1. Auto-initiation of insurance claims through Blockchain

Auto-initiation of insurance claims through Blockchain

In today’s world where technology is the driving force of both business and personal existence, we are always open to adopting newly updated and better technologies to increase our efficiency and save costs. The same thought is extended to the insurance industry.

Published: April 25, 2017 1:31 PM
Blockchain has an important feature of Smart Contracts which can be integrated with the existing infrastructure of the insurance market to revolutionise the entire process of claims settlement.

By Harmeet Singh Monga

In today’s world where technology is the driving force of both business and personal existence, we are always open to adopting newly updated and better technologies to increase our efficiency and save costs. The same thought is extended to the insurance industry. The global insurance market moves billions of dollars every day and serves millions of people, but continues to face problems such as added costs through fees and delays, redundant paperwork and the constant threat of cyber-attacks.

The solution to all the problems surrounding the insurance industry lies in one word — Blockchain. Simply put, Blockchain is a shared and immutable record of peer-to-peer transactions which is stored in a digital ledger. Blockchain follows a decentralised design and the permissions to read and write data are distributed equally among all users. The entire network is based on a completely trust-less system where no user is given any special privileges when it comes to reading from and writing data onto the database.

Usually, when you meet with an accident and wish to make an insurance claim, you need to go through a claims process wherein an auditor from the insurance company visits and then decides how much you will be compensated. After the audit, your documents are then sent to the insurance company who then compensates you for the damage. This process sounds very simple and easy, but is extremely lengthy and exhausting as the insurance companies need to spend a lot of resources to thoroughly validate and then process your claim.

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Blockchain has an important feature of Smart Contracts which can be integrated with the existing infrastructure of the insurance market to revolutionise the entire process of claims settlement. These Smart Contracts are simply computer programs which run on the Blockchain database and can be programmed to self-execute when the conditions written in their source code are met. Once programmed, the smart contracts can create an elevated level of trust between an insurance company and its customers.

Now, when we integrate the Smart Contracts with the insurance claims settlement process, we solve two major problems: a) We reduce the overall turnaround time for the claims settlement process, and b) we help insurance companies by reducing the total resources spent in the claims settlement process and increasing the company’s overall efficiency.

When insurance came into existence, all data was stored on paper and the claims settlement process was too lengthy. Customers usually had to wait for several months to get their claims. As modern technologies developed, computers came into existence and gave some respite to insurance companies as their efficiency increased. Now, Blockchain is the next big technological revolution for the insurance industry as Blockchain would help reduce redundant expenditures on the claims processing routine.

Smart Contracts help in the auto-initiation and settlement of claims. Now, to elaborate a little on the statement, smart contracts provide immediate processing, verification and payment of insurance claims. The entire process is initiated as soon as some condition(s) in the code of a smart contract is(are) met. The auto-initiation can be applied to each type of insurance — Health & Care, Travel, Life, Car, House etc.

Consider a few examples from various insurances:

I. Agricultural Insurance: A farmer ‘X’ has grown rice in his fields and right before the harvest, the crop is ruined by unprecedented showers and X loses everything. When X wishes to file an insurance claim for his damages, he would have to go to the office of the insurance company. The entire process of validating the claim needs to be done by the insurance company as the auditor needs to do intensive research and file heaps of documents relating to the damage of X’s crops. X is just one such example of a user filing an insurance claim. The insurance companies face large numbers of similar claims every day.

II. Travel Insurance: The integration of smart contracts with the travel insurance industry could potentially change the entire outlook of the claims initiation process. Take flights, for example. With the existing infrastructure, in case of a flight delay or cancellation, you would have to file a report which would need proper validation from the airport authorities and then visit the insurance company to start the claims process. The data received by the insurance companies would again need to be verified by an auditor, who would pass the data forward for the claim settlement.

If Blockchain was to be integrated with the existing infrastructure, the smart contracts would trigger as soon as the data about the flight cancellation/delay is uploaded onto the Blockchain. Upon triggering, the smart contracts would help customers get their claim in an entirely automated process, without the need for insurance companies to spend precious resources on the verification and processing of their claims.

The Blockchain would help reduce the overall turnaround time of the claim settlement process and would dramatically bring down the amount of resources spent by insurance companies on the processing of claims.

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III. Life Insurance: The process of death registration is gruelling and usually stretches over a period of a few months. After receiving a person’s death certificate, the beneficiary is asked to submit it to the insurance company so that the claims processing can be initiated. After the submission of the death certificate, the insurance company verifies the information to process the claim. Blockchain could help streamline the entire process. We could build a private Blockchain by combining the death registration and the death claims processes. The information uploaded onto the Blockchain can be easily retrieved and verified by an auditor/insurer and help increase the overall efficiency of the claims processing. Smart contracts could be programmed to execute after thorough verification of the data by the insurance company. thus saving both the beneficiary and the insurer precious time and money.

Smart Contracts can have applications in each type of insurance as we can easily help settle the various claims and save considerable costs — both to the insurer and the insured at the same time. The insured need not regularly visit the company’s office as the entire process is automated. At the same time the insurance companies save a lot of money too as they reduce redundant expenditures. If a claims processing routine takes five days and there is a team of three people working on the claims processing, it means that a total of over fifteen days are being spent on one claims processing case. With the integration of smart contracts, two weeks’ worth of resources could be utilised in doing something more productive as there is no need for any kind of manual intervention and the initiation of claims is automatic.

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As the unstoppable force of the Blockchain technology barrels down on the infrastructure of modern finance, we need to realise that Blockchain is not here to disrupt the insurance industry; rather to revolutionise it. Many big players of the insurance industry are investing heavily in Blockchain as the nascent and innovative technology will greatly increase the overall efficiency of insurance firms and to an extent help these firms concentrate more on new business.

(The author is Head-Business Development, Blocksmiths)

  1. A
    Anonymous
    Apr 25, 2017 at 4:43 pm
    Would this not increase claims of insurance companies? The reason the denial rate is high is because denial reduces capital outgo for insurance companies.
    Reply

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