Blockchain, or shared ledger technology, is gaining the full attention of the financial services industry. Its promise and the potential of a “second internet,” one with complete accountability and superior security, resolves many of the problems facing the financial and insurance sector today. While blockchain doesn’t have the flair of an impressive app or the dazzling optics of robotics, there is a compelling case for blockchain as a foundational technology for the insurance industry. This is an industry that relies upon stability, trust, and transparency. These are some of the very core benefits of blockchain.
Challenges in the insurance industry that blockchain can resolve
While advances in technology have helped minimize issues in some aspects of the insurance sector, it has created new challenges in others. More digitalized personal information is accessible. Third-party payment transactions and claims made through personal digital devices are increasing. Compliance issues are more complicated than ever, and the sheer cost and security of moving money digitally is a growing concern. More data is available, but it is challenging to manage, share, and monetize. The potential for fraud is greater than ever. McKinsey & Company says five to 10% of all insurance claims are fraudulent, and the FBI says this results in more than $40 billion in costs to U.S. non-health insurers per year.
These are just some of the challenges the insurance industry faces that blockchain can help resolve.
Trends and benefits of blockchain in the insurance industry
Through its use as a public ledger, blockchain potentially can eliminate suspicious and duplicate transactions, limiting fraudulent claims. As higher levels of trust are established between insurers and the insured, claims management can be handled more efficiently. Access to Big Data can make risk assessment more timely and accurate. It also could potentially allow for the development of new products. Reinsurance contracts can become more transparent and capital can be moved more efficiently. Even complex compliance issues within the industry can be more effectively addressed.
One of the most significant benefits of blockchain is its potential for helping the insurance industry move transactions and contracts through multiple parties in a way that is not only secure, but also transparent and accountable to its users. European insurance giants Aegon, Allianz, Munich Re, Swiss Re, and Zurich have teamed up for a pilot, proof of concept project involving blockchain. According to Swiss RE head of property and casualty (P&C) business management Jason Richards, “Technology is already disrupting the wider financial services world and is now starting to make its mark on insurance. We want to be at the heart of these developments and see blockchain as one of those potential catalysts for change.”
Ernst & Young, a global leader in assurance, tax, transaction, and advisory services, says while apps and robo-advice models are more trendy in the industry, blockchain is more of a foundational change that will “…reshape the P&C landscape.”
An EY report says, “the insurance industry must make investments now to be in a position to take advantage of efficiencies and opportunities blockchain technology can deliver long term.”
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