they feel satisfied with the service and may even recommend the company to their friends and relatives. Any business will benefit from good old viral marketing, and blockchain can definitely contribute to it.
Blockchain-based insurance – science fiction or reality?
All these benefits seem rather attractive, but do they have real-life potential or are we just fantasizing here? In fact, there are quite a number of projects where insurance companies work together with blockchain developers to improve their business processes.
One of such projects that is sure to come up whenever you Google “blockchain insurance” is Maersk and its Insurwave program. In developing this program, the Danish logistics heavyweight joined forces with such well-known names as EY, Guardtime, and Microsoft. Several global insurance companies participate in this program of marine hull insurance.
The insurance platform is built using the distributed ledger technology and the cloud infrastructure provided by Microsoft Azure. The Insurwave program is expected to include over 1,000 commercial vessels in the first year of its operation. Maersk believes that the blockchain-based insurance program will increase the efficiency and help to reduce costs.
Another startup worth following is B3i, a project designed to research the opportunities of DLT for the insurance sector. The list of companies supporting this project is impressive – Allianz, Generali, AXA and other reputed insurance companies. A program founded by globally known companies with histories dating more than a century back, especially, European companies famous for their conservatism, can be expected to bring some remarkable results.
According to the B3i founders, they are building their product to improve the insurance data management, raise the level of client service, create better customer experiences and, thus, make the insurance more affordable.
At the moment, the B3i product is at the prototype stage with live operation expected by the end of 2018.
As you can see, blockchain is advancing into the insurance sector gradually winning the trust of the major market players. Moreover, companies that used to be age-long competitors work together on promoting and improving the new technology. Obviously, they see that the implementation of blockchain can raise their services to a new level bringing more clients and creating opportunities for retaining the existing ones. At the same time, blockchain can help insurance companies cut costs, thus improving their efficiency and allowing to offer more attractive conditions.
How we can help
Our interest in this subject is not perfunctory. From our experience and research of the blockchain sector evolution, communication with blockchain experts from other companies and attendance of dedicated events, we see that the future of business is firmly tied to blockchain. Those who embrace it earlier are going to emerge winners. It is, literally, a “now or never” case.
We offer our expertise in building enterprise blockchain solutions to boost the growth of your insurance business and to ensure its maximum efficiency. The knowledge of multiple platforms for creating decentralized apps and practical experience of working with them allows us to select the solution that is best suited to your requirements. We will be happy to work with insurance companies to achieve a fundamentally different level of service and data protection. Contact us for a consultation on your project, and one of our experts will gladly work with you on bringing blockchain into your business.