As technology advances, traditional financial assets like insurance policies will have to change if they want to compete in our world.
Other financial sectors have embraced blockchain technology and cryptocurrencies while insurance lags behind ” leaving the industry saddled with expensive, inefficient processes.
Customers and clients in the insurance world want to know how blockchain technology can improve their experience with insurance. Does it get cheaper? Faster? Will this make car insurance companies non-existent? Here’s what you need to know.
Blockchain and insurance
Insurance processes are very antiquated. Paper contracts and brokers acting as middlemen are just two examples of how the insurance industry is stuck in the past.
Every extra step in the process is another place where information can be tampered with or lost. When contracts are processed on paper, unnecessary steps are taken to set up a policy; this leaves more room for error and fraud.
The FBI estimates that fraud accounts for more than $40 billion a year in the insurance industry, which adds up to $400 a year to the average person’s insurance rates.
According to IBM, there are three places where the insurance industry could see significant benefits from blockchain technology:
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Client Onboarding: It allows for secure sharing of information to all parties, making changes instantly, and preventing retroactive changes that are often used in fraudulent activity.
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Underwriting: Provides underwriters access to additional information, reduces risk liability, and automates part of the process.
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Claims Processing: Right now, so many adjusters and reinsurers have to review every claim that processing a claim can take several months. As a result, blockchain technology streamlines the entire process, adding much-needed speed and security resulting in a faster claim turnaround.
In conjunction with other technology like smart contracts (which turn normal contracts into programmable code), the processes above can be partially or fully automated, allowing claims and payments to be made quickly and accurately.
The benefits of blockchain technology
Blockchain technology provides improved accuracy, better privacy and security, reduced fees, and improved security by reducing human error. Every time another person needs to touch your policy, whether to set up enrollment or to pay out a claim ” is another potential accident, error, or source for fraud.
The fact that blockchains are decentralized allows insurers to share confidential data securely. In turn, insurance companies can streamline services in a more efficient way and provide greater value to their customers.
In fact, automated smart contracts alone would save insurance companies $200 billion each year. Some insurance companies are already reaping the benefits of blockchain tech to create more affordable insurance policies for their customers with lower premiums.
Some drawbacks
Though it would solve a lot of problems, blockchain technology would not come without any obstacles. Regulation of the insurance industry could make it difficult to adopt blockchain or other technologies. That’s why, when it comes to using blockchain technology, insurance companies must consider the following:
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Cyberattacks: The one benefit of paper forms and old fashioned processes is that they are safe from cyber-attacks.
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Operating Costs: The cost to adopt and integrate the technology into a company will not be a small one, so some companies may be hesitant to use the technology in the beginning.
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Privacy: Blockchain has been publicly available in other industries, which is enticing to criminals looking to exploit that public information.
Car insurance
At this time, there are no car insurance companies using blockchain tech. However, with that said, some insurance companies have begun to provide renters insurance, reinsurance, maritime insurance, and other products ” which is why it is likely that soon car insurance companies will join the blockchain bandwagon.
One country leading the charge in car insurance is Japan who is right now, working on bringing blockchain technology to their car insurance industry. This is unsurprising, given that they were early adopters of DLT and crypto.
Looking to the future
The toughest part of blockchain technology being adopted by the insurance industry will be setting ethical standards and regulations. That’s because the technology is moving faster than the legislation, and as a consequence, this creates a bottleneck on adoption.
Once lawmakers do come to grips with regulating the industry, then the insurance space as we know it will be transformed. Customers and companies alike will face an entirely new world, with all of the problems and benefits that go along with it.