The Future of Life Insurance Industry in the Age of Blockchain
Blockchain continues to be a hot topic within the business world and news. Many of us have heard of blockchain but might not be acquainted with what it actually is. As a basic definition, blockchain may be a system that permits the creation of a digital ledger of transactions and therefore the ability to share them among a distributed network of computers.
The core good thing about blockchain is that it builds trust between parties sharing information. The data shared is encrypted as an electronic list of records or blocks. It can not be erased, which helps to confirm trust between users. Once information is recorded, it can not be changed without changing all of the records, which also provides for secure transactions between users. We’ve observed how this could be valuable to the insurance industry because it helps to make sure information is accurate, secure, and trusted.
Smart contracts help blockchain technology work. Per PwC, a wise contract could be a digitally signed, computable agreement between two or more parties. A virtual third party, a software agent, can execute and enforce a minimum of a number of the terms of such agreements. The smart contract allows the knowledge to be shared and executed in a very secure manner. For instance, consider this as an If/Then program: if an insured car is in an accident, then a claim is paid. The utilization of a sensible consent blockchain allows this kind of payment contract to be completed without human interaction because the information is secure and automatic. With the automation of the contract, we are able to begin to work out how this powerful technology can help large organizations.
Who Uses Blockchain?
Organizations with large amounts of stored records that require information to be moved and shared can enjoy using blockchain, which may include insurance companies, banks, hospitals, and even governments. It’s important to know that there’s not only 1 blockchain within the world. There are different types of blockchains in use globally, with many sorts of blockchain initiatives in development.
- Open or public blockchain: used for governments or nonprofit organizations, where information is hospitable to the general public.
- Closed or private blockchain: allows only invited users to participate, see and use the knowledge. This may be of interest to insurance companies to use and share information on insurance policies for administration, billing, and claims payments. Only information that’s needed to be shared is shared.
Blockchain and Bitcoin
Blockchain is that the technology that allows the existence of cryptocurrencies. Bitcoin is that the first cryptocurrency, a sort of electronic cash, that blockchain technology was invented. Cryptocurrency is digital and uses encryption techniques to regulate the creation of monetary units and verify the transfer of funds. Bitcoin was created to figure as a type of payment from peer to see to figure in the blockchain.
Blockchain and Munich Re
Munich Re could be a founding member of the Blockchain Insurance Industry Initiative (B3i). B3i may be a group of 15 member companies to check the potential of blockchain for insurance. The initial focus of B3i was on property-casualty insurance and looking out to determine how insurers can use blockchain for catastrophe way over loss coverage. Blockchain is employed to automate and streamline processes for paying claims. The B3i initiative has been so successful that B3i has been spun off into a separate entity called the B3i Consortium.
Blockchain and the Industry of Insurance
Magdalena Ramada-Sarasola, PhD (InsurTech Innovation Leader EMEA, Willis Towers Watson) writes that blockchain has the potential to come up with disruption within the insurance industry in six ways:
- Event-triggered smart contracts
- Increased back-end efficiency
- Better pricing and risk assessment
- New varieties of insurance
- Reaching the underserved
Cost savings may be a major benefit that blockchain can provide. It’s logical to work out that claims, administration, underwriting, and products development will be impacted by the employment of blockchain, and today, much of blockchain use cases are focused on cost reduction efforts. Initial areas considered for insurance companies include using blockchain to create automation in paying claims. Blockchain has the power to assist automate claims functions by verifying coverage between companies and reinsurers. It’ll also automate payments between parties for claims and thus lower administrative costs for insurance companies. An analysis by Gartner estimates blockchain will generate $3.1 trillion in new business value by 2030. We will also envision a future state where new life assurance applications are submitted using blockchain.
Another potential use of blockchain would be the transmission of any form of digital evidence for underwriting, including the employment of electronic health records (EHR). When digital evidence is simpler to include in underwriting, we will expect future changes in other areas of pricing and merchandise development. The mix of the net of Things (IoT) and computer science (AI) will result in the automation of insurance processes that may make our industry look very different in the near future. However, these are still new technologies that need proper due diligence before being fully leveraged by the insurance industry.