Blockchain in Action: Taming the Insurance Business
Welcome to the sixth article in PYMNTS ‘Blockchain in Action series.
Most people at least know that blockchain is the technology on which Bitcoin and other cryptocurrencies are built, but a digital ledger that stamps and orders transactions in an easily traceable and unchangeable way has many more uses.
See also: Crypto Basics Series: What is a blockchain and how does it work?
In this Blockchain in Action Series article, we will look at how distributed ledger technology can make the massive, multi-headed insurance business faster, smarter and more accurate.
Blockchain in action: How to track everything in real time
Blockchain in action: Combined with IoT, Blockchain can fight COVID
Blockchain in action: Create a private, hackable and reliable digital identity
Blockchain in action: TradeLens connects shipping, customs, trade financing
Blockchain in action: Blockchains in healthcare and pharmaceutical products are a matter of life and death
While the combination of legal complexity and the caution of a highly traditional industry has led insurance companies to slowly use blockchain technology, companies in the field have seen the potential benefits for a long time.
Over the last two years, these projects have begun to emerge from the pilot stage.
In January last year, the car insurance departments of State Farm and USAA launched a blockchain-based claims settlement project to automate what they called “the time-consuming and paper-heavy processing of subrogation claims” – which means the process of an insurer paying the customer’s claims. insurance claims and then seek reimbursement from the injured driver’s insurance company.
The two companies handle around 75,000 subrogation claims each year, State Farm said in a statement at the time.
“Payment of claims from operator to operator will be almost completely automated in the future, saving time and money,” said Sean Burgess, USAA’s head of claims. “Using blockchain technology helps us improve and automate a manual process in a secure way and ultimately get money back to our members and customers faster.”
Speed is just one of the benefits, and probably not the greatest. Blockchain-based self-performing smart contracts that can pay claims between two insurance companies as soon as liability is determined and agreed upon for a shared, unchangeable – unchangeable – record can also drastically reduce the occurrence of inaccuracies, improve mail control and reconciliation, detect fraud, and use automation for to ease the burden of checking and proving compliance with the regulations.
Look here: Blockchain in action: How to track everything in real time
Many of these problems are an inevitable by-product of the dizzying complexity of the industry, which makes mistakes, disagreements and delays a constant source of problems and a dizzying financial burden.
The ability of the blockchain to provide a reliable source of information that can be checked, updated and shared in real time on a blockchain makes insurance a major recipient of the technology.
Mature for change
“Although blockchain technology has been exposed to waves of extreme hype … its true killer applications are likely to be in some of the most obsolete fields out there,” research firm CB Insights wrote in an August 2021 research letter, “How Blockchain Disrupting Insurance.”
The key to this is twofold. First, once entered on a blockchain, information cannot be changed or deleted. Second, self-executing smart contracts that pay claims and complete other transactions take a lot of processing intermediaries, making the process faster and cheaper.
See more: DeFi series: What is a smart contract?
“Guidelines are often dealt with on paper contracts, which means that claims and payments are subject to errors and often require human supervision,” said CB Insights. This is the inherent complexity of insurance, which involves consumers, brokers, insurance companies and reinsurers, as well as the insurance’s main product – risk. settlement times are extended. “
Among the areas in the insurance industry that are ripe for automation and disintermediation are:
Fraud detection and risk prevention. Claiming an immutable ledger can help reduce a major source of fraud, which thrives on the complexity and confidentiality of insurance, and which is estimated to cost more than $ 40 billion annually.
Non-life insurance. A shared ledger and smart contract policies “can provide a greater efficiency improvement to property and non-life insurance”, including processing claims three to five times faster. Smart contract automation alone can save $ 200 billion annually in an insurance sector that provided $ 1.6 trillion in premiums, according to McKinsey.
Reinsurance. Smart contracts can simplify and speed up the flow of information and payments between insurance companies and reinsurers in an “extremely complex and notoriously inefficient” process that often includes multiple reinsurers for each contract.
Health insurance. Medical records can be protected with cryptography and shared between healthcare providers, which improves patient outcomes without risking loss or exposure of patient data. Among other things, blockchain can limit the sharing of specific data to specific groups. And the lack of data is causing insurance denials that cost hospitals more than $ 260 billion annually, CB Insights said.
Look here: Blockchain in action: Blockchains in healthcare and pharmaceutical products are a matter of life and death
A milestone for Re
On April 6, one of the world’s largest insurance companies, Allianz, announced what it says is the world’s first legally binding reinsurance contract on the Blockchain Insurance Industry Initiative’s reinsurance network.
The location of the catastrophe excess-of-loss (CatXoL) reinsurance policy with reinsurer Swiss Re is the culmination of a project that started in 2016 as an experimental blockchain project between a few insurance companies and grew into a company, B3i, owned by 21 insurance and reinsurance companies on five continents. . Other members include Axa and Zurich Insurance – which, like Allianz, are the top 10 insurance companies – as well as Munich Re, Liberty Mutual and China Pacific.
Reinsurance is about insuring insurance companies against huge losses – such as Hurricane Katrina, which caused $ 170 billion in damage when it hit New Orleans in 2005 – that no single company could absorb.
Jan Stoermann, CEO of Allianz Re, called the policy “a step into the future of Allianz,” said: “We will explore how we can further integrate B3i’s platform into our transaction processes such as accounting and claims handling.”
And while the B3i Re network – one of five product lines – is built on distributed-ledger (DLT) technology, which is the foundation of the blockchain, it is a milestone in the technology’s movement into the regular business world.
It is, like the global shipping industry’s TradeLens platform, an enterprise blockchain, which means that unlike public blockchains, including Bitcoin and Ethereum, it requires permission to join.
Aside from meeting a bunch of legal, regulatory and security requirements, “participants can also recreate the contract directly from their counterparties’ nodes, confident in the knowledge that it cannot be changed, building the necessary resilience into their business systems,” B3i said in a release.
Accuracy in action
Another is the blockchain’s ability to obtain accurate data using oracles that provide data from a mutually acceptable reliable source that smart contracts can rely on to perform.
Chainlink, the leading provider of oracle data – widely used in decentralized finance or DeFi projects – recently provided the example of weather data from the AccuWeather feed that was used to get crop insurance to pay out to farmers if the temperature drops below a set level such as would cause damage to the crop.
Read more: Smart contracts become expert with AccuWeather on the blockchain
The biggest benefit of this use of blockchain technology in the insurance industry is improved transparency, Chainlink said in December, claiming it can “level the playing field for all stakeholders.”
NEW PYMNTS DATA: HOW TOOLS AND CONSUMER FINANCING COMPANIES CAN IMPROVE THE BILL PAYING EXPERIENCE
About: More than half of energy and consumer finance companies have the ability to process all monthly bill payments digitally. The kicker? Only 12% of them do. Digital Payments Edge, a PYMNTS and ACI Worldwide collaboration, examined 207 billing and debt collection experts at these companies to find out why it is still elusive to go completely digital.