Blockchain to make insurance settlements faster and cheaper

Blockchain can automate and streamline the entire process of the complex insurance business, right from taking a policy to disposing the claim, and thus reduce the costs.

Insurance is getting more coverage, especially against the backdrop of recent pandemic, which caught the people unawares but instilled a greater awareness among more people to be prepared for the unexpected.  More coverage also means more complications, settlement issues, frauds and compound processes. Because, insurance has become complex with paper contracts and high human involvement at different levels, with brokers, insurers, reinsurers and consumers.

According to estimates from Indiaforensic Research, insurance frauds alone in India happen to the tune of Rs. 30401 crore every year, constituting about 8.5% of the total revenues.  Though there are several other issues, disagreements and delays in settlements are major concerns. Recently, the Supreme Court warned the insurance companies not to refuse claims on `flimsy grounds’. Thus the companies and the customers are equally worried about the settlement issues, which need to be solved amicably and faster.   

At the same time, blockchain is emerging as a disruptor in many industries including the insurance where policies are still processed on paper contracts, error-prone, human-intensive, and marked with delays, limitations and complications.

The insurance companies were slow to adopt blockchain, though it promises to ease many of the hurdles in the sector as the new technology has many inherent advantages. However, there is a newfound interest visible across the globe. The global market for blockchain in insurance, which was valued at $0.21 billion in 2020, is estimated to grow at a CAGR of 82% and reach $25.51 billion by 2028. Asia-Pacific region, which still lagging behind in adoption of blockchain, will be one of the fast growing markets.

As a distributed ledger, blockchain is known for its immutability, transparency, traceability, trust, decentralized nature and agility. As the blocks are chained together chronologically or in sequence, participants can approve transactions at the same time, while all participants or the nodes have control too.

Blockchain can automate and streamline the entire process of the complex insurance business, right from taking a policy to disposing the claim, and thus reduce the costs. It will bring increased transparency and prevent frauds through higher levels of security. It can improve customer engagement and accelerate the industry growth by selling products more easily. And the finer part is that the information is unchangeable and cannot be deleted. That stamps out the possibility of frauds.

One of the biggest gains of employing blockchain is its agility, which will reflect in settlement of claims. It can validate information and sources, update and share the secure data on a real time basis, which will make settlements faster and easier. With the self-executing smart contracts powered by the blockchain, compensation claims can be assessed and settled faster. Estimates say that claims can be settled three times faster and five times cheaper with the help of blockchain. This also means shunting out middlemen from the process. The simplification of contracts ensures better flow of information, avoiding the need for multiple reinsurers for each contract. According to McKinsey, automation of claim process through smart contracFts can save up to $200 billion annually.

Traditionally, claim settlement takes months as insurers get into a human-intensive due diligence of evaluating costs, benefits, internal and external risks related to underwriting. But with blockchain, external and internal data can be linked to decrease risk liability and provide semiautomatic pricing in a timely and efficient manner. This can help to automate and shorten the underwriting process, reducing the cost of operations. Blockchains can also bring transparency and improve trust in the underwriting process by enabling shared visibility in the complex multinational programs. The pricing will also be more accurate as smart contracts allow for filtering across the logs.

In the case of health insurance, medical records can be protected with cryptography and shared between the stakeholders. Lack of data alone costs hospitals more than $260 billion annually, according to some estimates. There is a dynamic insurer-client relationship by securely storing data with blockchain. So, death claims can be settled faster as details of an insured demise can be entered into this decentralized ledger easily, instead of waiting for months as experienced now. Similarly all kinds of insurance will be benefited from this revolutionary technology in a big way.

The author is Srinivas Mahankali, Chief Business Officer, Blockedge Technologies