Blockchain insurance is based on the same principle as traditional insurance, which is to protect people from financial losses due to unforeseen events.
Most people do not completely trust their insurers in the traditional financial system due to factors such as incapability to honor policy, fraudulent activity, lack of professionalism, and so on. With all of the aforementioned factors, people lack confidence in insurance companies. But do you know what blockchain is here to crack? “The Trust Issue.”
Blockchain technology is a secure network that can be used in the insurance industry to improve its effectiveness, increase customer trust, and optimize risk assessments.
In this article, we will look at how blockchain is used in insurance and the benefits it provides.
A Glimpse at Blockchain
Blockchain Technology is a decentralized, distributed public ledger that maintains a record of all transactions. Blockchain as a peer-to-peer network works on its own without the management or approval of any central authority. Information is reserved electronically on the network and cannot be edited or deleted by anyone.
When information or any data needs to be recorded, the blockchain collects the data which is then compiled in groups known as blocks. Each block carries a particular set of information according to its capacity and when the block is filled, they are sealed and linked to other previously filled blocks.
As the linking process keeps occurring, it forms a kind of chain which is known as the Blockchain. Blockchain technology ensures the data recorded cannot be tampered with or altered and it guarantees trust without the necessity of a third party.
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A Simple Introduction to Insurance
Insurance is a way to manage risk in an unlikely situation. It is used to protect oneself against uncertain loss or unforeseen circumstances. When you pay for insurance, you acquire some kind of immunity against unforeseen damage or financial losses. The insurance company provides a guarantee to compensate you if any damage happens. And in a situation where the damage or loss did happen, an amount of money is provided to you to cover your losses.
However, all this depends on the insurance you are buying, people opt for different insurance such as; medical insurance, car insurance, life insurance, and house insurance. In this sector of finance, trust is significant. As an insurance company, providing trust among customers is called for.
Blockchain in insurance
In the insurance sector, knowledge of blockchain is unfolding and set to be enforced in the ecosystem. Insurers are starting to see the big picture of blockchain and how it can improve and transform the system. They understand its values as an innovation that can trigger finance ecosystem modification.
For several years, few insurance companies experimented with blockchain technology. Many are already conducting experiments with different revolutionary products to serve the demand of insurance customers in the digital era. Blockchain unlocks lots of value for both customers and insurers, improving the efficiency of the insurance enterprise.
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Current challenges faced by the insurance industry
The insurance industry is currently facing a number of challenges, including:
- The impact of technological change, particularly in the areas of data processing and communications
- The need to maintain profitability in the face of intense competition
- The need to respond to the demands of shareholders and other stakeholders for higher returns
- The need to manage risk in an increasingly complex and volatile world
- The need to meet the demands of regulators for greater transparency and accountability
5 ways blockchain can streamline the challenges
- Smart contracts can automate insurance processes, making it easier and faster to issue and manage policies.
- Blockchain can help to verify identities, which can reduce fraud and help to ensure that only legitimate claims are paid out.
- Claims can be processed more quickly and efficiently using blockchain, as all relevant information can be stored on the blockchain and accessed by all parties involved.
- Blockchain can provide a transparent record of all claims, payments, and denials, which can help to improve the overall claims process.
- Blockchain can help to connect all parties involved in the insurance process, including insurers, policyholders, and providers, which can improve communication and collaboration.
Use-cases of blockchain in the insurance industry
Following the common traditional process, investigating, submitting, and processing claims could be time-consuming and less efficient. But when these policies are set on a blockchain in the form of smart contracts, the efficiency of the protocol can drastically be improved, reducing uncertainties and human error. For this purpose, using blockchain in conjunction with cryptography entails integrating data points from various sources (for example, analytics, reports, location) in order to lessen false claims.
Consider the following scenario: You were involved in a car crash caused by the other driver. You file a claim with your insurance company to recover your loss. The insurance company will then begin processing and investigating the claim in order to recover money from the other driver. The insurance company for the other driver, on the other hand, would be handling their own claim. All of these processes consume time, which can result in delays, human error, and late payment.
Employing the insurance policy on blockchain will allow insurers to share claim data with each other, with the approval of the customers involved and without disclosing personal information. The automation process is what’s interesting here. Blockchain automates the claims process, creating a trusted record of claims while also providing customers with greater control over their data.
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Fraud and Risk Prevention
Insurance fraud can cost customers lots of money but insurers can eliminate this by using blockchain insurance claims.
Now the question is How?
When insurance claims data is recorded on a blockchain ledger, it can’t be edited or altered due to the immutability feature of blockchain technology, consequently, fraud is reduced.
Furthermore, its decentralized distributed nature makes it easier for insurers to access the exact blockchain ledger. With this, they can recognize any misconduct and they are also able to verify if a claim has been settled.
In the traditional financial system, it is usually difficult to share data or information among insurance and reinsurance companies. This is because it requires manual function and consumes a lot of time.
Reinsurers are companies that provide insurance to insurance companies. As a result, insurance companies will not be penniless if a large number of claims are filed at the same time. The main problem the reinsurers face is inefficiency, manual activity, and time consumption. With the help of blockchain, these processes can be simplified.
Reinsurers and insurers can work together to share a blockchain ledger. Thus, data regarding policies, premiums, and losses can coexist in the system of both insurers and reinsurers. The procedure eliminates the need for reconciliation and ensures that information is always up to date. Also, it saves companies time and money.
Customers’ unwillingness to reveal sensitive answers to insurance agents causes many problems for insurance providers when collecting data. It’s not surprising given their concern about protecting their sensitive data. But such a scenario can be simplified with the aid of blockchain technology. It ensures data security and control over personal information. Clients can share their personal information on a smart contract incentive using a Know Your Customer(KYC) verification process.
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How can blockchain benefit the insurance industry?
The insurance sector operates well when there is trust. The integration of blockchain and smart contract algorithms benefits the insurance industry by addressing the issue of customer trust. Also, it can provide the whole proof-of-insurance ledger without your company depending on one database. Blockchain enables claim processes and transactions that are transparent, reliable, and can be trusted.
Transparent transactions are made possible by smart contracts and the entire process is carried out automatically. This automation makes the whole protocol more efficient, and easy and reduces delays. Following these benefits, blockchain saves insurance companies time, and money and even reduces tasks.
Audit trails that are tamper-proof
Insurance can be operated through blockchain, allowing for greater automation and more reliable audit trails.
Insurers can expect transformative benefits from various decentralized applications.
Privacy and confidentiality are protected
Customers’ private or sensitive data is extremely secure when using blockchain cryptography and can only be accessed by those who own the data.
What Is the Future of Blockchain Insurance?
The future of blockchain insurance is very exciting, and it is likely that this new industry will grow rapidly in the coming years.
One of the main reasons for this is that blockchain insurance has the potential to make the insurance industry much more efficient and reduce the cost of insurance for consumers.
In addition, as the technology matures, it is likely that more and more insurance companies will start to offer blockchain insurance products.
This will increase competition in the market and drive down prices even further.
So, what do you think? Is blockchain insurance the future of the insurance industry?
Let us know your thoughts in the comments below!
Blockchain technology, with the incorporation of smart contract algorithms, creates a system that can automate and simplify the work of the insurance industry. The industry can evaluate the challenges and benefits that lie ahead by understanding this innovation and its applications. Companies should take advantage of this technology which can efficiently and effectively improve the outcome of their operations.