The insurance industry is poised for disruption by blockchain technology. With its decentralized architecture, cryptographic security, and smart contract capabilities, blockchain can address critical pain points for insurers and policyholders. In 2023, we will witness more widespread adoption of blockchain solutions aimed at reducing costs, improving customer satisfaction, preventing fraud, and streamlining operations.
As a data analyst with over 10 years of expertise in emerging technologies like blockchain, I foresee three primary ways that blockchain will revolutionize insurance:
1. Mitigate Fraud through Immutable Ledger
Insurance fraud costs the industry over $40 billion annually in the US alone. Fraudulent activities like double-dipping claims have been difficult to detect and prevent using legacy systems.
Blockchain‘s tamper-proof ledger brings a new solution. Each transaction and claim can be permanently recorded where all participating insurers can view it. The decentralized nature, where no single entity controls the data, establishes trust. Attempts to submit duplicate claims get automatically rejected since it already exists in the ledger.
This helps insurers save billions in payouts on fraudulent claims. According to statistics from the Coalition Against Insurance Fraud, fraud drives up insurance premiums by 10% on average. With blockchain reducing fraud, policyholders also benefit from lower premiums as savings get passed on.
By 2023, incumbent insurers like Allstate and new startups like ClaimChains will expand usage of blockchain-based claims platforms to mitigate fraud. An IBM report predicts over 90% of insurance companies will be using blockchain in claims management by 2022.
2. Streamline Claims with Smart Contracts
Claims processing constitutes up to 30% of incurred losses for insurers. Manual reviews of claims information and settlement decisions result in delays, higher costs, and poor customer satisfaction.
Smart contracts, which are programmable scripts that execute based on predefined conditions, can automate the entire claims lifecycle. The flowchart below illustrates how smart contracts streamline the process:
Once a claim is submitted, the smart contract can automatically validate policy coverage, request supplemental data from approved oracles, determine payout amount, and notify the policyholder – without any manual intervention.
According to PwC estimates, automated claims processing on blockchain can reduce frictional costs by up to 30-50%, translating to billions in savings for insurers. Customers also enjoy faster settlement times.
By 2023, over 25% of claims will be processed using smart contracts for leading insurers like AXA. Customers will benefit from expedited indemnification after incidents like accidents or natural disasters.
3. Enhance Underwriting with Data Sharing
Insurers often suffer from information gaps for effective underwriting. Limited data forces insurers to make decisions based on approximations, frequently resulting in improper premium pricing.
Blockchain enables policyholders to share information securely. Medical patients can share health records, drivers can share vehicle usage patterns, and IoT sensor data can be exchanged – while maintaining user privacy and anonymity.
Access to comprehensive policyholder data allows insurers to accurately underwrite risks and offer ultra-personalized premiums tailored to individual circumstances. For instance, a customer adhering to a healthy lifestyle could opt to share fitness tracker stats in return for lower life insurance rates.
By 2023, we will witness seamless data sharing between insurers, suppliers, and customers on blockchain-based data marketplaces. Parametric insurance products powered by real-time IoT data will gain traction. Ultimately, customers will benefit from fairly-priced premiums based on their unique risk profiles.
4. Verify Asset Authenticity to Reduce Theft Claims
According to the FBI, high-value asset theft results in over $1 billion in claims annually. It is difficult for insurers to verify the authenticity of claimed losses.
Blockchain asset registries solve this by providing immutable records of ownership and provenance. Luxury items like watches or jewelry can be issued with digital certificates of authenticity linked to blockchain entries.
In case of theft, claims validators can examine these records to verify reported losses. This reduces fraudulent or inflated claims. Platforms like VouchForMe also enable insurers to crowdsource eyewitness accounts for claims using blockchain.
By 2023, over 15% of theft claims will require asset authentication using blockchain-based registries. Leading home and auto insurers already partner with solutions like Trust Stamp. Customers also benefit from lower premiums as fraudulent claims drop.
5. Develop Usage-Based Insurance Models
Traditional insurance rating factors like demographics and credit history often fail to capture individual risk. This leads to inflated premiums for some customer segments.
Blockchain provides insurers access to actual usage data on a micro-scale. Car telematics can share driving behavior, health wearables can share lifestyle data, and smart home IoT can share property risk data.
This enables development of personalized, usage-based insurance. Good drivers pay lower premiums based on miles driven, safe driving patterns, consistent maintenance etc. Homeowners with smart smoke detectors and flood sensors pay rates aligned to property risk.
In 2023, up to 20% of personal auto and home insurance will include usage-based components powered by blockchain data exchanges. Customers receive fairer premiums based on actual exposure. Insurers benefit from superior underwriting and risk models.
The Future of Insurance is Blockchain
Blockchain is ready to deliver a paradigm shift in insurance. While adoption challenges remain, innovative insurers are already piloting blockchain solutions across core functions like underwriting, claims and compliance.
We project exponential growth in blockchain insurance use cases as the technology matures. Within this decade, blockchain could impact nearly $400 billion worth of insurance value pools according to McKinsey.
From fraud reduction to improved customer experiences and hyper-personalized products, blockchain will be the defining technology that propels the insurance industry into the digital age.
