““Blockchain technology could change our world more than people can imagine.””
— Jack Ma
What is a blockchain? A blockchain is essentially a record, or ledger, of digital events-one that’s “DISTRIBUTED” or shared between many different parties. It can only be updated by the consensus of most of the participants in the system. And once entered, information can never be erased. The blockchain contains a certain and verifiable record of every single transaction ever made.
The insurance industry will strive but will continue to have obstacles to overcome as blockchain’s ability to provide complete accountability, transparency, and superior security will give an edge helping insurers save money and time with the goal of customer satisfaction.
Given its ambitious potential to drive simplicity and efficiency through the establishment of new financial services infrastructure and processes, this blockchain technology is rapidly gathering momentum within the insurance industry. While blockchain might not be the end-all-be-all to problems faced by insurers, it does provide foundational technology that promotes trust, transparency, and stability.
For decades, the traditional insurance business model has proven to be a surprisingly resilient one. However, traditional insurance is beginning to feel the digital effect as emerging technologies change the way consumers interact with businesses and how products and services are delivered. There’s a general perception that the global insurance industry lags other financial service sectors, leaving much to be desired in terms of cost-savings and efficiency. There are also major issues concerning fraud, human error, and cyber-attacks.
Enter blockchain technology: a distributed and decentralized public ledger that is the record-keeping technology behind bitcoin. Blockchain transactions are free to use and have the potential to completely change the way insurance is contracted. Blockchain optimizes efficiency, security, and transparency for the entire insurance industry, using public ledgers and fortified cybersecurity protocol. Many sectors already utilize this technology, including (but not limited to) companies providing and trading renters, homeowners, unemployment, and travel insurance.
Blocks on the blockchain are comprised of digital pieces of information that exist in three parts. The first is stored information about transactions like date, time, and dollar amount of purchase. The second is stored information about who is participating in those transactions. The third is stored information that distinguishes one block from all other blocks.
There are many advantages to using blockchain technology including improved accuracy by removing human involvement, greater user privacy and security, lower processing fees, and decentralization that makes it harder to tamper with the technology.
BLOCKCHAIN INDUSTRY MEETS THE INSURANCE INDUSTRY
The insurance industry has been around for centuries, but unfortunately, its processes are still very much stuck in the past. Many policies are still processed on paper contracts, consumers still call by phone to purchase new policies, the list goes on. All things that lead to risk-associated steps in which information can be lost, tampered with, and misinterpreted. Almost half of the 143 U.S. insurers surveyed by the Property Casualty Insurers Association of America and FICO said that fraud accounts for five to 10 per cent of their claims costs. There’s much left to be desired in terms of security, efficiency, and customer satisfaction. While blockchain is the hopeful solution. Insurance companies must overcome regulatory and legal hurdles before fully embracing blockchain technology.
HEADING TOWARDS A BLOCKCHAIN POWERED INSURANCE INDUSTRY
Exploring the benefits of how this tech could improve business processes and customer satisfaction in the insurance industry. Beenest is a decentralized home-sharing platform (like Airbnb) that allows users to book homes using the company’s Bee Token. This company developed blockchain-based homeowners’ insurance for Beenest homeowners. Lemonade combines distributed ledger technology with artificial intelligence to offer insurance to renters and homeowners starting at $5 per month. According to Lemonade, their business model takes a fixed fee from each monthly payment, then allocates the rest towards future claims. When a claim is made, the blockchain’s smart contracts verify the loss immediately so the customer gets paid quickly.
While there are first movers paving the way for blockchain in the insurance industry, there are still hurdles stopping companies from fully embracing this technology. Insurance companies must align around standards, processes, regulatory and legal frameworks to implement blockchain.
WHAT’S NEXT FOR THE FUTURE OF INSURANCE?
While blockchain can improve the industry in accuracy, efficiency, privacy, and more, it’s incredibly important to understand that every single insurance company that embraces blockchain must agree to operate under ethical standards. Standards and processes must be aligned for blockchain to provide insurers with better tools for collaborating, sharing data, and making insurance processes less of a headache for customers.
Because the industry has high privacy and security concerns, blockchain must be developed further to meet the standards of insurance companies before it’s feasible. Also, insurance companies must provide clear regulations frameworks to safely utilize blockchain technology. Once these needs are met, blockchain can transform the insurance industry for companies and their customers.
From a consumer level, the Blockchain can help insurers understand and price risks better. By allowing customer, risk, and policy information to be shared quickly and securely across multiple stakeholders in the insurance ecosystem, the revenue potential and growth prospects will improve by enabling insurers to price their products more accurately.
Irrespective of the use case, the Blockchain provides insurers with an opportunity to grow in new, more innovative ways. However, they must act sooner rather than later if they are to keep up with the pace of change that has seen the growth of insurance-techs in the market.
Fortunately, the Blockchain can scale effectively according to needs, so insurers can limit its rollout to best suit their business cases. With the Blockchain, insurers not only get an immutable audit trail but can do so faster, more securely, and efficiently than ever. And that is critical for the connected customer today.
At Admantium, we have specialized at helping Blockchain companies develop their ideas and raise capital. We build all fundraising documents and advise on the process. We’ll help you come up with the best tech solution for your customized needs. Contact us now!
About the Author – KASHIV CHAWLA
Kashiv Chawla is a Financial Analyst at Admantium Crypto Advisors, an Investment banking and consulting firm focused on blockchain technologies. We help early-stage entrepreneurs and startups in Building Business Models and Developing Business Ideas take a 360-degree view of how to build a sustainable business using blockchain technologies, translating concepts into clear cut plans. We also help raise external funding to kickstart or grow your business.