Insurance

Blockchain Implications Every Insurance Company Needs to Consider Now

Historically, the insurance industry has always operated along traditional business lines but in recent times, the industry has been undergoing a digital transformation with blockchain technology at the forefront of this revolution. Blockchain's potential to enhance transparency, efficiency and security is causing a paradigm shift in the insurance business. In fact, the industry is expected to see its blockchain-related revenues rise from $425 million in 2022 to almost $37 billion in 2030.

As blockchain technology continues to evolve, it is essential for insurance companies to understand its implications and integrate changes into their operations to remain competitive. Industry research indicates that around 60 per cent of insurers are already using blockchain technology while 80 per cent of C-suite executives are confident that the technology boosts operational efficiency.

Enhanced transparency and trust

A key benefit of blockchain technology is its potential to increase both transparency and trust. Blockchain's decentralised nature ensures that all transactions are recorded in a public ledger that is immutable and tamper-proof. This transparency can help insurance companies build trust with their customers, as it ensures that all claims and transactions are recorded accurately and cannot be altered retroactively.

For example, blockchain can be used to create a transparent claims process where all parties involved—insurers, reinsurers and policyholders—can view and verify the status of a claim in real time. This transparency reduces the chances of fraud and disputes, as everyone has access to the same information. Additionally, blockchain can help in verifying the authenticity of documents and identities, further reducing fraud in the industry.

Streamlined processes and reduced costs

Blockchain technology can streamline various processes in the insurance industry, leading to significant cost savings. Traditional insurance processes often involve multiple intermediaries, each adding its own layer of complexity and cost. Blockchain can eliminate the need for these intermediaries by providing a single, unified platform for recording and verifying transactions.

For instance, blockchain can simplify the underwriting process by providing a single blockchain-based database containing verified information about a policyholder's history, reducing the time and effort required for underwriting. Similarly, blockchain can streamline the claims process by automating the verification and settlement of claims through smart contracts. These self-executing contracts can automatically trigger payments once predefined conditions are met, reducing the time and cost associated with manual claims processing.

Increase revenue streams

Blockchain-driven smart contracts can help insurers expand their portfolio too. They can underwrite policies for digital assets like NFTs and cryptocurrency and commercialise assessment tools. Smart contracts enable on-demand policies, multiparty insurance, and affordable contingency-based insurance for small risks such as freelance work, events, seasonal rentals and ride-sharing transactions. Specialised underwriters can pool knowledge to manage complex policies.

Improved data security

Data security is a critical concern for insurance companies, as they handle vast amounts of sensitive information. Blockchain technology offers a high level of security through its decentralised and encrypted nature. Each transaction recorded on the blockchain is encrypted and linked to the previous transaction, creating a chain of blocks that is nearly impossible to alter. This decreases the risk profile and loss ratios of insurers.

By adopting blockchain, insurance companies can enhance the security of their data and protect it from cyber threats. Blockchain can also provide a secure platform for sharing data between insurers, reinsurers and other stakeholders, ensuring that sensitive information is protected at all times. This can help insurance companies to comply with regulatory requirements and build trust with their customers.

Enhanced customer experience

Blockchain technology can significantly enhance the customer experience in the insurance industry. By streamlining processes and reducing the time required for tasks such as underwriting and claims processing, blockchain can provide customers with faster and more efficient services. Additionally, the transparency and trust offered by blockchain can improve customer satisfaction, as policyholders can be confident that their claims and transactions are being handled fairly and accurately.

Blockchain can also enable the development of innovative insurance products and services. For example, blockchain-based parametric insurance can automatically trigger payments based on predefined events, such as natural disasters or flight delays. This type of insurance can provide customers with quick and hassle-free payouts, improving their overall experience.

Regulatory compliance

The insurance industry is highly regulated and compliance with regulatory standards is a top priority for insurance companies. Blockchain technology can help insurers meet these requirements by providing a transparent and immutable record of all transactions. This transparency can simplify the auditing process and ensure that insurers are complying with necessary regulations.

For example, blockchain can be used to create a transparent record of all transactions related to anti-money laundering (AML) and know-your-customer (KYC) processes. Regulators can access this record to verify that insurance companies are complying with AML and KYC requirements, reducing the risk of penalties and fines. Additionally, blockchain can help insurers comply with data protection regulations by providing a secure platform for storing and sharing customer data.

Integration with insurance BPO services

Blockchain technology can also be integrated with insurance business process outsourcing (BPO) services to enhance efficiency and reduce costs. Insurance BPO services often involve the outsourcing of various tasks, such as claims processing, underwriting and customer service, to third-party providers. Blockchain can provide a secure and transparent platform for managing these tasks, ensuring that all parties involved have access to accurate and up-to-date information thereby ensuring that outsourced tasks are handled accurately and efficiently.

Challenging but worth it

True, implementing blockchain-driven solutions in insurance involves challenges like modifying automated system rules quickly and deciding which decisions to automate first. Managing cryptocurrency exchanges and ensuring reliable external data are also difficult. However, benefits like higher efficiency, reduced fraud and lower costs make it worthwhile. Many insurers already have innovation labs and specialised squads to experiment with blockchain and other emerging technologies. By doing so, they can remain competitive and position themselves for success in the digital age.

How can Infosys BPM help?

Infosys offers enterprising BPM Insurance Services to its clients. Over the years, we have helped clients bring down operational costs substantially. Further, since we function in a collaborative mode, our involvement helps clients on their transformative journey in the insurance industry. We also help our clients adapt easily to evolving market demands and changing customer expectations.