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Insurance giants and startups alike are attempting to use blockchain solutions to prevent insurance fraud, digitally track medical records, and more. Insurance has been around for centuries. While technology has permanently changed entire industries wholesale over the past decade, the multi-trillion-dollar global insurance industry in many ways, is still stuck in the past. See how venture firms, corporates, regulators, and builders are shaping the future of blockchain technology.
Despite the rise of online brokers, many consumers still call insurance brokers by phone to purchase new policies. Policies themselves are often processed on paper contracts, which means claims and payments are error-prone and often require human supervision.
Each step in this collaborative process represents a potential point of failure in the overall system, where information can be lost, policies misinterpreted, and settlement times lengthened. Enter blockchain technology, a cryptographically secured form of shared record-keeping.
While the blockchain has been subject to extreme hype, its true killer applications are likely to be in some of the most antiquated fields out there. And it has the capability to be a transformative force for industries like insurance, which requires the coordination and cooperation of many different intermediaries with different incentives.
Of course, getting there will be no mean feat. Insurance companies and startups working with blockchain technology will have to overcome significant regulatory and legal hurdles before we see anything resembling industry-wide disruption. But the possibilities are endless, and insurance companies and startups alike are exploring insurance applications for the blockchain full-throttle.
See how insurance giants and startups alike are attempting to use blockchain solutions to prevent insurance fraud, digitally track medical records, and more. Today, the the sheer complexity of the insurance industry creates gaps in visibility that can be exploited to perpetrate fraud.
This creates opportunities for criminals to make multiple claims across different insurers for a single loss, or enables brokers to sell insurance policies and pocket the premiums. Blockchain technology can enable better coordination between insurers to combat fraud. On a distributed ledger, insurers could record permanent transactions, with granular access controls to protect data security.
Storing claims information on a shared ledger would help insurers collaborate and identify suspicious behavior across the ecosystem.
Developing industry-wide fraud prevention is crippled by the constraints around sharing personally identifiable information — such as name, address, date of birth, etc. Introducing this type of technology would take an enormous level of coordination between insurers to implement. But a blockchain-based effort to counter fraud could begin with the sharing of fraudulent claims to help identify patterns of bad behavior. Less fraud in insurance translates directly to higher margins for insurance companies, which can lead to cheaper premiums for consumers.
Everledger, for example, uses the blockchain to create a ledger of diamond ownership for buyers, sellers, and insurers. The company has digitized 1.
Diamonds are laser-etched with a digital fingerprint that includes uniquely identifiable information for each stone like serial number, clarity, and cut. This fingerprint is stored on an immutable ledger. Say that a diamond jeweler fakes a report that diamonds have been stolen from her store, and files an insurance claim. She counterfeits certificates for the diamonds, and tries to sell the stones as new ones.
Since the unique characteristics of each stone have been stored on the Everledger blockchain, when they resurface, the insurance company is notified and can repossess the diamonds. Insurance fraud is one of the bugbears of the industry, leading to higher premiums and worse coverage for consumers.
Combating fraud is one of the most compelling use-cases of the blockchain, which can provide insurers and insurees a permanent audit trail that can be used to evaluate claims. Today, this is an error-prone process that involves a lot of manual data entry and coordination between different parties.
By allowing policy holders and insurers to track and manage physical assets digitally, blockchain technology can codify business rules and automate claims processing through smart contracts, while providing a permanent audit trail. You can think of insurance as a contract that stipulates the premium an insuree pays, as well as the conditions in which the insurer is liable for damages.
To recover losses, you have to submit a claim to your insurance company. A depiction of the insurance claims process run on the blockchain. Smart contracts on the blockchain can turn paper contracts into programmable code that helps automate claims processing and calculates liabilities in insurance for all players involved. A contract is a paper agreement between two or more parties that is enforceable by law; a smart contract is an agreement between two or more parties that lives on a blockchain and is enforceable by code.
For example, when a claim is submitted with an insurer, a smart contract could automatically confirm coverage, and trigger a request for manual review for losses that meet a specific criteria.
For flight insurance, a smart contract could be linked to an air traffic control database, and automatically trigger compensation when delays or cancellations occur. The prototype records policy renewals, premiums payments, and claims processing onto the blockchain, simplifying the flow of transactions between parties.
DocuSign, for example, in partnership with Visa recently launched a blockchain prototype that simplifies the process of leasing and insuring a car electronically through the Bitcoin blockchain. Each interaction in the process, from choosing a car to selecting an insurance plan and paying for it, is recorded, updated, and verified on the blockchain.
Another space where the inefficiency of tracking and processing claims has been a major drag on productivity is healthcare. Health insurance today is plagued by a sprawling and inefficient ecosystem of providers, insurers, and patients. A single patient will typically see multiple doctors and specialists over the course of his life. Medical records get siloed within different healthcare providers and insurers, and duplicate and erroneous records across different organizations lead to costly administrative overhead as well as unnecessary procedures for patients.
