In an interesting discussion that we were having with our banking client, their insurance department kept bragging about the state of the art technology that they were building. Head of Insurance was eager enough to call it InsurTech enabled and very sophisticated. However, surprisingly when I mentioned IoT and Blockchain and how it could impact the sector, the person drew a blank ( Well, to be fair, he did mention that he had heard it before, but isn’t that what you see when you are in-front of several peers)
I was curios to see how the sector in general thinks and this report from PWC does confirm to the bias that i had.
As you would see, Blockchain does find a mention even though it is a much much lower than what you would expect. Insurers, like banks, are intermediaries and, at first glance, there is great potential for insurers to use blockchain technology to streamline payments of premiums and claims.
Aso of today, Actuaries and underwriters are now heavily dependent on the data. This data can be brought to them from a lot of sensors now. For example in telematics, insurers are using data from sensors to price motor risk more accurately, reducing the premiums of young safe drivers, and this technology is spreading to other types of cover, such as home insurance.
Till date, Insurance sector, amongst other similar sectors is ridden by huge unaccountable losses in light of fraudulent claims.
As Deloitte mentioned,
In a typical motor insurance scam, for example, drivers deliberately stage or cause an accident or even pretend to have had an accident, and
claims are then made by the various criminals involved. These so-called ‘crash for cash’ scams cost the industry around £400 million a year. 4 Where claims are made against multiple policies held by different insurers, it becomes difficult to detect the fraud unless cross-industry data is shared.
We have been setting the stage a lot for blockchains but how does it help?
Now the way to get around this with blockchains is by building Smart Contracts. These contracts can manage claims in transparent and immutable manner. Both the contracts and claims would be the part of a blockchain. If there is one accident and the claim for that has already been raised then it cannot be claimed again because the chain would have a record of that. Again since this is a decentralised chain, nobody can just goto a central authority and make a change to the claim and re-trigger it. (Haven’t you heard of that friendly claims agent who tells you to file the claim and that he would take care of it or that friendly bank agent who assures that he has access to the main frames to fix your credit history?)
Smart contracts with IoT is a huge win for the insurance and the financial industry in general. With identity management being embedded in the smart contracts the situations for Crash for Cash would be long gone. Further this would be a blockchain which would be public (ideally) or private but shared within the insurance sector then all this information of a person who would jump from one insurance company to the next and not share all the information would be a distant past.
According to PWC,
Reinsurance expense ratios are typically 5%-10% of premiums. Our analysis of the potential for both more efficient data processing and reductions in claims leakage and fraud indicates that blockchain solutions could remove 15% to 25% of expenses, so delivering an industry-wide saving of $5-10 billion. And faster placement and settlement opens the way for a significant boost in client satisfaction and retention.
With blockchains, there would be a win in terms of processing, opportunities for new business lines and immense transparency which has been a thing of the past for now amongst insurance companies. With all companies sharing their information on the blockchain, it would be a different world in which legitimate insurance claims would help bring the cost of insurance down and add value to everyone.
If this sounds interesting then get in touch with us and we would show you how your company can win with blockchains.