Blockchain has been discussed a lot lately. According to some, the importance and position of this technology in the modern world will soon be comparable to that achieved by the Internet. Although it is difficult to make such a definite statement at this stage, it must be admitted that the benefits of blockchain are now used by entities representing almost all industries: transport, medicine, logistics, or banking. Moreover, as it turns out, this technology also has a lot to offer in the insurance sector.
What is blockchain technology?
Before we learn more about the possibilities of blockchain in insurance sector, let’s find out what exactly blockchain is. Blockchain technology originated from the virtual cryptocurrency Bitcoin. In 2008, Satoshi Nakamoto (his real name is still unknown) addressed the critical issue of data security and how to encrypt data in a distributed database called the blockchain.
A blockchain network is a set of interconnected computers (nodes) that use a standard protocol to verify and store the same information in a peer-to-peer (P2P) network. Data stored on each node is shared with the other computers on the network. In addition, new data stored on each device is distributed in encrypted form across the network for individual verification.
What does it mean in practice? Such a system does not require a central computer to authenticate the information because it is verified by each node, which excludes the possibility of its unwanted modification. The way blockchain works determine the network’s primary advantages, which are public, anonymous, and decentralized.
Blockchain in the insurance market
Insurance companies are entities processing vast amounts of data as part of their activities. This is often sensitive and confidential data. As a result, they are typically the target of all kinds of cyberattacks aimed at stealing them. Undoubtedly, a factor that increases the risk of loss or leakage is the storage of all or a significant part of data in the same place (e.g., on a single server).
In this situation, the use of blockchain in insurance sector, based on the idea of decentralization, is a much more secure solution. Equally important, blockchain technology builds trust between the parties sharing information, as the information shared is encrypted as an electronic list of records or blocks.
Blockchain technology in the insurance sector – use cases
The use of blockchain technology in insurance market offers many opportunities. Specific use cases include:
- Fraud detection – attempts to defraud claims are common in the insurance industry. Blockchain ensures that all transactions performed are permanent and time-stamped. This makes it impossible for any party, including insurers, to modify the data, preventing breaches.
- Automation – the insurance sector can save much money with blockchain technology by reducing administrative costs through automation. For example, Anthony Martin, CEO, and founder of Choice Mutual, believes that “Blockchain tech can automate filing for the insured’s death claim. Smart contracts enable life insurance companies to automatically receive information and verify the insured’s death when a hospital uses blockchain-based systems. Therefore, beneficiaries can grieve without extra worry.”
- Smart Contracts – are self-executing contracts in the form of apps that work more or less so that if circumstance (condition) A happens, then B will occur. Software algorithms in smart insurance code can eliminate administrative barriers, develop insurance payment scenarios, and automatically execute the contract terms while leaving no space for manipulation while increasing trust.
Benefits of blockchain in insurance
Some key benefits of blockchain in insurance include:
- Increased competitiveness: insurance companies operate in highly competitive environments where retail and corporate customers expect the best value for money. With the low cost of blockchain-based smart contracts, many insurance companies can make their products more competitive.
- Improved credibility: a key advantage of blockchain technology is credibility. The ability to have built-in consensus algorithms allows for control and immutability, which is extremely important in the insurance industry;
- Improving customer service: improving processes related to concluding, archiving and later proving the originality of documents about installment payment of insurance premiums becomes much simpler with the use of blockchain, which provides constant access to data and easy verification of documents;
- Cost reduction: blockchain technology in insurance reduces the high administrative and back-office efficiency costs that have plagued the insurance value chain. This is because labor-intensive, repetitive and error-prone underwriting and claims processes can be transformed using a unified platform to store and share all documentation.
For sure, the impact of blockchain in insurance is enormous. Technology is a critical factor in the insurance industry’s digital transformation, and the need for innovation in this sector is vital. Customers today are eager to receive offerings from companies that provide transparency, speed, and flexibility. Blockchain is designed to meet these expectations and improve insurers’ competitiveness.
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