How Blockchain can be used in the Insurance Industry

Lukas O'Neill

Lukas O'Neill

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Insurance is, by definition, a system that protects an individual, an association or a company against the financial and economic consequences associated with the occurrence of a particular risk issued by a random event. And it is the entire community of insured persons who assumes responsibility for the damages suffered by its members affected by the risk, insurance is a system of risk management based on the concept of solidarity.

But this industry still presents some failures:

  • Because of the legal language used, insurance contracts are typically complex and difficult to understand by costumers.
  • The industry is facing a growing threat from fraud whether from individuals or more serious organizations.
  • The “crash for cash” scams are costing the insurance industry more than $40 Billion every year only in the US.
Almost three quarters of insurance leaders surveyed consider that insurance would be the most disrupted industry.

Is Blockchain the solution to minimize these threats?

Did you know that over $1 billion were invested in blockchain companies since the technology’s creation in 2009? Here’s why:

  • Risk Prevention and Fraud Detection: The blockchain has the potential to eradicate errors and detect fraud activities, insurers could identify duplicate transactions or those involving suspicious parties, the authenticity of customers can be verified.
  • Claims Prevention: According to the FBI, an estimated 5 to 10 percent of all claims are fraudulent. The blockchain is essential to establishing an effective, transparent and client model on higher levels of trust. A distributed ledger allow the insurer and various third parties an easy and instantaneous access to relevant informations (application forms, evidences, police reports, etc.).
  • Internet of Things (IoT): As more devices and objects are connected to the IoT, the amount of data that will be created and collected will increase significantly. This data will be hugely valuable to insurers as they look to develop more accurate actuarial models or new products/services.
  • New Payment Models: Global insurers are developing alliances and exploring new payment business models and “bitcoin technologies” to achieve capital efficiencies through single global ledgers. Global insurers can use blockchain to cut asset management costs by reducing the hedging fees they pay to protect themselves.
As customers increasingly expect a personalised value proposition, blockchain could be THE solution, with more reliable and secure data available faster, cheaper whilst reducing risk and fraud.

But how to adopt this Blockchain Technology at the beginning?

Internal security of customer’s data and internal claims processing with smart contracts are two convincing axes for initiation. By selecting projects with limited scope to fill in the company’s short-term internal shortcomings, you position your organization in a minimal and non highly significant risk-taking actions.
Blockchain is a technology ready for exploration by insurers. But its exploitation is still
a long way off. This is because blockchain is functioning as a distributed system and,
thus, its value mostly depends on collaboration with competitors, suppliers, etc.
Blockchain is an IT investment with a perspective of presumably five years until full realization
of benefits.

Interested in PassKit’s Blockchain As A Service?

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