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Blockchain Streamlining Insurance Settlement

Introduction

The world is gradually switching to digitization, where many businesses have started based on research and the adoption of blockchain in business processes. The future of the Internet has become the topic of much speculation and debate in the last few years. The Internet has become a ubiquitous medium for communication and commerce, from the rise of the virtual world and experiences to the explosive growth of social media.

The vital benefit of blockchain is that it helps to build trust between various parties by sharing information. The information shared is encrypted and secured as an electronic list of records. It cannot be removed, which facilitates ensuring trust between users. Once the data are recorded, these cannot be changed without changing all of the previous records, which also provides secured transactions between users. It was observed how this would be valuable to the future of the insurance industry, as it helps to ensure that information is accurate, secure, and trusted. Blockchain can save costs which is a major benefit.

It is very normal to see that underwriting, product development, and administration can be impacted by using blockchain. A blockchain development company has a huge part to play in helping businesses to automate claiming verification coverage between companies and reinsurers. The use of blockchain will also help automate payments between parties for claims and thus lower administrative costs for insurance companies. It can also envision a future state where new life insurance applications are submitted using blockchain. A survey by Gartner estimates blockchain will generate $3.1 trillion in new business value by 2030.

Blockchain and Insurance

Blockchain has a wide range of applications in insurance. Blockchain optimizes the efficiency, security, and transparency of the insurance industry. Blockchain has the capability to help automate claims functions by verifying coverage between companies and reinsurers. It can be used not only for transactions ranging from signing contracts to processing large amounts of data input but also for resolving claims in one place, with all decisions recorded for future use and decision confirmation.

Blockchain-based smart contracts written by blockchain developers can provide risk management, contract enforcement, and even some degree of automatic claim resolution. Distributed Ledger Technology (DLT) has beneficial applications for streamlining insurance claims processing, boosting cybersecurity protocols, and even speeding up payment times. It will also automate payments between parties for claims and thus lower administrative costs for insurance companies. Blockchain can also help carriers by saving time, cutting costs, improving transparency, complying with regulations, and building better products and markets.

Present Application of Blockchain to the Insurance Sector

The incorporation of blockchain in this sector is a huge step in this present world. Blockchain implementations work on reducing inefficiencies, high transaction fees, and extensive claim-processing time using distributed ledger technology. The data and payments are recorded securely, thereby minimizing risk and making insurance more accessible.

KYC (know your customer) is one of the key processes of identification frequently used by business entities around the world and has been in use by financial institutions since 2000. Customers often give insurance companies access to their identity data when required. With blockchain, a customer can prevent duplicate authentication procedures once the KYC profile is checked and recover the checked identity data when other businesses need it. KYC based on blockchain technology has many benefits, such as disintermediation, transparent transactions, and no centralized control.

Many companies have already used the features of blockchain development services to get the desired standard of work. For instance, Stratumn, which is an insurance company based in France, shares substantiated customer information through blockchain, which in turn saves the cost and time for each demand.

Must-Have Features of Blockchain in Insurance

Smart Contracts

Smart contracts allow people to transfer any value without facilitators. These are like traditional contracts; smart contracts establish rules set by the two sides of any agreement. A smart contract allows the information to be shared and executed in a secure manner. The use of a smart contract in blockchain allows payment connected to the contract to be completed without human interaction, as the information is secure and automated.

Advanced Automation

The insurance industry connects healthcare providers, millions of insurers, and clients; the sector will become bogged down in inefficiencies along with wasted funds and time caused by several human factors and bad communication. With blockchain technology, premium payments in insurance can become functional and trackable. When payment information is within the blockchain database, this can expedite multiple payments to different users according to the smart contract and determination of liability.

Cybersecurity

Blockchain helps to protect sensitive and important data. It is particularly important to a segment that is heavily reliant on data from the intersection of health, private life, and work. Blockchain data storage is decentralized, so the information shouldn't be destroyed by authority. On the contrary, all data is chronologically time-stamped to ensure that events are recorded as they happen in real-time, which is an extra check for forgery.

