Blockchain in Insurance

Blockchain has the potential to eliminate up to $40 billion in annual fraud costs at the industry level. The technology provides full record of customer and insurance data, enables real-time detection of fraudulent transactions, and helps prevent duplicated claim payments.

How blockchain for fraud detection works:

The distributed ledger serves as an industry-wide record system that stores data on all insurance-related transactions and events. Each authorized insurance company maintains its own copy of the shared ledger to transact data, access the up-to-date customer coverage details and claim history. Transactions are validated only by known and trusted blockchain network members with special rights. Blockchain smart contracts enable automated recordkeeping and rule-based identification of suspicious and duplicate transactions.

Use cases:

• Automated recordkeeping.
• Fraud checks.
• Insurance data tracking and tracing.

When used in underwriting, blockchain streamlines aggregation of customer data and documents from disparate sources, provides fast and precise assessment of customer risks. Also, blockchain helps eliminate manual insurance pricing tasks and ensures 100% accurate and transparent premium calculation.

How blockchain for underwriting works:

User-defined rules for customer risk scoring and personalized insurance pricing are coded in smart contracts. They enforce automated risk quantification (based on the data provided in internal and third-party sources) and rule-based premium calculation according to a customer’s risk profile. Blockchain oracles are employed to query, verify, and authenticate external data sources and securely transmit the required customer information to the smart contracts.

Use cases:

• Risk assessment.
• Insurance pricing.

Blockchain spurs significant growth in operational efficiency by introducing end-to-end automation of policy management workflows. Plus, a blockchain system enables maintaining a complete log of user manipulations across the insurance contracts and policies and helps instantly detect unauthorized and malicious actions.

How blockchain for policy administration works:

A blockchain ledger stores all policy-related data in a secure and incorruptible manner. It serves as a single source of truth to prove the provenance and authenticity of insurance policies and agreements. The entire policy cycle – from issuance to termination – can be automated using the blockchain smart contracts. Asymmetric encryption ensures secure transfer of insurance documents between the insurance service providers, customers, and external partners.

Use cases:

• Policy issuance, sharing, updating, and renewal.
• Policy data recordkeeping.

When employed in claim processing, the blockchain technology helps insurance companies streamline claim intake and validation, guarantee fair and transparent claim resolution. Smart-contract-based claim automation alone proved to bring up to 5x cost reduction and around 3x speed increase across the claim management operations.

How blockchain for claim management works:

Smart contracts promptly access the claim-relevant external data using the blockchain oracles and enforce automated claim verification against the policy terms. They also encode the logic for instant notifications to the claim specialists about the fraudulent claims and complicated cases that require manual handling. The insurance teams and policyholders can track the claim resolution progress in the shared ledger.

Use cases:

• Claim validation.
• Claim settlement.
• Claim data management.

Blockchain enables seamless premium payment experience for insurance customers, automates claim-related payments to policyholders and third-party services providers. It handles payment processing in seconds rather than days and guarantees security of payment-related data. Besides, blockchain solutions allow insurers to expand internationally and reach new customer segments (e.g., crypto users).

How blockchain for payments works:

Relying on cryptocurrencies as the means of value transfer, blockchain can smoothly process both domestic and cross-border payment transactions in multiple fiat currencies. Blockchain smart contracts automatically enforce payments to the relevant parties upon the pre-defined events (e.g., claim approval). The data on sent and received payments is instantly hashed, timestamped, and recorded in the shared ledger to be available for the insurance teams and customers.

Use cases:

• Premium payments.
• Claim payments.
• Parametric payouts.

Blockchain streamlines data flow between the insurers and reinsurers, provides an immutable record of transactions, and helps build trust among the involved parties. Real-time monitoring of insurance-related events and automated data reconciliation are estimated to open up a $5–10 billion cost saving opportunity for the reinsurance market.

How blockchain for reinsurance works:

The pre-agreed terms of each reinsurance contract are coded as rules in smart contracts. The latter enforce rule-based direct claim validation, calculation of loss coverage amounts for each party, and payment execution. The blockchain network serves as a shared infrastructure for insurers and reinsurers to transact, track, and trace the available business data. If the parties rely on their own blockchain systems, cross-chain bridges can be employed to provide seamless blockchain-to-blockchain interoperability.

Use cases:

• Insurance data reconciliation.
• Automated claim settlement.

The blockchain technology serves as a backbone of the innovative P2P insurance model. Here, blockchain offers end-to-end automation and full traceability of multi-party transactions for the participants of the insurance pool. It helps guarantee fair insurance coverage and establish credibility between the members of the self-insurance community with no centralized authority.

How blockchain for P2P insurance works:

The pooled crypto funds are stored on the escrow-type digital account in a multi-signature crypto wallet and can be automatically deducted to pay valid claims. The data on pool contributions, claims, and payouts is recorded and stored in the immutable ledger accessible to all pool members. Smart contracts enforce automated underwriting and claim management procedures according to the business rules pre-defined by the network participants.

Use cases:

• Insurance process automation.
• Collaborative claim decisioning.
• Payment processing.

Blockchain provides a detailed audit trail of all multi-party insurance-related activities and enables automated compliance monitoring. It helps insurers eliminate the manual routine related to compliance maintenance and guarantee data processing and business reporting in accordance with the relevant legal standards.

How blockchain for legal compliance works:

All blockchain entries are recorded in a secure, tamper-resistant distributed ledger. Regulatory requirements are formalized in smart contracts to drive rule-based compliance verification when processing particular insurance transactions. Smart contracts can also enforce scheduled generation of insurance reports and their submission to the regulators. Implementation of proxy contracts helps easily amend smart contract rules when legal requirements change.

Use cases:

• Compliance automation.
• KYC/AML verification.
• Regulatory reporting.