The relevance of blockchain technology is also apparent in insurance companies. There are also great expectations that the technology will change the business processes in the insurance sector. The use of this technology offers several advantages to customers and insurers alike. For instance, the data that can be exchanged transparently is forgery-proof and, therefore, also immune to fraud. Along with the security aspect, the technology offers an improved customer journey and efficiency gains thanks to automated processes for the insurance industry. All this adds up to high value-added potential. To discover what other advantages blockchain technology has to offer, what scenarios are possible and why they are not yet in commercial use, read our post here:
Smart contracts enable the rapid processing of claims
At present, blockchain technology is mainly used for what are known as smart contracts. These protocols represent contracts, and the framework terms between the company and the person to be insured are documented directly in the source code. This creates digital contracts that are self-executing. In other words, the contracts enter into force if specific and contractually agreed events occur. One example of this is an insurance claim. Thanks to the technology, no manual monitoring is required because the process is initiated automatically. If the conditions for an insurance claim are met and validated by the algorithm, a transaction is triggered and recorded in a 'block'.
The algorithms used in smart contracts are often based on 'IF-THEN functions'. Developers define in advance which conditions and actions must be fulfilled and then executed automatically. This also eliminates the intermediary or third party that is usually required to agree on the contract.
For policyholders, such technology offers robust security and a high degree of transparency. Moreover, it streamlines the processes for reporting a claim and receiving a payout from the insurer. On the other hand, insurers profit from cost savings because the defined contractual terms for an insurance claim do not need to be checked manually.
Curbing risk and simplifying processes
However, the possible applications of smart contracts and blockchain technology also open up other scenarios: introducing the IoT in the automotive industry in conjunction with the blockchain could be very beneficial to the insurance industry. That's because this enables the collection of large volumes of highly relevant data for insurance models and risk evaluation.
One example is car insurance policies. It's perfectly conceivable that data gathered by the car – such as route, time and speed – could be transmitted as encrypted data to the relevant insurer. This allows high-risk drivers to be identified, and the policy could be automatically adapted by the smart contract and its 'IF-THEN function': if the driver exceeds the speed limit X times and by X per cent within a specific period, then the policy premium increases by X per cent.
Similarly, this type of data could also be used in another way. In the event of an accident, the sensors installed in the car could automatically report the event to the insurance company. IoT and smart contracts networking would then trigger additional processes automatically. All information could be collected and forwarded to important entities such as medical services or workshops. This could make life considerably easier – and not just for policyholders.
Blockchain technology enables networked and manipulation-proof data
A significant advantage for the insurance industry is the increased trust and transparency between policyholders and insurers. In the event of a claim, reports are processed quickly, transparently and in a customer-focused manner. The connection with IoT opens up further potential for introducing new and flexible insurance products.
This also plays a significant role when it comes to optimising patient care for holders of health insurance policies. The blockchain provides a tamper-proof means of storing confidential patient records. This would allow doctors as well as insurance companies to access patient data and provide the best possible care – while at the same time dramatically reducing the bureaucratic workload.
Another advantage of blockchain technology – one that plays a significant role for insurance companies in general – is its ability to prevent insurance fraud and abuse. This means that insurance pay-outs are only made to applicants who have also adhered to the agreed terms of the contract – for example, by not deliberately exceeding the speed limit.
Will the insurance sector embrace the blockchain?
Several insurance companies are currently conducting various pilot projects to examine and advance blockchain technology's potential. However, there are still some technical and legal hurdles – also with regard to the GDPR – that must be overcome to clear the way to commercial use.
Furthermore, many insurance companies are still very cautious with regard to the blockchain.
Whether the insurance sector will ultimately embrace blockchain technology remains to be seen. Nevertheless, technology, in general, offers many opportunities to attract and retain new customers. The combination of secure access management and blockchain technology creates a more substantial basis of trust for the user and reduces the incidence of fraud on the retail side.