Digital guarantees
Blockchain in insurance
Recognition, relevance
Over the past five years, distributed ledger technology has been actively conquering the global market. The most successful examples of technology integration are in the financial sector.
18% of top managers of banks said that they have implemented blockchain technology or will do it within the next 12 months, another 15% expect to do this within two years.
Blockchain is of significant interest in other areas as well, including insurance. The technology has the potential to help many industry players cope with competitive challenges, including developing online sales (which have intensified during the COVID-19 pandemic), combat fraud, and improve information exchange between market participants.
Today the technology can be called quite mature. A market for blockchain platforms has emerged (Hyperledger, Corda and Ethereum), which are proven solutions and demonstrate their reliability. Blockchain consortia unite the largest companies around the world: Intel, Microsoft, Mastercard, Wells Fargo and others take part in the work of the R3 consortium.
Blockchain, originally used as the basis for cryptocurrencies, has found its way into a variety of industries. More than half of modern companies around the world plan to invest over $ 1.2 million in blockchain in the next 12 months.
The most popular use cases for technology are digital currencies, data access and exchange, data reconciliation, identification, logistics and payments.
Pros of technology in the insurance industry
The technology can be useful for various aspects of insurance, for example:
• health insurance (reliable medical history for insurance payments)
- customer data can be shared with insurance providers for tracking
information about insurance policy holders, which will help in simplifying the search for clients and the provision of related services;
• reinsurance;
• property insurance against accidents;
• insurance of cargo transportation (the complexity and intertwining of processes, the involvement of many participants);
• unemployment payments (checking the status of employment);
• insurance against natural disasters (insurance payments to participants in the agricultural sector, agro-industrial complex).
In addition, the process of insurance payments is facilitated, since all actions are performed in real time with instant data updates, which simplifies and speeds up the process of payments for both parties with high-quality verification of requests.
In addition to the above, blockchain also simplifies administrative processes such as a document flow, thereby facilitating the verification of documents by insurance agents and optimizing the provision of services to clients. The level of data privacy protection is growing.
Smart contracts play an important role in the use of blockchain for the insurance industry — according to BCG, they will help insurance companies around the world save more than $ 200 billion a year in operating costs and reduce operating costs in relation to revenue by 5–13%.
Distributed ledger technology is actively beginning to be exploited in insurance, we can see examples of solutions in a very wide range of areas from business and transaction insurance to personal health insurance. Thanks to the technology, new forms and models of insurance began to appear — per-minute and p2p insurance, insurance marketplaces, automation of insurance payments at the expense of these external providers.
The prospects for the development of decentralized platforms in insurance are seen in the involvement of as many participants as possible not only among insurance companies and fintechs, but also among independent counterparties, for example, expert centers, information providers, medical institutions and other market participants, depending on the type of insurance.
The use of blockchain in insurance will help increase the transparency of the exchange of information between market participants and significantly speed up the processing of insurance claims and payment of remuneration. The latter is possible only with the active participation of banks in these initiatives.
Platform solutions
The distributed ledger technology is studied and tested by insurance market participants, but there is significant growth potential in this area. World practice shows that for the fast and efficient implementation of the blockchain, it is necessary to use platform solutions that have already proven their effectiveness in industrial operation.
The main prerequisites for the creation of such platforms are the existing limitations of financial ecosystems.
The intermediary system impedes the optimization of transaction costs and the increase in the speed of execution of financial transactions. Due to the fragmentation of information on financial transactions, it is difficult to conduct audit and risk management procedures.
There are a number of principles for building a platform:
1) the legal significance (within the framework of international jurisdiction) of the information;
2) no technical need for trusted intermediaries;
3) support for programmable agreements (smart contracts);
4) absence of a single point of failure (stopping the work of one network participant does not mean stopping the operation of the entire network);
5) independent accounting of resources spent by participants to support the system;
6) the ability to scale (by the number of participants and transactions)
More than 75% of representatives of the insurance market believe that the use of digital technologies will significantly increase the competitiveness of companies and contribute to the expansion of insurance portfolios.
InsurTech solutions find a positive response in insurance consumers around the world, thereby encouraging insurers to optimize their internal and external processes in order to remain competitive, including using the blockchain.
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