Insurance is an ever-growing industry that offers tons of benefits for its stakeholders. In the US, the health insurance sector was responsible for writing new premiums amounting to $638 billion. While the industry remains strong, changes in time affect insurers as well. In the data from the PwC forum, many insurer directors believe that in five to ten years, about 44% of insurers will not survive, unless they adapt to the ongoing changes in the industry as a whole. Technological advancements require insurance companies to adjust and use the power of blockchain technology to their advantage. Some of the blockchain use cases for insurance include:
Prevention of Fraud
One of the most significant blockchain use cases for insurance is fraud prevention. Today, almost all insurance companies spend millions on employing anti-fraud technology. Still, they fall victim to unscrupulous individuals who want to cash in and make fraudulent claims.
According to the Coalition Against Insurance Fraud, the industry loses at least $80 billion annually due to fraud. These fraudsters do not steal from insurance companies. They take from millions of families who have to shoulder between $400 to $700 annually in their premiums. Premium diversion is the most common type of insurance embezzlement. Some insurance agents are guilty of doing this. Instead of remitting the premiums, they keep the money for personal use.
Why is insurance fraud prevalent? Insurance fraud happens because of the absence of shared information across all the stakeholders in the insurance industry. Due to this, fraudulent claims can easily slip through the cracks in the system. Insurance companies find it difficult to chase out bad claims. By using blockchain technology, insurance companies can store information and use algorithms to detect repeat claims easily, identify repeat offenders, and note signs of fraud. It will not only be a win for insurance companies but for insurance beneficiaries as well.
Accelerating Creation of Policy and Processing of Claims
Errors and inefficiencies during the claims review process are often the cause of higher premiums. These issues can lead to claim denials, which can lead to appeals. Appeals can cost insurance companies billions of dollars, which they eventually pass on to the insured in the form of higher premiums. Aside from the financial concerns, these denials also cost losses for the hospital in net patient revenue.
Blockchain can provide the technology that would offer convenience, monitoring, digitization from policy creation to claims monitoring. Once the process is automated, claims can easily be monitored by all stakeholders. It will also factor in possible fraudulent history by creating a database containing all relevant information such as accident history, medical and surgical procedures, and records.
Streamlining Procedural Interactions
In the property-casualty insurance sector, about 10% is due to fraud. From 2011 to 2015, the industry lost as much as $34 billion annually. Most of the cause of this fraud stem from procedural interactions. Often, the exchange of false information leads to costs that fall disproportionately on the claimant and the insurer. When this happens, premiums increase across the whole industry. Additionally, the presence of false information on insurance documents also causes significant consequences.
For instance, knowingly providing misleading information on a health insurance application can cost an individual as much as $250,000. However, if the person involved is a law enforcement officer, the penalties are lighter. In case of an accident, they can be imprisoned for a year, receive 12 months probation, and pay a $1,000 fine. Repeat offenders get five times the penalties. The problem here, however, is the provability of guilt. As a result, they are hardly prosecuted. This difficulty brings forth the need to put in place better systems of catching fraud.
Blockchain can change all this. When all information is stored in a database and tied to one’s verified identity, there will be no need for writing down information. Through blockchain, it would be easier to make routine insurance interactions allowing for easy detection of fraud.
Prevention of Risk
It is an accepted fact that the insurance industry is massive. To date, there are more than 7,000 insurance companies that collect over $1 trillion yearly premiums. This robust industry is what makes it attractive to fraudsters. In the $1 trillion premiums, about $40 billion go to fraudsters. This substantial loss results in higher premiums for those who avail of insurance policies. Yes, most insurance policyholders are not aware that most of their premium payments cover losses to fraudsters.
As insurance companies rally to engage risk prevention in their policies, blockchain offers the most advanced fraud prevention tools. Blockchain technology can be used to secure fraud intelligence information among decentralised organisations. As a result, fraudulent activities such as double booking, counterfeiting, contract alterations can be prevented through timeless accounts of asset ownership.
One of the blockchain use cases includes the provision of on-demand insurance through the use of smart contracts. Insurance companies can benefit mainly by setting up triggers within the system that will activate and terminate policies depending on the set criteria. Through this, there will be a faster policy establishment, claims processing, and claims payments.
Blockchain technology is now disrupting tons of industries by providing easier, hassle-free transactions, and by offering a solution to most of the challenges that the industry faces today. When blockchain use cases for insurance is further exploited, it will not be long before premiums becoming more affordable for more people. Through blockchain, many hope to see a world where everyone has access to all types of insurance. While it is too early to pray for this, it can be possible.