MARKNetwork Blockchain Use Case: Insurance Industry
Does blockchain address insurance industry challenges?
Measuring challenges of insurance sector is an elusive aim. Frauds, logistic challenges, alleviation in paperwork, underwriting challenges and time-consuming claim processing plagues the entire landscape. For insurance giants and startups, bringing efficiency, speed, security of insured data and preventing frauds is an ongoing work in process.
The age-old Insurance global industry is expected to grow by 3-4% in 2019 with US alone recording $4.8 trillion gross written premium in 2017, the opportunities are being created along with challenges. The profitability of the insurance sector witnessed historic lows during the same period. The industry is suffering due to frauds that steal more than $80 billion every year and compounding challenges of error-prone claim processing and payment handling.
The insurance industry is stuck in the past!
Despite digital and cloud adoption, the insurance policies are paper processed increasing the chances of errors. As the insurance ecosystem is complex and involves many stakeholders, there are multiple points of failures which become difficult to track. The information of policyholder may be lost or not underwritten appropriately or the database can get compromised.
Technology is changing the nature of risk as the new initiatives like blockchain promise to bring speed, flexibility, and scalability to the ecosystem. Blockchain allows digital tracking of the insurance contract and medical records which is cryptographically secured in the digital ledger.
Let us dive deep into the where blockchain is heading in the insurance sector:
Controlling insurance frauds
The total cost of insurance fraud is spread out across both insurers and insureds. While the US insurance industry loses $80 Billion every year, a family ends up paying higher premiums. The frauds make way to the landscape in different forms like multiple claims for a loss, misinterpretation of work information or the intermediaries who inflate the premiums to pocket some share. The health identity is being stolen relentlessly from the insurers. Almost a decade back 22,000 health identity data theft complaints were received by the Federal Trade Commission which has gone up multiple time with rising sophisticated cybercrimes. At the end of the funnel are the insurers and insureds who are being defrauded.
Blockchain technology promises a fraud combat mechanism by offering desired security to the insurance details. Each claim information will be recorded on the distributed ledger making it immutable to any kind of data thefts, multiple claims and eliminating false claims with digital identifies. The blockchain platform targets to fortify the direct relationship between service providers and consumers thus bypassing the unlicensed brokers who inflate the premiums with no additional value.
Etherisc is a blockchain pilot project for insurance sector that caters the flight delay program. The passengers need to purchase the insurance using digital currency and in case the contract event occurs, the passengers receive the payout automatically. The insured does not even need to raise a claim.
Reinsurance is a risk aversion mechanism for insurers in case a natural calamity or any such event that leads to a massive number of claims. It is a risky proposition as involves millions of dollars to be paid off in the claim.
In the current scenario, the process is manual and extremely complex. In the absence of any information standardization, the insurers keep sending different information required by different reinsurers. Each risk is individually underwritten and the contract takes months together to fortify.
Blockchain technology promises standardization of data recording on a single shared ledger that can be accessed by reinsurers to create final contract term or to process the claims. As the ledger is immutable, can be updated in real-time and can verify the claims quickly, even the claims can be processed in an expedited fashion.
BAccording to PWC, Blockchain which will bring transparency to the reinsurance ecosystem their by enhancing risk understanding. As per the report, blockchain adoption can bring $5-10 billion cost-saving opportunity to the reinsurance industry as it will support faster and accurate claims settlement with efficient compliance checks.
B3i is a smart contract based management system that records each event as a smart contract. In case of an event is triggered, the smart contract evaluates the data from fields, identifies the parties impacts and processes the claims.
Property and Casualty insurance
The property and casualty insurance claim processing is driven by multiple data points that are scattered. Around 48% of the insurance premiums written in the US in 2017 were Property and casualty insurance cases. Bigger the industry, bigger the challenges.
The claim processing requires manual data gathering and a data evaluation making the process slow and costly. Blockchain proves to be a compulsive use case for P&C insurance. According to the latest pilot projects, the real-time data collection, recording, and analysis on the distributed ledger and using smart contracts will expedite the claim processing by 3 to 5 times.
As per BCG if all insurers adopt blockchain for claim processing, they would be able to save $200 Billion which is the current claim processing cost.
Insurwave is a blockchain initiative that provides P&C coverage to more than 1,000 commercial vehicles over blockchain platform. The ledger records all the real-time information of vehicles to determine the insurance pricing.
A single patient’s medical information is scattered over databased of multiple healthcare service providers. For the insurance underwriters to have access to all this data is a complex task which comes with a high administrative cost.
The health data and reports are being manipulated, duplicated and erroneously recording leading to incorrect premium calculations.
The cost implications these challenges are dire. They put a tremendous load on the administrative departments. As per the reports, around 63% of the dental claims were rejected in the US due to insufficient details for processing the claim. Such denials lead to duplication of administrative costs across the ecosystem.
Blockchain projects like MedRec promise a single source of truth of patient data that can be accessed by insurers, insureds, and medical practitioners. Such initiatives promise security of data, transparency of patient information and low-cost operations.
How does a blockchain-based insurance industry look like?
Blockchain landscape is coming up with some promising use cases for the insurance industry. But before it matures and goes mainstream, it needs to do a lot of groundwork to collaborate with all the stakeholders and regulatory bodies. It makes sense right now to pay close attention to the disruption. At MARKNetwork we are very positive about the adoption to happen very soon and meanwhile, we are taking a few substantial steps towards the growth of the blockchain ecosystem.
We have a lot more coming up to keep you educated and updated. Stay connected!
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