The primary pillar of the insurance industry is trust. But, trust comes from transparency which centralized systems don’t provide to the insurance industry.
A centralized ecosystem has been a big drawback for the insurance industry as the ecosystem is more prone to fraud.
The blockchain is set to provide much-needed transparency to the industry and offer its participants the ability to update the transaction in a completely secure and transparent mode.
Blockchain provides the insurance industry with light, fast, smart, and cheap solutions. So, different insurance companies around the world are exploring the infinite beneficial world of the blockchain. On that note, this guide will look into the relationship between blockchain and the insurance industry and its use cases.
But, before starting with the use cases, let’s understand more deeply why the insurance industry needs the blockchain.
Blockchain In Insurance Market The Existing Problems In The Insurance Industry.
The insurance industry has been facing persistent issues for decades. So, let’s see some of the problems in this sector.
Low Market Cap
The industry has not seen any potential growth over the past decade. The recorded growth of the industry in 2006 was 12.5%, which slowly slips down from the 1% in 2010. However, the market showed some recovery, but not quite enough to cover the loss that it has faced.
The experts believe the reason behind this slow progression is the old strategies that fail to cope with new technologies and lack benefits. The lack of benefits fails to build strong relationships with individuals and businesses.
High Rate Of Frauds
One of the most severe loopholes and also why the blockchain in the insurance market has become a need is the fraudulent claims. The issues occur due to the less transparency in the market, where anyone can pose false claims. One of the most common fraudulent claims is accident claims.
Most people get away with this type of fraud as there is no proper detection system and transparency.
Paper-Based Data Storage
Most of the insurance industry relies on paper-based documents, which not only makes the operation of the industry a bit slow but also prone to human-made mistakes.
On top of it, the paper-based documents are easy to temper, which the wrong parties can take advantage of. Blockchain in the insurance industry can provide it with the much-needed transparency and the distributed ledger system to eliminate the need for the paper-based storage system and increase the accuracy of the transactions.
Slow Going Insurance Claim
Among the most pressing issues to confront in the insurance industry is the slow insurance claims. Fraud insurance claims exploit the essence of insurance contracts and, most of the time, succeed. The company is obligated to pay for the party because there is no within this process in place. This results in slow insurance claims and the process.
These are merely some of the issues present in the insurance industry, but there are more issues the blockchain is set to change. Now, let’s move on to the possible use cases of blockchain technology in the insurance industry.
Use Cases Of The Blockchain In The Insurance Industry:
The possible use of the blockchain in the insurance market offers many opportunities that include:
Fraud Prevention & Detection
Due to the transparency feature of the blockchain, it ensures that all the transactions processed are permanent and time-stamped. The features make the insurance claims much more transparent and easy while it also makes it impossible for the parties to include the insurers to modify the data and prevent breaches.
Automating The Repeated Tasks
By reducing administrative expenses through automation, the insurance industry can save a lot of money using blockchain technology. For example, blockchain technology can automate filing for the insured’s death claim. When a hospital utilizes blockchain-based systems, smart contracts allow insurance companies to instantly obtain information as well as verify the insured’s death. As a result, beneficiaries can mourn without concern.
Utilizing The Smart Contracts
Blockchain offers self-executing contracts in the type of apps that function in such a way that if circumstance (condition) A occurs, then B occurs. Smart insurance code software algorithms can remove administrative barriers, and create insurance premium scenarios. Also, it automatically executes the terms of the contract, leaving no room for tampering while increasing trust.
Peer-To-Peer Insurance Model
Blockchain offers a new peer-to-peer insurance model for insurers and consumers. It eliminates the anomalies when members can pool their money and hold the premiums to themselves rather than the insurers. But with the help of the blockchain, the members can pool the whole of their funds in one digital wallet and afterward invest in the insurance industry.
If someone files a claim, the investment is depleted; if no one files a claim, all funds are returned. Furthermore, many applications for this purpose are already in place, particularly in the Defi space. This is yet another tangible benefit of blockchain throughout insurance.
Dynamic Insurance Price
Static insurance prices have become a novel approach to insurance, as companies attempt to anticipate factors that influence consumer attitudes toward insurance. For example, having a stationary placeholder in place, even though the economy is bad, will cause people to avoid purchasing insurance.
As a result, economic and social factors have a significant impact on the pricing of these insurance policies. One of the advantages of blockchain in insurance is its ability to forecast consumer behavior changes and market value at all times. As a result, insurance companies can use the data to adjust their pricing based on an actual scenario.
On-Time And On-Demand Insurance
At the moment, on-demand insurance is gaining traction, and also it is the need of time. When needed, users can obtain insurance directly from their mobile devices or computers. Although it is already in place, the companies want to implement it using the blockchain to improve the significant virtual experience for the users.
Blockchain technology in health insurance can assist in more effectively automating the entire process. Companies, for example, can create smart contracts with underpinning rules in place of their initial paper-based forms. Users can directly connect the smart contracts, review all of the requirements, and then select the one they require.
Fast And Secure Asset Tracking
Insurance companies charge a variety of prices for property and casualty insurance which makes it difficult to track and manage the information. Gathering all of the data on properties, assets, as well as individuals takes time and money.
With blockchain insurance use cases in the mix, they can record the assets in real-time to see modifications in ownership, circumstances, or any other standards they must uphold. Furthermore, because all of the information just on the blockchain is verified, companies save a significant amount of time and money.
In particular, blockchain in insurance can record all liabilities and speed up the insurance claim process.
The insurance industry regularly faces lags, frauds, and other problems on a high scale. All of the anomalies have seriously affected the market cap and the growth of the industry over time.
So, now the industry is seeing new hopes with the help of blockchain technology and its features like transparency, security, and distributed ledger system. In the future, this blockchain insurance industry initiative can benefit the industry with a higher market cap, more regular insurance, and trustworthy relations with clients.