Blockchain is transforming how insurers, insurees and agents work together. It can help reduce fraud and abuse, speed up transactions and claim processes, increase customer engagement and trust, and save costs while increasing revenue. Blockchain technology can also be used to prove users’ digital ID.
In the insurance industry, blockchain, along with other emerging technologies, profoundly transforms how insurers, insurees and agents work together. The insurance sector is embracing the technology, but they must work within standards, processes, regulatory and legal frameworks that were written before the advent of the blockchain concept. The industry compliance rules coupled with data protection regulation, which can vary from one jurisdiction to another, still need to catch up with the emerging technology. As recorded by Deloitte’s global blockchain survey 2021, the most cited blockchain use in Financial Services Industry (FSI) is secure information exchange at 45%, closely followed by digital identification at 40%, regulatory compliance at 36%, digitisation of documents and records at 33% and contracts management at 31%. Blockchain is an exciting agent for change and accelerating the adoption of digitalisation and the application of artificial intelligence (AI) and machine learning (ML) across operations.
Secure information exchange
Blockchain places information in blocks that are timestamped, verified by all the parties and held in multiple copies as parts of chains in distributed database ledgers. This can include policy and claims history documents, linked to an individual, a building or a vehicle, for example, or medical records associated with an individual or family; once verified and locked into a ‘block’, the information is very difficult to alter or hack because of the multiple separate copies, which are compared for consistency. This information can be shared with reasonable confidence in its accuracy by any parties to the block subject to any conditions agreed by the participants. So the insurer has verified information for assessing risk and fixing a price for cover, which can be shared internally as required; third parties covering the risk can also see the data on which the policy was issued, and the insuree can possibly share their part of the information with agents or insurers to get competitive quotes for cover.
The policy can be placed in a block and, if the cover is straightforward, linked to say automated payment on presentation of an authenticated, appropriate death certificate for life cover or a claim for approved vehicle repairs after an accident or flagged for further action to determine the policy.
We are all familiar with the most common forms of identifying ourselves from a signature to presenting a passport, driver’s licence and utility bills or entering a PIN or password to gain access to everything from computers and retail accounts to bank ATMs. More recently, biometrics have entered the field with fingerprint, facial features or iris recognition. They have multiple forms and applications; however, their core purpose is to prove the uniqueness of someone or, in some contexts, such as insurance, something. To do this, an identity system has to compare the input characteristics to existing databases, and these databases can readily be blockchains, with their multiplicity that makes faking, forging or modification by intruders very difficult.
Respondents to Deloitte’s 2021 Global Blockchain Survey saw value in digital identity in verifying signatures (54%), initial know-your-customer checks (53%) and verifying counterparty information (41%). According to World Bank, there are about 1.5 billion people who can’t prove their identity. It means that they can’t enter any education or health services, own property, open a bank account or have free movement. It strongly affects their human rights, especially women and children, and, of course, their ability to take out insurance. Blockchain technology with its decentralised feature is the key solution to enhance digital ID. With the help of blockchain, individuals can have a secure digital hub where they can store, protect and control access to their identity data easily.
For financial institutions, digital ID is a crucial factor that brings significant benefits to customers: immediate and convenient proof of identity, ease of access to new services and more choice. It also brings benefits to the institution, such as fraud prevention and market competitiveness.
Understanding the needs of both providers and consumers, blockchain service providers make available various solutions for digital ID to engender greater efficiency, reduction in cost, and enhanced trust and transparency. New technologies allow for enhancements to evolve the offerings, so building on Hyperledger Fabric, the blockchain-based digital ID solution offers not only distributed ledgers technology but couples it to technology such as optical character recognition (OCR), artificial intelligence (AI) and machine learning (ML). Electronic know-your-customer (eKYC) solutions help customers to improve their user experience effectively by gaining quick verification and access, while the provider gets trust and validation by cross-checking of customer information (ID, location, income, score, reference number) and facial verification that compares between a selfie and ID photo.
The credit scoring solution, on the other hand, allows insurance providers to improve risk management and serve users better with some core features such as: scoring from social and transactional data sources; query by phone number, email or social ID; machine-learning based models for cash loan optimised for each client and product. Digital ID matters to both the rich and the poor. The solution to the proof of identity is the same for both: blockchain.
Reducing fraud and abuse
Identification is a major factor in fraud prevention but not the only factor. The Coalition Against Insurance Fraud estimates that insurance fraud steals at least $80 billion every year from American consumers alone; in the UK the annual fraudulent insurance claims are worth £1.2 billion. When using blockchain in the insurance ecosystem, all user information is authenticated and stored permanently on the blockchain database. Data can be used to analyse and predict user’s fraud behaviours from their transaction history faster and more accessibly. Healthcare currently suffers from physician or clinician errors, hackers, or issues of the same electronic health record (EHR) not being properly updated that causes patients physical, mental, and financial damage. Blockchain helps to rectify all of these, presenting healthcare with a single source of truth that parties share. Providers handle medical claims with supporting documents via blockchain-based systems that automatically execute smart contracts for reimbursement and generally manage healthcare payments more reliably; operate fraud detection to highlight suspect facts; make accurate medical history available to facilitate diagnosis and prompt treatment and to save cost by reducing redundancies across the entire health sector through verified personal health records (PHR).
Speeding up process
We all know that the operating systems for insurance companies require a lot of paperwork, often with much duplication of documents in files for different policies held by the same individual. Using decentralised and distributed databases, insurance companies can link files to single proofs of identity files, proof of ownership, etc. By doing so, accelerate the access and maintenance of verified client information and associated policy documentation. With a blockchain database, records of agreements, transactions and other necessary documents are automatically stored, and the claims process can be expedited with automated checking of whether conditions for payment are met and automation of the payment process.
Increasing customer engagement and trust
The ability to tap into the invaluable knowledge of the market, to understand customers’ demand, market trends and predict customer behaviours inarguably helps organisations stay ahead of their industry in providing the right services and products to the right customers; responding better to changes in business environments and creating more added values. The question of whether or not a business can turn its data assets into sustainable competitive advantage lies in a data management strategy and an accommodating data structure. Participating in a blockchain network, not only enterprises but their customers can control their data and make use of them. Insurance companies can use accessible data to analyse customer behaviours. Understanding customer habits and health histories will be a great advantage for companies to bring new ideas, provide better services and get more customer engagement and loyalty. On the customer side, if they know what’s happening to their information and understand required procedures, they will proactively know what to do to gain benefits and give more trust.
Saving cost and increasing revenue
Blockchain helps insurance companies to reduce the costs of processing of each claim, whether satisfying the claim or denial; reduce costs of security and verification issues and unnecessary human labour cost in pushing paper around the system. Besides, due to faster processing and gaining more trust and satisfaction from customers, there is an increase in sales conversion rates and customer retention, thereby controlling costs, increasing revenue and profits.
Blockchain may still be proving itself in financial sectors such as cyber currencies and having to deal with challenges to its green credentials there, but in insurance, blockchains are proving effective, green (by reducing energy usage) and providing benefits to both providers and customers.