Blockchain technologies: It has the potential to revolutionize the reinsurance and insurance industry, as it does in almost every sector of the global economy, including healthcare, finance, supply chain management, and more. It is believed to help all parties involved in insurance companies save time, reduce costs, improve transparency, comply with regulations, and create better products and markets. Blockchain technologies can be defined in their simplest form as a decentralized data ledger that allows users to share their data. The data is encrypted and distributed to the chained blocks and cannot be changed without the joint decision of the members. If any person tries to make changes, all parties are warned, and the identity of the person concerned is revealed.
One of the most essential uses of blockchain technologies in insurance is smart contracts. Contracts and insurance policies, terms, conditions, duration of the policy, etc., can be registered electronically as smart contracts containing a set of rules. Smart contracts can be programmed to trigger specific actions based on predefined conditions, such as the occurrence of an event or the fulfillment of a particular obligation.
Blockchain technology can be benefited from as the insurance industry has a structure where operations are spread over more than one country, and there are many actors, including the end user. In addition, it is subject to many different commercial, legal, and regulatory regimes in the sector. Therefore, blockchain technologies can help businesses record all their transactions in immutable encrypted blocks. The insurance industry can be connected through a decentralized network where transactions are recorded on distributed ledgers. Trust for transactions can be achieved through consensus by blockchain members, thus eliminating the need for third parties.
Use of Blockchain Technology in Insurance
Customers can make Insurance policies directly, securely, and transparently without intermediaries. With smart contracts, requests are handled automatically, and costs are reduced. Information about the insurance claim is securely documented on the Blockchain. For example, a travel insurance company can monitor flight data in real-time and instantly transfer compensation in case of delay. False claims are filtered out, and undesirable situations like insurance fraud do not occur. For example, when a car accident occurs, Blockchain can store and share information such as accident reports, damage photos, and police reports. This can speed up the claims process and reduce the time it takes to resolve a claim.
Insurance companies can use Blockchain to store policy
information, claims data, and other related details securely and
transparently. It can help prevent fraudulent claims as insurers
can quickly verify the authenticity of a claim by accessing
relevant information stored on the Blockchain. It can also help
improve the customer experience in the insurance industry by giving
policyholders more control over their data.
Reinsurers can use Blockchain to streamline their operations and
improve risk management. Using a blockchain-based platform,
reinsurers can track insurance, claims data, and risk exposure
transparently and securely.
Blockchain can reduce the time and costs associated with manual processing by automating the claims process in life insurance. Smart contracts can be programmed to pay heirs when the policyholder deceases.
Blockchain technology has the potential to streamline processes, reduce costs, increase transparency, and improve customer experience. Companies like Lemonade are leveraging Blockchain's innovative contract technology to simplify and modernize the insurance ecosystem by combining AI and blockchain technology for home, car, pet, and more insurance products.
The insurance and reinsurance industries involve many stakeholders, including policyholders, insurers, reinsurers, brokers, and regulators. Adopting blockchain technology in these industries could streamline processes, increase transparency, and reduce costs. At the same time, customer experience and communication increase with innovative solutions in products and services.
*This article has been originally published on Harvard Business Review Türkiye on August 13, 2023. Please click here for the original article in Turkish.
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