3 Ways Blockchain Will Transform Insurance Operations in 2024
The image above illustrates the ineffective practices of the insurance sector. Blockchain technology has the potential to improve core insurance practices such as detecting fraudulent claims, automating claims processing, and improving the underwriting by enhancing flow of information. These improvements give insurance companies a competitive advantage.
1. Prevent double dipping fraud
According to the FBI, insurance fraud cost more than $40 billion each year in the U.S. alone. Some insurance fraud occurs by processing multiple claims (double dipping) from the same incident. This practice constitutes unjust enrichment and violates many laws. However, purchasing multiple insurance policies for vehicles or life insurance is possible in many countries.
Today, thanks to the blockchain, it is more difficult to commit such fraud. The blockchain’s distributed ledger technology could prevent duplicate transactions from being approved for the same claim, similar to how bitcoin makes it impossible to spend twice. When someone tries to pay for two transactions with the same bitcoin, those unconfirmed transactions are compared to the blocks of information stored in the ledger about that one bitcoin. Only the transaction with the highest number of confirmations is considered legitimate. A similar approach is used to verify multiple insurance claims related to the same loss.
2.Automate claims processing
Manual claims processing is a time-consuming and error-prone task. The efficiency of claims processing affects both the profitability of the insurance companies and policyholders’ satisfaction, since claims are the liabilities of insurance companies and customers expect a fair and prompt response in the event of a disaster.
Automating claims processing is possible today thanks to smart contracts. Smart contracts convert paper contracts into programmable code and establish coverage requirements for all stakeholders involved in an accident. For instance, when a claim is submitted to an insurer, a smart contract could automatically confirm liability and request a manual review for claims that meet certain criteria. Thanks to blockchain such a transformation of claims processing increase:
- Agility & efficiency of insurance companies
- Customer satisfaction
Figure 2 summarizes how blockchain-driven smart contracts can transform claims processing and thus the efficiency of property insurance companies.
Figure 2: Automated claims processing thanks to IoT and blockchain
You can read our blockchain case studies article to find more real world implementations of blockchain.
3.Increase data availability for effective underwriting
Insurance is the art of price the risk therefore data availability is important. Due to the confidentiality of patient data, it has been difficult to make this data available to insurance companies. Clearly, such a flow of data could alter health insurance companies’ decisions regarding premium pricing or policy coverage.
Blockchain provides the ability to share such personal information without breaching patient confidentiality as it is cryptographically secured. This makes it possible to carry out better risk assessment and more efficient underwriting processes, which ultimately lead to fairer premiums for customers.
Beyond restoring past examination data, the blockchain can securely store customers’ personal data. It allows insurance companies to have near real-time information about their customers’ health thanks to the flow of data from smart devices (IoT). By monitoring blood pressure, heartbeat per minute, heat, etc., customers who take care of their health can be rewarded. Therefore, blockchain can help reduce moral hazard in health insurance practices.
You can also check our other articles on the use of digital technologies in the insurance sector:
- How are the Digital Twins Changing the Insurance Sector?: Digital twins help insurers run simulations on unintended situations that improve their ability to assess risk.
- Ultimate Guide to Cloud Computing in the Insurance Sector: Cloud platforms offer a more cost-effective solution for incumbents to integrate new technologies into their insurance practices.
- Top 5 Insurtech Techs & Their Impact on Insurance Practices: This article summarizes the major changes that the insurance sector is currently undergoing. It also includes a guide to which technologies can be adopted by incumbents.
- Top 7 Innovative Insurtech Companies of 2022: Detailed Guide: This article presents 7 innovative insurtech companies implementing a variety of technologies including blockchain.
Also, you can check our top insurance suites list.
If you need more information regarding the latest in insurance sector and identify top vendors, we can help.
Image 1: Deloitte Ineffective practices of the insurance sector.
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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