While technology has changed industries over the past decade, in many ways, the multi-trillion-dollar global insurance industry is still stuck in the past.
Despite the arrival of online brokers, many consumers still call insurance brokers by phone to purchase new policies. Policies are usually processed on paper contracts, which means claims and payments are error-prone and often require human supervision. Compounding this is the intrinsic complexity of insurance, which involves consumers, brokers, insurers, and reinsurers, as well as insurance’s main product — risk.
Each step in this mutual process represents a potential point of failure in the overall system, where information can be lost, policies misinterpreted, and settlement times lengthened.
Welcome blockchain technology, a cryptographically secured form of shared record-keeping.
While blockchain technology has been subject to extreme hype, its true killer applications are likely to be in some of the most antiquated fields out there. And it has the ability to be a transformative force for industries like insurance, which require the coordination and cooperation of many different intermediaries with different incentives.
Of course, getting there will be no mean achievement. Insurance companies and startups performing with blockchain technology will have to overcome significant regulatory and legal hurdles before we see anything resembling industry-wide disruption. Skeptics point out that there are serious obstacles to blockchain technology in an industry that hasn’t even fully embraced the cloud.
It’s too early to say whether blockchain technology can overcome the legal and regulatory hurdles to become the default standard across the insurance industry. But the possibilities are limitless, and insurance companies and startups just like us are exploring insurance applications for the technology at full throttle.
These applications include:
- Fraud detection and Risk prevention: By transferring insurance claims onto an immutable ledger, blockchain technology can help eliminate common sources of fraud in the insurance industry.
- Property and Casualty (P&C) insurance: A shared ledger and insurance policies executed through smart contracts can bring an order of magnitude improvement in efficiency to property and casualty insurance.
- Health insurance: Thru the use of blockchain technology, medical records can be cryptographically secured and shared between health providers, increasing interoperability in the health insurance ecosystem.
- Reinsurance: By strengthening reinsurance contracts on the blockchain through smart contracts, blockchain technology can simplify the flow of information and payments between insurers and reinsurers.
But despite this overwhelming interest in blockchain technology, there’s a lot of ground to cover before it can make a significant impact on the insurance industry.
From an industry perspective, insurance companies need to adjust around standards and processes within blockchain technology. While blockchain technology can give insurers with better tools for collaborating and sharing data, the insurers themselves must be willing to work with each other.
The technology itself must also be developed further. Public blockchains, where everyone has access to each transaction on the ledger, are unfeasible for the insurance industry due to privacy and security concerns. Private, permissioned blockchains are still under active development.
Lastly, the insurance industry is highly regulated to protect consumers from abuse and insurance companies from taking on too much risk and going bankrupt. Legal and regulatory frameworks for insurance need to evolve and provide clear guidance for blockchain technology to succeed.
