Trends: FOUR Blockchain disruptors happening in insurtech
Blockchain technology looks set to transform the insurance space by disrupting the claims administration process with new and innovative alternatives.
New research on the technology carried out by Juniper Research, shows that experts are predicting that blockchain-based insurance claims reduce costs globally by more than US$10bn by 2024 - a considerable leap from the savings of $1.1bn in 2021.
According to Juniper Research data, published in the report, ‘Blockchain in Financial Services: Key Opportunities, Vendor Strategies & Market Forecasts 2021-2030, the insurance industry will experience savings as a result of blockchain use across all its processes.
The report also shows that markets, where the insurance business is most heavily concentrated, such as the US, will make the highest savings.
Researchers have also predicted health insurance will be a critical market for savings due to the resource-intensive nature of the industry and the suitability of blockchain technology for that sector, where inefficiency in processing is rife.
Juniper Research says that the US in general, and especially the region’s health insurance market, will witness the number of claims processed via blockchain to jump from two million in 2021 to 24 million by 2024.
1) Claims Processing
This sector will be transformed as fraudulent claims, manual processes, fragmented data sources, policies for one user sitting in silo and legacy underwriting models all become streamlined and secure through blockchain solutions.
By generating smart policy contracts on a blockchain insurers are given complete control, transparency, and traceability for each claim, which could also result in much faster pay-outs. Blockchain enhances risk modeling for the sector, breaks down existing silos and lowers fraudulent claims too.
With the continuous threat of data breaches and cyber attacks, compliance with the latest security measures to keep customer data and funds safe, has become imperative. Insurance companies are responsible for complying and reporting on a number of requirements from their local regulator. Blockchain technology offers a single source ID, enabling companies to streamline the exchange of documents between banks and agents. In this case, blockchain can lead to automated account opening, the lowering of costs, and the secure maintenance of data protection and privacy.
2) Asset management
Legacy processes in settlements is generally manual, sluggish, and carry a risk when reconciling and matching. This is because the processes are becoming increasingly complicated with cross-border transactions and for non-standard investment products. Every party in the lifecycle (dealers, brokers, custodians, intermediaries, settlements teams, and clearing) maintain individual copies of the transaction records. This creates notable room for error. Blockchain can streamline the entire process, providing an automated trade lifecycle where all parties in the transaction would have access to the exact same data about a trade.
3) Supply chains
With the global supply chain industry still on its knees following the pandemic and the Suez Canal crisis, a solution is needed to expedite as many channels as possible to ease the situation. Experts agree that the digital transformation of the supply chain and trade finance, and the advent of smart contracts via blockchain, provide a massive advantage in the current climate.
Current supply chains are complicated, sluggish, and are party to too many pitstops globally, which reduces trust and increases the need for third-party security mediators. Providing smart contracts via blockchain for events such as transferring of titles, to goods and money, takes away the requirement for banks to provide Letters of Credit, etc. It also lowers costs by cutting out the middlemen and generates a trusted network of authenticity for the products being supplied.
In today's world, time is of the essence - yet cross-border payments are still taking longer to reach other countries than domestic payments. Issues involving money laundering and security are causing delays that blockchain could comfortably eradicate. Time is of the essence when it comes to serving customers, who will seek out other services if they are not satisfied. Blockchain also decreases incidents of human error in the transactional chain.
Blockchain benefits to the insurance industry
The benefits of blockchain technology to the insurance industry have been known for some time, and experts have been predicting an uptick in use since its inception. In 2017, an IBM report noted that blockchain integrated systems could, “radically improve the insurance industry,” with specific reference to fraud detection and prevention.
The report stated that as well as being beneficial in terms of identity management, the benefits would be seen in, “maintaining the integrity of the asset through various owners, blockchain technology can minimise counterfeiting, double booking, document or contract alterations."
As well as increased security, it stated, “contracts and claims could be recorded on to the blockchain, ensuring that only valid claims are made and multiple claims for one accident are rejected. The addition of smart contracts can also ensure that payments are triggered when certain conditions are met and validated.”
Slow adoption of blockchain by US insurance incumbents
There has been marked resistance to adopting the latest blockchain technologies on a large scale, but this is clearly set to change dramatically over the next five years. Report author Susannah Hampton points out that although insurers have been reluctant to modernise legacy processes, the benefits for insurance will overwhelm those barriers resulting in new blockchain solutions being implemented at pace.
She explained, “Insurers must address barriers to implementing blockchain technology through investment and partnerships.”
Hampton added, “Any blockchain solutions deployed must integrate into existing underwriting and claims management platforms and offer an increased value proposition beyond what is already possible.”