How blockchain is aiming to disrupt the insurance industry
Let the numbers speak first! One recent report published on Statista highlights that the insurance industry benefits from 19% of potential use cases of blockchain. And given that the blockchain market size is predicted to reach $162.84 billion by 2027 with a CAGR of 68.4%, it's evident that insurance industries leveraging blockchain hold a pretty significant chunk. As emerging technologies like blockchain start to flow through the veins of financial services worldwide, niche areas of innovation like blockchain can help hold insurance pricing, among other benefits.
The Future Of Insurance
Cutting cost and improving efficiencies
Once blockchain and insurance come hand-in-hand, the new approach can significantly cut down on costs. Today, many of the use cases offered by blockchain are focused on efficiency and cost savings. Thus, it's a no-brainer that insurance claims, administration, and holding historical pricing data can be improvised using blockchain. Gartner forecasts that business values that are emerging over the backbone of blockchain will reach $3.1 trillion by 2030, envisioning a future where the terms of insurance applications can be submitted using blockchain technology.
Especially the healthcare insurance industry will witness a major revamp with Electronic Health Records (EHR) since another potential of blockchain would be the transmission of digital evidence for underwriting. Once it is efficient to incorporate digital evidence into underwriting, insurers can expect significant changes in the areas of pricing and product development. What makes blockchain competent is its ability to integrate with technologies that haven't emerged yet. The areas in the insurance industry where blockchain can implement its diligence are:
In addition to the above benefits that blockchain can bring to insurance firms, data sharing and event verification are crucial steps among stakeholders. Adopting blockchain technology and its cryptographic features into insurance applications can also establish fraud and risk mitigation policies. Not to mention the ability to hold and implement historical pricing data of customers at a negligible cost. The possibilities are abundant, enabling insurance firms and startups to experiment with insurance applications built around blockchain and its immutability.
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The security and compliance risks to traditional insurance models
Despite the surge of online brokerage platforms in recent years, insurance policies are still processed verbally over the telephone, where the terms are laid out on paper contracts. This immediately triggers a security concern as claims, verification, and transactions are error-prone and require human supervision. Adding to the complexity are compounding risks since the process involves brokers, insurers, and consumers. Each step in this consensual process adds up to a potential failure – accounting for everything from lost documents to misinterpretation to delays.
Establishing robust insurance policies
The limitation with the current technology won't be a roadblock; instead, insurance firms working with blockchain will have to overcome compliance challenges on regulatory and legal grounds. However, we're not so far from witnessing blockchain and its cryptographic features with the potential to help insurers and their stakeholders hold and use historical pricing data of customers easily when needed. Once compliance challenges are overcome, insurance firms will crank their throttle at full swing, with Web3 startups also joining the insurance industry.
Three major applications that will see a huge revamp are:
1. Fraud prevention and risk mitigation: By hoisting insurance terms from an immutable DLT, blockchain can help mitigate common sources of risks surrounding fraudulent paperwork and evidence/event tampering.
2. Property and Casualty (P&C) insurance: Insurance terms laid out on a shared ledger can be executed through smart contracts, enabling insurance firms to decide on event-based triggers with marginally better accuracy.
3. Healthcare and life insurance: With EHRs, medical reports can be securely shared between healthcare firms, thanks to cryptographic features built into blockchain. Similarly, life insurance claims can also be automated.