Client Identity

Knowing customer identity and preserving it safely is one of the most important factors in the insurance sector. This includes verifying their identity collecting important customer data, and which is a time-consuming process. This helps to keep records of the client's documents and important evidence from the issuing authority. It also enables the client to maintain control over the records.

Claims Management

Blockchain is helping to reduce the costs and time spent on each customer and provide more confidence to the customers. Insurers and brokers can now work more efficiently and effectively. More so, it is possible to create a blockchain including all documents, and it will be available to all underwriters. The cost for administration of the claims broker will also be reduced, which is a great advantage.

Challenges and Obstacles in the Application of Blockchain Technology to the Insurance Sector

Technology-Based Challenges in Implementation

Many companies have already implemented blockchain-based solutions for particular use cases and not for their entire operations. Although with time, companies will have to integrate the blockchain-based solutions with their existing information systems and network. There are also the challenges of choosing the correct technology stack and getting the IT support for the application. Cryptographic methods to validate and write the block, the authentication methods, and digital certificates. Blockchain-based applications for the different players in the network will have to be designed and developed with state-of-the-art innovation.

The Challenges of the Legality and Non-repudiation of Smart Contracts

  1. The use of smart contracts poses different concerns from a legal perspective. The authenticity of the smart contracts, distributed ledgers, and the processes may differ in various countries. Parties which are interested in smart contracts may be anonymous. One party may sign an agreement with a minor criterion, for instance, thus establishing an enforceable agreement. Although procedures exist to determine factors such as age before the entry of a blockchain transaction, such a scenario may be difficult for the authority to investigate.
  2. Again, managing assets and financial transactions through a smart contract may pose a challenge, particularly if either party does not understand the programmable logic and code in terms of how it behaves at various times. Another problem is when parties exchange an external agreement containing all legal terms and conditions that will bind the parties and represent the actions of the smart contract. As autonomous business agents advance through smart contract creation and compliance protocols, blockchain technology will minimize the risk and speed up the adoption of artificial intelligence-driven e-commerce if the external document represents how the code will behave. Legally reconciling autonomous business agents as disputes advance through smart contract formation and the need for compliance protocols are some other tough issues. The parties should mutually agree on what to happen in the event of any errors in the code. Parties to the contract must also pursue a court order demanding that the smart contract code represent their actual status.
  3. The implementation of a smart contract does not fit into the conventional territorial jurisdiction, thereby making it difficult to decide which laws are to be enforced in order to deal with contractual issues relating to a particular smart contract. Additionally, there is also a challenge to decide on which court has the prerogative to hear legal arguments that pertain to smart contracts being used. For example, if one of the parties challenges whether a smart contract is legally binding, it is difficult to settle and arbitrate conflicts resulting from smart contract performance. It is difficult to foresee with certainty how such a problem will be solved, considering that there is no central enforcement agency.

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How can Blockchain Technology Resolve the Current Challenges Faced by the Insurance Industry?

Paper-Based Contracts

Insurance companies have started to follow digital technology to register a policy and processes. However, many companies still maintain paper contracts to manage the policy. At some point, paper-based contracts are prone to errors and require human intervention. A blockchain-based application utilizes smart contracts that contain business logic and removes the need for intermediaries by automating the validation processes.

Time-consuming Process

Filing an insurance claim is a tiring and lengthy procedure for consumers. The claiming process may get delayed up to five months, traumatizing the consumers due to insufficient automation and transparency in the system. A decentralized network of insurance entities built by a blockchain development firm removes an intermediary by incorporating a layer of transparency and trust into the system. Compliance built-in smart contracts can easily verify policyholders and insurance providers at the same time. Blockchain enables unified data disclosure, and the stakeholders will not have to approach one another to share the information. So, blockchain could reduce the turnaround time, which will eradicate this issue.

