THE coming of internet heralded a new era for the banking, financial services and insurance (BFSI) sector. While it certainly transformed the insurance sector, with customers comparing, buying, renewing and storing their policies online, a second revolution may be upon insurance, transforming how companies sell insurance and how customers buy them. It may even impact the core of the business by creating new products.
The catalyst here is blockchain—considered a messiah for the banking sector with the distributed ledger system allowing banks to consolidate clearing house functions and increasing the speed of transfer of funds while ensuring more secure transactions.
Game changer for insurers
Blockchain is a digital ledger which keeps record of each transaction and is shared among a distributed network of computers, like a shared spreadsheet. So, a block of data has digital records which all participants can see, but can only be altered by a majority. In case of insurance, blockchain allows companies to streamline dispensation of claims and premium payments. As a company can create a spreadsheet, all data gets recorded in that sheet, allowing the company to process claims faster, thus, eliminating the need for a data repository and cross-checking what was processed and what wasn’t.
A shared ledger can reduce the instances of fraud as companies can ensure that there are no subsequent claims on the same product. But the real application of the technology comes in the form of new niche insurance products it ceates when combined with internet of things (IoT). For instance, the black box in a car can generate data on driving habits of the user based on which blockchain can help create personalised insurance covers for each kind of user. Also, combined with artificial intelligence it can help companies detect consumers who require additional insurance based on their buying habits.
Benefit for consumers
Consumers also stand to benefit from blockchain technology as any reduction of cost for the company gets translated into a lower premium. One of the pain points of insurance for consumers is the claim approval process. Blockchain can ensure validation of data faster and quicker disbursement. Also, with IoT systems and better tracking of consumers, this process can get even faster. For instance, a home security system with cloud connectivity can allow companies to track information real-time and help process claims.
While blockchain technology can certainly be a game-changer for the industry, it faces the same challenges here as it does across sectors like banking and insurance. Blockchain requires an integration of systems and services for companies; while this may be beneficial, it is incumbent on the insurance players to join hands to create a central repository. Also, the system requires seamless integration between services like IoT, automated devices and consumer records which may be an expensive proposition, especially for small players. Blockchain can be the last frontier for the insurance industry.
* Blockchain is a digital ledger which keeps record of each and every transaction
* It is shared among a distributed network of computers, like a shared spreadsheet
* A shared ledger can ensure that the cases of fraud get reduced
* Blockchain allows companies to streamline dispensation of claims and premium payments
* The technology can reduce cost for insurers and lower premium for customers