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Blockchain is a system that provides a way to store data so that it cannot be changed or hacked. It provides security for industries like healthcare, banking, and even the military. In this post, we take a look at how blockchain technology is impacting the insurance industry in a significant manner.
What is blockchain, and how does it work?
Blockchain technology began in 2008 as a new way to transfer “Bitcoin” currency. It works by using a system of computers that all record and verify each transaction without any need for an overseeing authority. The transactions group into “blocks.” Each block then links back to the previous block, creating a chain. Distributed networks then distribute these blocks, so no one person is in control of them.
If someone tries to change or alter data in an already existing block, that change will invalidate all subsequent blocks. Thus, any potential hackers have to hack into each computer in the network and change every subsequent block to cover their tracks. The work it would take to do that is prohibitively expensive and makes hacking virtually impossible.
Blockchain has its roots in Bitcoin’s cryptocurrency system, but it can also be used for other things outside of currency transactions, such as business contracts.
Why should the insurance industry adopt blockchain?
The insurance industry was one of the earliest to adopt blockchain technology after banks because of its data protection concerns. As a result, insurance companies can use blockchain to store information on policies, transactions, and claims in a secure format that is virtually impenetrable. The industry’s early adoption of blockchain makes it one of the best industries to push the technology forward.
By storing data on the blockchain, insurance companies can reduce human error when completing tasks like processing claims or updating records. For example, someone could forget to switch out a name on an insurance policy. When trying to find the original policy, they might accidentally process it with someone else’s information, creating a dispute down the line. This human error makes paying out claims very difficult because claims are often processed manually rather than by machine.
Blockchain solves this issue by storing every side of the transaction on an immutable record that can’t be changed or replaced. This blockchain technology is also more secure than systems that rely on a central authority – such as large servers – because hackers would have to simultaneously hack into all of the computers in the world to gain access to these records.
Benefits of blockchain for the insurance industry
The benefits of blockchain for the insurance industry are many. One of the most important is that, because of the immutable nature of the contracts stored on the blockchain, there is no need for any third party to act as an intermediary. There are also plenty of opportunities for automation with smart contracts. For example, smart contract technology can automate the entire claims process.
There are many different use cases for blockchain in the insurance industry. For example, blockchain-based policies, bringing together property and casualty insurance with data, can protect premium payers against fraud while establishing essential customer information that is more readily available to insurers on an ongoing basis. Blockchain also creates new opportunities for reinsurers who can integrate their offerings via smart contracts.
The global insurance industry is undergoing massive disruption, and blockchain plays a vital role in future insurance modernization. Of course, insurance will always have a place in society as long as people want to protect themselves against risk, but having much more intelligent policies with embedded rules and automation can enhance customer experience while making policy administration more efficient. Smart contracts are part of the way there, but there are still other problems to solve.
The Problems with Current Insurance Models
Insurance companies have come under increasing pressure from regulators to issue faster claims payments, particularly in the wake of natural disasters. Unfortunately, insurance policies aren’t always clear, and many low-value claims can take weeks or months to settle.
This delay leads to a lot of frustration for policyholders who have incurred damages. The claim process also leads to numerous disputes and the re-underwriting of policies. This process is inefficient, costly, and time-consuming.
Smart Contracts for Faster Policy Administration
Blockchain enables the creation of smart contracts, which are agreements with coded rules. In the case of insurance policies, smart contracts can automate large parts of the claims process by effectively replacing much reconciliation and governance paperwork between insurers and policyholders.
The insurance industry must shift to a new model that protects insureds’ interests in times of emergency while also providing affordable coverage. Blockchain-based smart contracts can simplify policy administration, increase customer satisfaction and reduce costs. This simplification is one of the ways that blockchain will transform insurance.
Insurance and IoT
Insurance companies thrive on data. In concert with other technologies like the internet of things (IoT) and artificial intelligence (AI), blockchain can collect a range of usable data. For example, if an insured wears a fitness watch and agrees to share data — metrics such as heart rate, oxygen levels, and sleep times can accrue a lower premium. Blockchain stores all the data collected by an IoT device. This is then read by AI, helping your company make better decisions on insurance premiums.
When adopting blockchain, it is best to start small. Ask the team to look at areas where it could be helpful in the short term. For example, you could begin by issuing policies for high-value items that are too risky to insure conventionally. The policy would cover loss or damage due to many risks, including water damage, fires, and theft.
As the technology develops, you could move on to offering policies for cars. The smart contract would be the equivalent of standard comprehensive insurance but with reduced premiums for safe driving. These habits are shown by IoT devices monitoring everything from braking speeds to fuel levels. Down the line, this kind of data could also help lower premiums for the care and maintenance of insured items.
The future of blockchain in the insurance industry
Blockchain in the insurance industry aims to bridge the gap between the existing system and the new digital world. Another goal to improve this bridge, as well as cut costs, is through increased automation. The use of blockchain technology will also allow the marketing departments to identify marketing strategies that match their customers. This use will help create better customer experiences and relationships.
In conclusion, blockchain is a new technology that will help the insurance industry collect and store data more securely. The use of blockchain in insurance can also lead to increased automation. In addition, marketing departments could identify marketing strategies that match their customers, allowing for improved customer experience and relationships. Blockchain-based smart contracts can simplify policy administration, increase customer satisfaction and reduce costs; therefore, it’s essential to consider how you may be able to implement these principles in your digital marketing strategy today!