Insurance policies are purchased for peace of mind. Yet, only around 50% of consumers trust insurers to pay out. The message from inside the industry is to build trust with consumers. However there is a better solution.
This disruptive technology provides forward-thinking solutions that protect consumers and insurers. As the architecture of blockchain technology improves, there is more demand from consumers for companies to adopt new technologies and more incentives for companies to accelerate the paradigm shift.
A decentralised public ledger that can revolutionise corporate protocols is at the forefront of consumer thinking — especially in the younger generations. Surveys reveal that 16–29 year olds are the demographic that have the least trust in insurance companies.
The cross over to digital platforms calls for improved systems that can facilitate privacy and security when sharing financial data. With is highly complex nature, the insurance industry would be a major beneficiary of blockchain technology.
The opportunity to create peer-to-peer policies that have real value, and that consumers can trust, is huge. Public ledgers are transparent, self-policed and incorruptible.
The benefit for consumers is they would be able to buy insurance and have peace of mind they will be compensated without qualifying causes that are unjust. For insurance companies the incentive ins to reduce fraudulent claims and process damages more speedily.
Everyones a winner.
Public ledgers effectively remove intermediaries and are replaced by a digital agreement known as a smart contract. In short, a smart contract ensures that all parties involved in the transaction fulfil their obligation. Smart contracts could effectively replace lawyers.
Peer-to-peer ledgers take contracts to the next level; new approaches in underwriting, claims management and public scrutiny will overhaul the current methods of operation.
In the current climate, the input from various parties slows down the claims management process. Insurers are also reliant on accurate data in order to calculate damages that claimants are entitled to, the risk checks for adjusters can be extremely varied and time-consuming.
There are some forms of insurance that will still require a lot of data from outside a blockchain. A car accident or burglary for example. However, the data needed to execute a smart contract for many other types of claims can be easily verified by information from other devices within the blockchain.
For example, if you sell holiday insurance and compensate for delayed or cancelled flights, you won’t have to contact the airline or verify the information. Blockchain has an “oracle” which has already recorded the information.
These hardware oracles collect data from a wide range of connected devices and track events. However, this feature of the blockchain can only be effective on a Low-Power Wide Area Network (LPWAN).
An LPWAN is akin to radio technology that is wirelessly capable of long-range communication. The network is able to transfer data from multiple connected devices and is a key component for the future of IoT.
Smart contracts represent the first level of a decentralised process, but has benefits on a number of levels. Although contracts will still be drafted by insurance companies, and brands in general, smart contracts on a blockchain can interact with other relevant contracts and contribute to an “open network enterprise”.
In an open network, contracts will be efficiently overviewed by autonomous programs without the need for human input. A public ledger is vital here as it removes the potential for private companies to include clauses that do not benefit consumers.
As more contracts are created, the blockchain has more information to determine which policies favour consumers. P2P insurance policies can therefore be rolled out on a large scale which increases competition amongst insurers and creates better deals for consumers.
Blockchain is not only customer-focused. Public ledgers are incorruptible. Once data has been transferred and recoded in the digital library, it cannot be tampered with by either party. A decentralised repository detects fraudulent activity and eliminates the potential for human error.
Many insurance companies are already exploring blockchain technology with a view to implementing a structure that reduces the risk of fraud.
For example, in specialty insurance and reinsurance markets where insurers are removed by end-clients, there is a higher risk of receiving duplicate claims. Blockchain eliminates the inefficiencies of poor quality data by validating and verifying data that has already been processed.
Blockchain technologies on LPWAN will also reduce the risk for insurers and help to process claims quicker. Long range data streams allows insurers to combine location-based data, external risk and analytics against various third party data.
The capacity to instantly access and update relevant information such as claims forms, police reports, device usage, weather reports etc, will not only streamline the claims process and cut the costs involved in assessing claims, but will also apply validity to a claimants application.
Data taken from relevant sources within a vast network of blockchains enhances data sharing and allows for advanced automation and stronger safeguards against illicit claims.
The long term goals for insurance companies is to integrate blockchain components that allow for widespread communication among connected devices. As we stand at the intersection of big data and IoT, the blockchain combines the two and can provide high-stakes value proposition for insurers and their customers.
Consider how sensors installed with software fitted to hardware can deliver near-field information in real-time. On blockchain’s that use LPWAN, that data can be used to alert insurers that are tapped into a broader network of information resources.
For example, a sensor fitted to a car together can notify insurers that a vehicle has been involved in a road traffic accident. A new claim can be set up without claimants having to contact you first. Satellite footage and road-side cameras can also be used to determine which party was at fault for the accident.
To up the game, insurers could even arrange for an immediate response by notifying police, medical teams and towing services. Drones can be dispatched to assess the damage. By improving customer services and customer satisfaction, insurance companies have the opportunity to earn trust among consumers.
Numerous financial services are tentatively adopting blockchain. Although still in the infant stages, the technology has huge potential. The insurance industry is a prime candidate that can benefit from blockchain technologies but will also rely on systems that incorporate LPWAN as well such a MXC.
To borrow a marketing slogan: the future looks bright.