Blockchain technology is considered the biggest of symbol of the fourth industrial revolution and a potential disruptor for many businesses and industries including the insurance sector. Although the technology is still in its infant stage, it has already shown what it can do: streamline paperwork, increase data security and save businesses costs by cutting out time consuming claims processes.
Before we look at how blockchain can affect insurance sector, let’s recap first.
What is blockchain development technology? Blockchain is a comprehensive, decentralised digital ledger that is always up-to-date and holds record of all the transactions made. Blockchain networks are designed to record anything from physical assets to electronic cash and are publicly available for all the involved parties to view.
A blockchain network, as the name suggests comprises of blocks of data or information which are added as transactions are carried out. When a digital transaction is carried out it is grouped together in a cryptographically protected block and sent to the blockchain network where other blocks are already present and secured. Depending on the various roles specified of each member in a blockchain network, they can approve, validate and verify each transaction.
After verification process the block of transaction is time-stamped and added to the blockchain network in a linear chronological order. The added block of information is then linked to previous blocks, making a chain of blocks with information of every transaction made ever in the history of that blockchain. Every member in a blockchain network with access to the data can see the entire history of transactions in that particular blockchain and have the ability to establish securely who has changed what at any given time.
So how does this entire idea of blockchain technology can benefit the insurance industry?
Blockchain was introduced to the masses through Bitcoin but its applications go beyond just recording of electronic cash. It can also enable innovative and disruptive changes to many other industries other than finance, such as insurance business model. Besides recording electronic cash and financial transactions, blockchain technology projects such as bao.insure can get insurance sector rid of all the paperwork, develop a fast system where claims can be verified easily, quickly and without involving an intermediary, minimise insurance fraud, improve data quality and generally improve the entire insurance sector by mending the processes.
An insurance company generally deals with a number of processes on a daily basis that involve an insurance contract to be signed. The processes can be anything from getting an insurance policy, rating a client, deciding on a premium, claiming the insurance or dealing with a fraudulent policy.
Since blockchain technology deals with smart contracts as well, insurance industry experts claim this technology has immense potential to change the way insurers deal with clients. Insurance industry relies a lot on data handling much like many other industries, blockchain may well end up enabling all or most data-related transactions for an insurer through smart contract. Much like a traditional insurance contract (minus blockchain technology) a smart contract can facilitate, execute, and enforce the negotiation or application of an insurance contract through blockchain technology. What make it stand out from the traditional method are its automation and its ability to act as a substitute for legal contracts.
Since insurance contracts are complex and difficult to understand, smart contract can enable efficiency in the insurance value chain wherever time, effort or money is spent to confirm information before processing transactions.