Blockchain has become a topic of active discussion across the globe over the past couple of years. With every industry looking to embrace this new wave of technology and pilot projects within their organizations, the Financial Industry seems more excited to pick up this global trend. The Financial industry in particular, often seems embroiled in multiple customer frauds and security breaches and Insurance is no stranger to this chaos.
Blockchain is referred to as “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way” according to The Truth About Blockchain, an HBR article. With every transaction seemingly to become transparent and verifiable, the trust factor between the customer and the company is bound to make a leap up the hill. Blockchain not only addresses the trust factor with related to information sharing, it is also poised to eradicate security breaches which has often lead to a bad taste in the customer’s mind.
Insurance has become synonymous to protection and the Insurers have slowly and steadily built a wall of trust with their customers’ over the years. The major reason behind this relationship has been the most important principle of insurance - ‘utmost good faith’. But often, we do come across cases of customer frauds and when the basic foundation of transparency seems to go off line, the Insurer is caught in a hurdle and looks to impose stricter measures and scrutinize customers. But Blockchain seems destined to address these issues and hand over the insurer an effective way to lessen the burden on themselves as well their customers.
Setting up a Blockchain ecosystem
Setting up an ecosystem for Blockchain is the key to success of this technology. This ecosystem involves a range of organizations coming together to set up a general ledger where every transaction is recorded and can be accessed by multiple users at the same time. An example of creating a Blockchain for Insurers can include a common ledger with the Government databases which can help in identification/information of each individual, Hospital databases which can provide ample information about an individual’s health and Banking databases which hold customer information about their accounts. The most important part is that the Blockchain can be accessed only by the insurer with an authorization key.
Insurance Value Chain
We will classify Insurance value chain broadly into 3 categories to ensure simple mapping of a customer life cycle with relevance to Blockchain. They are as follows
New Business & Underwriting
This is the first step and here the customer submits a request for a policy, then the proposal is underwritten using an automated process or system assisted process. For some cases, there is also requirements for medical evidences by the underwriter to assess the risk. Once underwriting is successfully completed, the policy comes into an inforce state and the customer receives a copy of the policy document, while commissions are paid out if an agent was involved.
All these processes somehow involve paperwork and a lot of manual intervention by underwriters. This is where Blockchain plays a vital role as follows
- Ensuring the identity of the customer matches the information provided on the application by mapping it to Government databases
- Transparency to the customer on why the proposal was accepted at a modified premium or rejected on basis of available evidence to which even customer has access to
- The truthfulness in the medical well-being of the customer by mapping it to hospital databases and using this data the underwriter can profile the risk of each customer
In this step the customer pays renewal premiums, submits requests for change in address, change of beneficiaries, requests for increase in policy term/sum assured etc. Similar to new business, this process also requires manual interventions and underwriting to be done in case of any recalculations. Blockchain can also in the following ways
- Renewal premiums might get rejected when insufficient balance is found during the renewal date but now with linked Banking databases, the renewal premium can be picked from the Bank during the renewal period when funds become available thus reducing the need for customers to redo the premium transfers
- Updated medical records fetched from databases can help the underwriter in performing a thorough check when policy term/sum assured increase is requested by the customer
This step is where the beneficiary notifies the insurer about the loss, then the insurer verifies the claim information and either pays out the claim or rejects the claim. Blockchain can ease this process and make payouts immediately rather than making the customer wait for their claim.
- For example, when a customer is hospitalized, these details can be fetched automatically by the claim system from the medical databases without notification from the beneficiary and the payout can be made immediately based on the hospital database records.
- This can also help in preventing fraudulent claims since the notifications are automatic and linked to hospital databases
The insurer needs to deepen the use of technology by embracing growing trends like IoT, Artificial Intelligence, Chat bots and SMAC to ensure the above mentioned process improvements enable a smooth journey for the customer. But not only will these completely depend on the infrastructure developed by the insurer but by the development of the entire Ecosystem (Government, Hospitals, Banks, etc.).