Blockchain innovation is disrupting the insurance industry. And, for good!
As per a report by Markets and Markets, the global market for blockchain in insurance is expected to reach USD 1,393.8 million by 2025 from USD 64.50 million in 2018, at a CAGR of 84.9%.
Blockchain technology is helping the insurance sector radically transform operations by providing a myriad of benefits in the form of reduced costs, enhanced customer experiences, improved productivity, increased transparency, and more.
The use of blockchain in the insurance sector is expected to grow dramatically in the years ahead. According to Gartner, blockchain is estimated to be more heavily adopted by organizations by 2023 and lead to $3.1 trillion in new business value by 2030.
Therefore, it’s the perfect time for organizations to unlock the potential of blockchain, understand how to apply the technology effectively, and grow businesses.
Keep reading the article to know the benefits of blockchain for the insurance sector and the various real-life use cases.
Let’s dive in!
How can Blockchain benefit the insurance industry?
Blockchain technology can bring about significant efficiency gains, transparency, faster payouts, cost savings, and fraud prevention while allowing for real-time data sharing between several parties in a trusted manner. Blockchain can also enable new insurance practices to build better products and markets.
So, on that note, here are a few key benefits of Blockchain software development in the insurance industry:
1. Blocks false claims: One of the biggest pain points of the insurance industry is fraud. According to the Coalition Against Insurance Fraud, Americans suffer $80 billion worth of damage every year due to insurance fraud.
Though insurance companies use smart analytics and other methodologies to deal with false claims, fraudsters continue to develop more sophisticated ways to dupe companies.
Blockchain’s innate feature of capturing time-stamped transactions with complete audit trials makes it extremely difficult for fraudsters to commit fraud.
For instance, a blockchain-powered ledger can be used to track data around high-value items like jewelry. This ledger can replace authenticity certificates in order to avoid duplicate claims, fake replacements, and fake insurance claims.
2. Enhances customer experience: Continued loyalty to one service provider is no more a given. Customers look forward to providers who offer lower premiums. Intense competition from new players operating innovative models such as on-demand insurance coverage has added to traditional insurers’ woes.
In such situations, winning customers’ trust without compromising heavily on price margins has become crucial.
One way to address this is to use blockchain to enable automated processing using smart contracts. Business agreements are built into the blockchain in this model, and payments are auto-triggered when certain conditions are fulfilled.
3. Improves trustworthiness: One of the significant advantages of using blockchain in insurance is to create trust between different entities. The inherent feature of consensus algorithms built into blockchain allows immutability and auditability.
These algorithms make it easier to create smart contracts on the blockchain, benefiting the insurance industry. Moreover, as blockchain is an immutable ledger, smart contracts enable timely, transparent, and trustworthy transactions.
When the industry uses a shared claims ledger for inspection with no per-transaction charge, it can reduce fraud. Regulators can monitor all insurance variables in real-time on the ledger, making auditing more seamless.
4. Empowers more automation: Smart contracts streamline the insurance process and enable transparent transactions. The entire insurance claims process works smoothly as the blockchain executes on the smart contract terms.
What makes it more exciting is that blockchain does it automatically, which makes automation a massive benefit for insurance companies. As a result, blockchain saves time, effort, and money by lowering administrative costs for insurance companies.
5. Helps collect and store useful data: Insurance companies thrive on data. Blockchain can collect a wide range of usable data using technologies such as artificial intelligence (AI) and Internet of Things (IoT).
Data collected by IoT is stored on the blockchain and then read by AI, helping your company make informed decisions on insurance premiums.
IoT devices can also help monitor a vehicle to qualify insureds for safe driver discounts and give your insurance company more data on vehicle performance and driver habits to work with.
With such exceptional benefits, the insurance industry can look forward to leveraging the new technology for positive change and growth.
Top use cases of Blockchain in the insurance industry
Now that you have seen the benefits of blockchain for the insurance sector, let’s take a look at some top use cases to see how it can actually help organizations.
1. Smart contracts: The insurance industry has relied on trusted intermediaries such as underwriting agents and insurance brokers to distribute and arrange contracts of insurance. However, smart contracts eliminate the need for human intervention.
Smart Contracts are basically self-executing contracts that are executed automatically via underlying blockchains to ensure that the terms of agreements are met/unmet. In the context of insurance, the terms of agreements between policyholders and insurers are written into the code upon which smart contracts are built.
As all transactions related to smart contracts are recorded on a blockchain, there is a high level of transparency. This is because each transaction is publicly viewable on the blockchain.
Moreover, as there is no human interference, the risks of unauthorized manipulation and errors in contracts are significantly reduced. Also, claims investigation, coverage analysis, and processing are dramatically quicker as the need for manual assessment is removed. This increases the efficiency of the insurance sector and builds consumer trust and confidence in the industry.
2. On-demand insurance: It is a flexible insurance model, where policyholders can turn on and off their insurance policies with just a click. The more interactions of all stakeholders with the policy documents, the greater the hassle of managing the records.
For example, on-demand insurance requires underwriting, buyer’s records, policy documents, risk, claims, and so on much more.
But, thanks to blockchain technology, maintaining ledgers has become simpler. On-demand insurance players can leverage blockchain for efficient record-keeping from the inception of the policy until its disposal.
Read more about blockchain for insurance