Insurance Frauds

As the entire process has multiple data sources present in the systems, therefore, chances of fraudulent claims have also increased presently. The number of insurance fraud, excluding health insurance, is very high. Since insurance claims are provided on an immutable ledger, blockchain can make it impossible for anyone to alter the information. Stakeholders can also keep an eye on every activity of the process due to the blockchain's traceability feature, which is already built.

Lack of Transparency

The stakeholders cannot get the information seamlessly due to the lack of transparency to date. The inability of the participants to access the data quickly leads to delays of weeks or months. Blockchain presents transparency by allowing all network members to access the information at the same time. It is possible to provide the information to the members at any time when it is required.

What are the multiple use cases of blockchain in the insurance industry?

Now it's clear how blockchain technology solves the challenges faced by the insurance industries; now, let's have a look at some of its use cases.

Fraud Detection

Blockchain technology has the potential to allow better understanding. Insurers can have a permanent transaction on a distributed ledger by a blockchain system. Blockchain also ensures data security, fine access controls, and collaboration identification. Blockchain can eliminate the risk of spending the same transaction twice or multiple claims, thus reducing counterfeiting via digital certificates.

To give a practical example, we can point to Etherisc, a blockchain technology startup that has built a decentralized insurance system. It automates insurance transactions and processing by smart contracts. It also allows not only the development of decentralized insurance applications to provide more efficient insurance purchasing but also selling abilities at reduced operational costs. Smart contracts can always identify claims independently by multiple data records.

P&C Insurance System

Property and Casualty Insurance demands manual data entries and coordination, which helps to run this system. There can be many errors as well. Blockchain technology can transform the way of digitally managing, tracking, and ensuring physical assets. Blockchain Technology can allow insurers to track and manage physical assets, save operating costs, speed up the payment process, provide a permanent audit trail, and automate claims processing through smart contracts by systemizing business rules.

A good example here is Insurwave, a blockchain-based marine hull insurance platform launched in 2018. This platform provides real-time data on ship location, commodity condition, and safety. As it provides reliable information and data, it can help speed up the process of making and verifying claims.

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Health Insurance

The healthcare insurance industry is one of the most inefficient, fraud-prone sectors today. It faces multiple challenges that blockchain technology can resolve significantly. With blockchain technology, healthcare insurers can maintain patient privacy, give data sharing controls to patients, store time-stamped medical records with cryptographic signatures on a shared ledger, and enable fine permission settings to ensure regulation compliances.

MedRec is the leading company in this sector. It is a decentralized medical records management system that indexes healthcare records on the blockchain and allows access to authorized individuals. It helps to ensure the privacy of patients, along with easing the information verification process. The first implementation of MedRec was done by using the Ethereum blockchain platform. MedRec 2.0 is carried out and tested on the Beth Israel Deaconess Medical Center's database. The developers of MedRec are working with new healthcare IT center to develop a deployed network.

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Blockchain experts can also enable new insurance practices to build better products and markets. Innovations of this kind can bring about significant efficiency gains, transparency, faster payouts, cost savings, and fraud prevention while allowing for real-time data sharing between several parties in a trusted manner. Now, blockchain technology has all the potential to disrupt the insurance industry. The safe way to start exploring the benefits of blockchain is prototyping and developing a proof-of-concept blockchain-based insurance solution which we can help you do. Get in touch with us to discuss how smart contracts and blockchain can help you run a more profitable insurance business. Several businesses across the globe are already leveraging our blockchain development solutions.

Conclusion

In this present world, blockchain is playing a vital role in different sectors, which has made human life easier and more comfortable. It has also made the efforts more effective to get the best output. In doing so, blockchain is streamlining the insurance settlement very effectively at present. As technological disruption has come to the insurance industry and the smart risk management strategy is to embrace, that's why blockchain is timely incorporation in this sector. As a blockchain development firm, we are committed to working with facilities and companies on all aspects of decentralized insurance.

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