A cryptographically secured blockchain can maintain patient privacy, while creating an industry-wide, synchronized repository of healthcare data, delivering the industry billions in savings a year.
Getting the proper treatment is dependent on your physical therapist receiving accurate information about the fracture from the hospital, and prior medical information from your primary doctor. Each link in the chain represents a possible point of failure.
Sharing data and cooperating is currently difficult in the healthcare industry for two primary reasons. First, the back-end infrastructure for medical records is hopelessly outdated. Medical data often has to be reconciled by hand across hospitals, insurance companies, clinics, and pharmacies. As one study writes:.
Second, rigid privacy laws lead to data siloes within organizations. In the US, the Health Insurance Portability and Accountability Act HIPAA exists to help secure private patient data, but the negative side effect is that it makes it hard to coordinate patient care across various providers and insurers. The implications for this are dire. Denials can occur as a result of anything from failure to obtain proper authorization for a procedure, or improper data entry.
Blockchain technology can return control to patients over their medical data, and give them access to it on a case-by-case basis. Rather than forcing insurers and providers to reconcile patient data across separate databases, a blockchain system for medical records could store a cryptographic signature for each record on a distributed ledger.
The signature indexes the content of each document cryptographically and timestamps it, without actually storing any sensitive information on the blockchain.
Meanwhile, the blockchain could enable granular permissions settings to comply with regulations, while allowing data to be anonymized and shared for research. Gem Health is a network for developing healthcare applications and infrastructure on the Ethereum blockchain that gives patients control of their medical data.
Gem Health has partnered with Philips to build permissioned blockchains that can be used in enterprise healthcare. Rather than storing medical data directly on-chain, it indexes medical records on the blockchain, allowing records to be accessed by providers who have been granted permission.
This is meant to help guarantee patient privacy, while creating an audit trail that makes it easy to find and verify patient information on the blockchain. While MedRec remains an academic project in proof-of-concept stage, it presents a useful model for understanding how medical data can be secured through blockchain technology.
Blockchain companies today in the insurance industry need to deal with significant regulatory and compliance hurdles to have any chance of success.
Insurance exists to help people offload risk and mitigate unexpected events, from natural disasters to health problems. This can be an extremely risky proposition, especially in the event of major disasters like hurricanes or wildfires. Reinsurers provide insurance for insurers in an arcane and inefficient system determined by one-off contracts and manual processes. With data shared on an immutable ledger, reinsurers are better equipped to allocate capital for claims nearly in real-time, allowing them to both process and settle claims more quickly without relying on primary insurers for data around each claim.
The current reinsurance process is extremely complex and notoriously inefficient. Insurers will typically engage multiple reinsurers, which means that data has to be exchanged between various parties to process claims. Different data standards between institutions often lead to different interpretations of how a contract should be implemented.
The blockchain has the potential to upend current reinsurance processes by streamlining the flow of information between insurers and reinsurers on a shared ledger. Allianz, one of the largest European insurers, partnered with Nephila to use blockchain technology to execute a natural catastrophe insurance swap through smart contracts. Catastrophe, or cat swaps, are a financial instrument that transfer risk from an insurer to a reinsurer.
A smart contract-powered cat swap can trigger when an event occurs, such as an earthquake in California, and automatically pay out the insurer according to the reinsurance agreement. Meanwhile, B3i is a consortium formed by some of the biggest names in the insurance and reinsurance arenas, to explore the blockchain.
B3i recently launched a prototype of a smart contract management system for Property Cat XOL contracts, which is a type of reinsurance for catastrophe insurance. Each reinsurance contract on the platform is written as a smart contract with executable code on the same shared infrastructure.
When an event occurs, such as a hurricane or earthquake, the smart contract evaluates data sources from the participants and automatically calculates payouts to affected parties. Executing reinsurance policies on the blockchain promises to help reinsurance companies allocate capital and underwrite insurance policies more efficiently, bringing greater stability to the insurance industry.
Rather than relying on primary insurers for data around losses, reinsurers can query the blockchain directly to provide coverage. While blockchain technology is still in its infancy, there are already a number of promising use-cases and applications for it in the insurance industry. From an industry perspective, insurance companies need to align around standards and processes within blockchain technology. While blockchain technology can provide insurers with better tools for collaborating and sharing data, the insurers themselves must be willing to work with each other.
Public blockchains, where everyone has access to each transaction on the ledger, are unfeasible for the insurance industry due to privacy and security concerns. Private, permissioned blockchains are still under active development. Finally, the insurance industry is highly regulated to protect consumers from abuse and insurance companies from taking on too much risk and going bankrupt.
Legal and regulatory frameworks for insurance need to evolve and provide clear guidance for blockchain technology to succeed.