Blockchain has proven its potential of providing the transparency and integrity in most of the business processes. Over the last few years, Blockchain has been considered as an important strategy in most of the consumer facing businesses, mainly in banking, insurance, and logistics. And quite naturally, the blockchain hype has also knocked on the doors of Insurance companies.
What is the role of insurers in insurance process?
Traditionally, insurers collect money from policyholders, create a fund of that money, invest in low-risk commodities, and reallocate it to the relevant group from pooled money. This process involves intermediaries at the time of policy creation, funds management, and fund disbursement. Blockchain acts as a transparent layer on top of insurance process, which provides a shared ledger where all participants can to achieve transparency in the insurance process. It also builds trust with the policyholders by giving them real-time view of end-to-end insurance process. Blockchain can disrupt the insurance in five key areas:
1. Automatic triggering of events using smart contracts
Smart contracts are condition-based agreements which are built above the layer of blockchain; they trigger when certain conditions are matched, leading to an automatic payout to a policyholder. Self-executing agreements can give a new dimension to fast and automatic payout in the insurance industry. For e.g., in a travel insurance, if a flight gets delayed, which is coded as an event in smart contract, can trigger payout to the policyholder.
2. Efficient backend operations
All the backend processes and transactions are registered on a shared ledger, where all the required participants can post and get real time information about the end-to-end insurance process, from policy creation to money reallocation to policyholder. With the implementation of blockchain, data duplication can be reduced, and business efficiency can be increased.
A decentralized consortium network of insurance bodies that manages all transactions and communication on a single shared ledger will completely remove the need for intermediaries, with an added layer of transparency and security to the process. Compliance programmed in blockchain can automatically verify policy holders, service providers, and claims.
4. Better and distributed pricing
Big is the latest technology behind doing market research and providing better solutions for consumers. With Blockchain and Big data, the insurance companies can collect data from various data points like IOT, wearables, and analyze that data for better decision making on the pricing of insurance plans. Automated access to external data storage and real-time encrypted database will offer the potential to disrupt the market.
5. Enables new type of insurance
Blockchain can introduce new ways for claim management and policy pricing, with increased efficiency and transparency. Companies can offer payout in the form of cryptocurrencies. Smart contracts can also be used here for micropayments in smaller events. Overall, it will create new business models for insurance companies.
Blockchain is a great promise
Blockchain is a promising technology for insurance companies because of its properties like transparency, integrity, and security, which are currently missing in the traditional insurance market. It will provide more trust and sufficient resources to the policyholders so that they can choose a policy as per their needs. Overall, blockchain seems to be an amazing opportunity for both insurers and policyholders.