How Blockchain Can Help the Insurance Industry
Updated: February 13, 2020
You may have heard the term “blockchain”, or even “bitcoin” going around lately. It’s a hot topic currently and will only continue to trend while more and more people become educated about it.
As of 2019, a report from PWC Global indicated that 81% of insurers were familiar with blockchain technology and 100% of insurers plan on integrating it into their production systems by 2021.
This is a HUGE increase from 2017, where only 8% planned on investing in the technology.
Although blockchain is a simple concept, it can be difficult to explain because of its abstractness.
How Blockchain Can Help the Insurance Industry
So, What Is Blockchain?
Blockchain can be described as “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
That definition comes from authors of the book Blockchain Revolution, Don and Alex Tapscott.
Or think about it this way…
Have you ever bought something from someone online? Maybe through a third-party service like eBay or Etsy?
Well, in those transactions, there are multiple ledgers with multiple versions of the truth from that transaction.
Huh?
Having multiple ledgers or records means there is a bigger chance for fraud or human error.
So, blockchain is a shared ledger and the backbone of bitcoin, used for recording the history of transactions, which cannot be altered.
You might also like: Battling Fraud With Automation
How Does It Work?
Online transactions are complex. Sometimes there are contracts and other types of paperwork involved when you purchase something online from another party.
With blockchain, you can avoid the middleman and exchange money and even property, conflict-free.
This eliminates the paper trail and speeds up your transaction time.
This is possible because blockchain uses a technology called “cryptography”, which is a mathematical algorithm for storing and transmitting data in a certain way that only the parties involved in the transaction can use.
To understand blockchain a little more and why it’s useful here’s an excerpt from an article by Raj Shroff. Blockchain ensures that:
All participants have a copy of the digital ledger and that each copy is updated in real-time when transactions occur;
There is no centralized server, making hacking next to impossible;
A recorded transaction theoretically cannot be reversed, which makes the ledger an immutable source of truth no matter how many participants hold copies;
Transaction data, records, and participant identities can be authenticated while remaining private.
Check it out: Blockchain 101 (Infographic)
What Part Does It Play In Insurance?
Insurance has the distinct potential to flourish in the future of blockchain and bitcoin. Blockchain has the ability to:
Simplify filing claims
Reduce the cost of premiums
Help insurers create niche coverage
Detect fraud
Blockchain is also great in insurance for:
Smart contracts and transparency
Reinsurance
Automation
Security
Transparency is such an important aspect of blockchain because trust is the most important part of a relationship between agents and customers.
Agencies utilizing blockchain will also be able to track and manage their assets; tangible or intangible.Such as cars or real estate, or stocks and bonds.
Check it out: Blockchain In Insurance (Infographic)
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