Emerging Tech’s Role in Insurance Industry Reform
The insurance industry has seen a meteoric rise for quite some time now. The growth of the multi-trillion industry is expected to surpass the growth of the global economy in 2018-19. While Bruce Springsteen’s vocal chords hold an insurance of USD 6 million, Julia Roberts’ killer smile is insured for a whopping USD 30 million which just goes to show that pretty much anything can have an insurance.
Even as global premium volume is increasing by leaps and bounds, like most other industries, the insurance industry has continued to grapple with several challenges all these years. As an attempt to revolutionize the space, disruptive technologies such as blockchain, artificial intelligence (AI) and internet of things (IOT) are being implemented and studied by several industry giants and startups to offer faster payouts, gain trust, prevent frauds, minimize mismanagement and obtain a competitive edge in the market.
Why blockchain?
Insurance policies, as we know, are used to mitigate the repercussions of unforeseen tragedies. However, the traditional methods are prone to human errors and carry a risk of botching information. This instills a lack of trust in the clients which is so far the biggest challenge faced by the industry. Most individuals avoid purchasing insurance policies due to the risk factors.
In recent times, the underlying technology of cryptocurrencies has gone mainstream with its widespread applications in financial as well as non-financial ecosystems. Distributed ledger technology (DLT) is being advocated to reform supply chains by instituting transparency and precision.
Given the complexity surrounding insurances, DLT can be used to dumb down the procedure by instituting coordination between the issuers, brokers, re-insurers and consumers. The model ensures a streamlined information flow in the value chain. As transactions occur, the information can be updated on the ledger. The information recorded on the ledger is immutable which ensures authenticity of the records and mitigates fraud risks. Moreover, the security provided by the technology cuts down on the countless checks and data verification. Consequently, payouts are settled quickly and this improves the overall efficiency and enhances accountability and customer satisfaction.
Smart contracts give a real-time outlook of policy data like insurance coverage and payout details to the network participants post claims. Needless to say, this saves a lot of time for the company as well as the customers while procuring error-free data.
Real-life use cases in various insurance sectors
Several insurance giants are leveraging blockchain solutions due to the low operational costs and increased automation of processes. In Zimbabwe, officials from Insurance and Pensions Commission (IPEC) endorsed blockchain solutions to tackle the hurdles of the industry.
Earlier this month, as reported by BitcoinNews.com, a Sri Lankan firm embraced blockchain to provide agricultural insurance policies for smallholder paddy field farmers in Sri Lanka.
Last year, the effectiveness of blockchain technology was tested in the marine ecosystem for cargo insurances. With the goal of issuing faster payouts, the project was deemed successful by the two collaborating partners which extended the prospects of establishing a full-fledged version of the platform in the future.
Life insurance
Life insurance claims are perhaps the most difficult to file with the mundane task taking on the emotional toll. In such a scenario, a blockchain-based model certainly comes as a blessing with boosted efficiency and authentic insurance products.
In June 2019, leading global insurer, MetLife (Metropolitan Life Insurance Company), announced the adoption of Ethereum blockchain to revolutionize the life insurance industry. The smart contract platform dubbed “Lifechain” will serve the customers by providing the family with reliable data of the insurance along with automated claim procedure. Zia Zaman, CIO of MetLife Asia, said that the primary reason behind implementing the technology is to exploit the security benefits offered by it along with the freedom to incorporate multiparty participation. He also stated:
“If you try technology that has been around for twenty years you’re not going to learn as much as if you try it with a decentralized system like DLT, and that’s advantageous because we are realizing that there is a lower cost of implementation for this system versus the other way.”
On demise, Lifechain will encrypt the corresponding National Registration Identity Card (NRIC) number on the ledger following which a search will be initiated to determine if the deceased is insured. The platform will then notify the family promptly while initiating a claim.
The concept simplifies the excruciating process of filing a claim with an attempt to deliver quick services and foster better relationships with the customers.
Health insurance
Slowly but surely, the healthcare industry has recognized the unprecedented benefits of blockchain to provide a trusted infrastructure. Nevertheless, the paradigm shift from traditional methods to blockchain-based solutions requires ample time and groundwork, but the health insurance sector has left no stones unturned to experiment the technology.
In January 2019, health insurance giant Aetna collaborated with IBM to devise a network based on IBM’s blockchain platform. Per the release, the primary reason for introducing blockchain was to achieve a smooth and secure information exchange to reinforce efficient claims and payment processes.
Soroush Abbaspour, IBM’s program director of blockchain for HCLS, stated that smart contracts will be the driving force to garner efficiency as they will permit cheaper claims and payment processes along with transparency in the network. He stated:
“Smart contracts on blockchains can be used to implement contract terms and business rules in a trusted execution environment. The benefit of blockchain is to dramatically reduce administration costs by eliminating duplicate processing, reducing disputes, and allowing for more effective risk management through real-time visibility and provenance leading to broader adoption of value programs by providers.”
Title insurance
Title insurance primarily insures an individual from the financial losses endured due to the defects in the title to a property. The title insurance industry is implementing blockchain for efficient title registries. Although refashioning the model will affect the process of title search requests, certifications and the issuance of insurance policies, the industry is eyeing the transition to exploit the benefits that it brings along while continuing to perform other key functions in real estate.
UBITQUITY is one such platform with uses Blockchain-as-a-Service (BaaS) to provide title companies and municipalities benefit from a “clean record of ownership, thereby reducing future title search time, and increasing confidence/transparency”.
Even in the crypto insurance industry, leading insurers such as Marsh & McLennan and Aon are extending blockchain startup services to cater to the specific requirements of crypto protection. With the increase in demand for crypto premiums, insurers are being driven towards low-cost services.
In the coming years, the need to switch to better business models cannot be overlooked by the industry to achieve a robust and frictionless ecosystem. With real-time visibility and settlement of contracts, the program will attract more customers with effective risk management.
With endless possibilities, it is only up to the market players to explore the vast potential of the emerging technologies and incorporate what takes them to the forefront of the realm. The brisk DLT-based models already hold evidence to provide a sophisticated and advanced insurance program compared to the traditional counterparts.
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