Blockchain in insurance

Three areas in the insurance industry to use blockchain

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You buy insurance — auto, health, life — because you want to be sure you and your family will be OK if anything unexpected happens. But as time drags on while you wait for a claim to be processed, you start to wonder if the benefits are worth the hassle and higher premiums. These negative mindsets, along with scandals and crises, have led to stilted growth rates and declining customer satisfaction in an industry mired in inefficiencies from fragmented IT systems that lack interoperability. Fraud also remains an ever-present source of concern and expense. As insurance companies explore diverse solutions, blockchain has emerged as a way to bring about transformation in several areas, including client onboarding, underwriting, and claims processing.

Client onboarding

To satisfy compliance requirements such as KYC (know your customer), insurance providers must collect, validate and verify key documents to prove characteristics such as name, address, birth, health and economic status. Time delays are common as various third parties and internal departments must review the data to complete their due diligence processes. Then, companies spend vast resources fixing any errors that occurred while records were being reconciled.

A blockchain network is distributed, so the necessary documentation can be made available to whoever has permissioned access. The records are secured with cryptography and linked together, which prevents them from being altered retroactively. These characteristics facilitate the secure sharing of information across an organization and to appropriate third parties. Plus, if customer identities are already secured with blockchain, insurers can efficiently verify their eligibility without needing to go to multiple sources.

How insurance could benefit with IBM Blockchain

Underwriting

Through the underwriting process, insurers evaluate the risk of furnishing a client with a policy, how much coverage the client should receive and how much they should pay for it. Insurance might be a gamble, but no insurance company will play the game without thoroughly looking at the data and making sure the odds are favorable. Sometimes, it can take months to a year to evaluate the risk versus reward for larger corporate policies.

On blockchain, external data can be included to decrease risk liability and provide semi-automatic pricing. This can help to automate and shorten the underwriting process, reducing the cost of operations. Blockchains also bring transparency and improve trust in the underwriting process by enabling shared visibility in complex multinational programs. Last year, AIG, Standard Chartered and IBM successfully piloted the first multinational insurance policy to use blockchain and smart contracts to allow visibility into underwriting coverage and premiums at the local and master level.

Claims processing

For a policy holder, making a claim can be a long and confusing process. And then you have to wait as hundreds of insurers and reinsurers figure out where contracts are, which are correct, who already paid what, and which ledger has the right accounting. It’s a process that can take quite a while, even if you don’t factor in the extra time needed to adhere to tighter regulations for combating fraudulent claims.

You already know how a distributed blockchain network makes it easier for all those insurers to access the same information, reducing administrative duties associated with claims. What if you could also use blockchain to get information about insured goods and events? Everledger is making that possible by putting diamonds on a blockchain network. Each diamond’s characteristics are registered onto the blockchain and there’s a record of every time it is transferred, going back to its origin. Provenance, or knowing where something came from, can be very helpful in discerning counterfeit items. With less risk of fraud, claims can be handled in a timelier manner.

Transforming the insurance industry

The promise of blockchain lies in its capacity to eliminate outdated systems that are the root cause of inefficiencies in various industries. In the insurance sector, blockchain makes it easier to share information, providing greater line-of-sight to data and security through records that cannot be altered when written. Labor-intensive, repetitive and error-prone client onboarding, underwriting and claims settlement processes will be transformed through the use of a unified platform to store and share all documentation.

Now that you know some specific ways to use blockchain for insurance, take the next step and explore using it in your business.

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Executive Architect - Financial Services Sector, IBM Global Markets

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