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While innovation is being widely integrated into various industries, the insurance sector remains relatively traditional in the way it operates and in terms of technology it employs. Disruptive technological solutions are increasing the competition across fields, resulting into major opportunities and improvements. Does blockchain have the same potential for the insurance business?
For years insurance has served those who seek to secure their assets in times of high market volatility or unforeseen circumstances. Wealth, travel or health insurance products the main task of the insurance service providers is to collect premiums and redistribute money if and when necessary.
The big issue here is that the sector works in a very low-transparency mode, basing its operation on promises and predictions. It is common to encounter cases of fake claims and fraudulent cases, which have resulted into lower trust that continues to corrode the industry. Insider estimates in North America region show that about $80 billion is allocated annually to cover fraudulent claims, which gives a better picture of the fraud losses insurance companies suffer.
This and other relevant statistics have created the need for improved claim processing and verification procedures, and, according to a popular opinion, blockchain could be the perfect solution. It is particularly the unchangeable nature of the technological ecosystem that makes it so attractive for insurers, as it may become the transaction-recoding database they are looking for. The validation of transactions occurs across networked computer systems and each new one is linked to the previous one, meaning that the security is ensured not by a central authority, but rather by the cooperation of all of the system’s participants. This way, blockchain technology can help minimize fraud cases and increase the transparency of information submitted on a daily basis. Having access to real-time information is the way to ensure that there are no duplicates in the data, which also contributes to higher efficiency in terms of data management. Administrative costs for companies that usually refer to the ones attributed to third parties, can also be reduces through the integration of smart contract agreements.
In addition, the collaborative efforts of network’s agents can help identify cases that fall out of the commonly observed patterns before such suspicious behavior brings along unpleasant consequences.
At the moment numerous insurance companies have already created in-house teams or hired outsource consultants in order to develop blockchain insurance applications that will operate across the industry’s various sectors. There is a long way to go and various issues to overcome, yet there is no doubt that blockchain has full potential to improve the coordination and cooperation among all the stakeholders.