Risto Rossar, CEO and Co-founder, Black Insurance
Today, businesses from a wide range of industries are looking at the potential use of blockchain within their modus operandi.
One industry in particular that could benefit from its capabilities is the insurance industry.
Despite the advancement of technology and the rise in automation of processes, many customers still call insurance brokers to purchase policies and the insurance companies themselves still process these policies manually, often making things slower and more time consuming than they need to be.
Blockchain has been predicted as one of the key technologies capable of disrupting and ‘radically’ improving the insurance industry, most specifically in the areas of security and fraud prevention, alongside a whole host of other beneficiaries.
The opportunities for blockchain in insurance
Blockchain is a technology with a distributed ledger that has been tipped by many as a revolutionary piece of innovation within various industries, in particular the financial services sector. However, in more recent times, the insurance industry has been identified as another sector that could benefit from the technology.
It can improve insurance processes such as enhancing operational efficiencies, providing effective fraud detection as well as generally reducing overall administrative costs. In addition to improving processes, blockchain can also help address current challenges within the insurance industry such as data tampering and single point of failures.
However, while the business use case in blockchain technology is viable, its application is dependent on the willingness of the insurance industry to accept changes and be open to work with new innovations and methods.
Historically, the insurance industry has been slower to adapt to new advancements in technology compared to other sectors. This is mainly due to fundamental barriers such as complicated IT processes, extensive legacy and company size, with some of the larger organisations therefore much less agile and innovative. Whether it will mean some roles within the industry become obsolete or augment the work insurance workers are already doing, is yet to be seen.
Out with the old and in with the new
Blockchain technology has the potential to replace the extra man power needed for some processes across the insurance industry. By providing an automated and error proof digital workflow, blockchain can eliminate the need for less sophisticated manual reporting and accounting, replacing them with smart contracts and distributed standardised ledgers.
This may be viewed by some as replacing the need for certain parts of the workforce, but it should in fact be seen as an opportunity for companies to upskill their staff and move them further up the value chain as traditionally admin based roles become more automated.
The technology is also predicted to enhance the efficiency of employees and business processes for customers, simply because what may have previously been viewed as daunting and menial tasks will be done at much faster rates.
When you look at the actual insurance functions that employees typically carry out, these mostly entail a vast amount of data processing, reporting and accounting, which then go through several different formats and insurers. This can not only slow down processes, but also reduce data visibility across the value chain, which too often results in inefficient underwriting and more risky decisions being taken.
The use of blockchain technology means that insurers will be able to record data on shared ledgers using standard formats, enabling reports to be automatically generated in real-time without human interference. This will free up insurance brokers to work on more strategic and demanding tasks, and increase the visibility of data, meaning insurers can improve decision making and become better at risk-aversion.
By making business processes more transparent, it reduces the opportunities for and incidences of fraud including data tampering. Other unique capabilities of blockchain include decreasing of errors such as data duplication, faster insurance settlement processes and increased resilience due to no single point of failure.
As with many industries today, the majority of companies usually imitate and follow the business models of their most successful counterparts, and it’s no different with insurance. Understandably, it will take brave, innovative and agile insurance companies to break the mould and embrace the use of blockchain within its processes, thereby likely inspiring the others to follow suit. One thing for sure is that blockchain is an opportunity and not a threat to the insurance industry.