While blockchain technology is no news anymore, a range of possible application seems to be piling up at an impressive pace. The insurance industry is no exclusion as professionals are looking for ways to apply distributed ledger technology to transform the 4.5-trillion-dollar industry.
One of the applications of blockchain-enabled smart contracts—as seen by professionals—is in building a P2P or crowdfunded insurance model. The new model would focus on supply and demand matching and risk calculation, where insurers will build a marketplace platform for potential customers to post their customized requirements for insurance plans. Insurers would apply their risk assessment techniques to perform necessary calculations. Once the calculations are finalized, insurers can place their premium estimations giving a chance for investors to subscribe to the plan.
Aside from all operations being done on the blockchain, smart contacts are entering the game when it comes to the guarantee of payment from the investor when the event for which the customer has demanded the insurance happens.
Needless to say, the process of verifying and approving the insurance claim becomes much more efficient and easy for insurers when recorded on the blockchain.
Inviting the innovative solutions into the traditional and complex landscape of insurance industry, Scott Gottlieb, resident fellow at the American Enterprise Institute (AEI), shared ideas using technology to design more intuitive insurance risk pools. As Mr. Gottlieb suggested, technologically advanced (in particular, blockchain) risk pools would enable real-time auto-regulation of insurance subsidies. As AEI believes, such a system can be powered by blockchain technology.
In addition to shedding light onto new business models in the insurance industry, blockchain can be applied to increase transparency of the products insured. Recorded on the blockchain, the characteristics and the history of the product can significantly cut the time and cost of human-powered assessment and keep records of the history of the product to increase the accuracy of risk assessment and premium calculation. The diamonds industry is the closest with Everledger, a company that provides an immutable ledger for diamond identification and transaction verification for various stakeholders, from insurance companies to claimants and law enforcement agencies.
Another application of blockchain technology in the insurance industry has been explored and brought to life earlier in March. London’s commercial think tank Z/Yen recently announced to have created an insurance product that employs a distributed ledger technology to confirm counterparty obligations.
Michael Mainelli of Z/Yen has commented, “The system is really based on timestamping and auditing who has used these documents.” He added, “There have always been suspicions that insurers could change the data on what the situation was in the past.” Z/Yen was behind one among the few other uses of blockchain in the UK insurance market.
Blem, a company that makes IT systems for the industry is all set to become one of the companies to make use of blockchain in a live product. Blem’s CEO Gavin Blem says, “The opportunity that timestamping provides is certainly that the information provided to the reinsurer existed at a particular moment in time and has not been changed since.” The company will be using the technology to record permanently the details of claims so that insurers and their reinsurers can divide the cost accurately between them.
Recording information about the product on blockchain not only allows to keep accurate hard-to-temper track and make more accurate calculations. The information can be accumulated in a pool of accessible data in real-time for companies to update and share with each other to cut the costs of maintaining private records and spending personnel time on underwriting. In that case, insurers and third parties will have access to vast amount of verified and accurate information that will enhance the quality and accuracy of the plans offered to customers by the industry overall.
Moreover, real-time access to the most relevant and accurate data will boost the freedom of insurers to offer a customized solution without missing out on premiums. Smart contracts can take insurance updates to the new level, making it fully digital and hassle-free to see and have the most accurate and suitable plan every time affecting personal circumstance is recorded.
Blockchain-powered smart contracts combined with real-time recording can be applied to automate the claims settlement. Claims can be verified by insurance agents and recorded on blockchain in order to trigger the right contract execution. Blockchain-powered automation can significantly reduce the time of settlement and streamline the operations in an efficient manner. Customers, in that case, would be the ones to benefit the most as the waiting time for payments would drop drastically.
These are barely the limits for blockchain application in insurance. Distributed ledger technology made a lot of noise across industries, and is not baseless. The extremely beneficial properties of this technology can increase operational efficiency of companies in a range of ways which will positively impact customer service and improve insurance products and other blockchain-powered solutions.