As global population increases, and more countries get onto the path of industrialization – the need for insurance is expected to not only increase but evolve. Governments have proven to be ineffective when it comes to providing healthcare needs for everyone, making it ever more important for each and every family to have comprehensive insurance coverage. Despite the availability of insurance, the cost of insuring has been on an uptrend (in developing and even developed nations), turning it into a costly affair for everyone.
While more and more families realize the importance of being insured for health, accident and even as a form of savings, they can’t afford it due to its costs. The costs are affected namely by the lack of information (and thus the unwillingness of institutions to insure) and increased government regulations (increasing administrative costs for insurance companies). It is hoped that blockchain will help solve these pain-points by collating and organizing information – in a private and secure manner, at an ultra-low cost.
Current set of challenges for the industry
At this moment in time, the insurance market is trying to deal with a growing number of challenges. With this in mind, compliance issues have become more complex, and fraudulent claims are made on a daily basis. Insurance companies are also having a tough time when it comes down to handling vast amounts of data, or trusting third party payment processors.
Insurers are also finding it hard to grow a mature market, which reduces their chances of achieving larger profit targets. Competing with market disruptors is only possible if insurance agencies shift their focus from financial compensation to a risk prevention business model.
Blockchain – a suitable building block, but not a silver bullet
It is important to note that blockchain can’t do all the lifting. For the insurance market to thrive, changes to the business model must be made. Blockchain technology can definitely lend a helping hand, in the following manner:
- Improving security: By using the public ledgers, insurers can better eliminate fraudulent, duplicate or suspicious transactions. Via its decentralized repository, blockchain technology can verify the authenticity of claims and policies, hence making it more difficult for scammers or hackers to get pay-outs;
- Improving third party transactions: Currently, the number of third-party insurance transactions is skyrocketing. Blockchain can automate numerous processes, hence reducing transaction and administrative costs. Additionally, by using the public ledger, insurance agents can easily view reference transactions, thus increasing trust between agents and customers. Customer loyalty and trust can also be improved with a more streamlined subrogation process, and transparency when filing and resolving claims;
- Introducing smart contracts: These can be leveraged to increase speed and accuracy for claims, reimbursements and payments. Smart contracts running on blockchain are capable of collecting data from multiple systems automatically, once certain criteria are met. This will further automate the industry;
- Dealing with large amounts of data: Storing and processing personal information safely is of a quintessential importance to insurance agents and customers. As blockchain provides a decentralized and shared database, accessible on a need-to-know basis, big data operations will be improved.
- New customer services: Blockchain will help bring numerous other services to the insurance market, including self-insurance, peer-to-peer insurance, smart adjusting policies, insurance trading, or insurance add-ons for smart devices.
A study carried out by SAP Digital shows that banking and insurance executives are planning to double their blockchain-based investments next year. It will likely take a few more years before blockchain is implemented at a market-level, yet testing is already underway.
At this time, it is impossible to calculate the exact impact that blockchain will have on the industry. However, we’re sure it will not only create a huge disruption in the market; but leading to increased profits for insurance players, and provide customers with better and more innovative services.
Cover photo by: WilkInsurance
Daniel is a digital currency expert, writer, investor and ICO consultant. He writes for several top cryptocurrency publications, and will soon kick-start his entrepreneurial career in fintech, where he hopes to innovate. In his free time, Daniel enjoys travelling and collecting all sorts of thrilling experiences.