A blockchain is decentralized ledger to store static records and/or dynamic transaction data without central coordination by using a consensus-based mechanism to check the validity of transactions. Blockchain technology can address the competitive challenges many incumbents face, including poor customer engagement, limited growth in mature markets, and the trends of digitization. Specific to insurance, Blockchain technology has the power to simplify the claims process, alleviate high premiums, help insurers create niche coverage and, most importantly, benefit those who live in catastrophe regions.
The potential of Blockchain for the insurance industry
Blockchain allows for cheaper, more consumer-oriented products to be developed that could chip away at the premiums collected by large insurance companies. An ideal scenario would be the cooperation between Blockchain startups, carriers, brokers, reinsurers, etc. However, most likely many segments of the insurance industry will be subject to disruption and may follow the way of milk men or lamplighters… a precautionary tale for incumbents in the insurance industry.
In addition to shedding light onto new business models in the insurance industry, blockchain can be applied to increase transparency of the products insured. Recorded on the blockchain, the characteristics and the history of the product can significantly cut the time and cost of human-powered assessment and keep records of the history of the product to increase the accuracy of risk assessment and premium calculations.
Blockchain adoption has the power to transition new and existing models of insurance, including P2P insurance, parametric insurance and micro-insurance, into a new digital age. Blockchain is powerful because of its secure platform connecting capabilities.
New distribution methods like peer-to-peer insurance (P2P) could end up restructuring the entire market. P2P insurance empowers policy-holders to a greater portion of the premiums rather than the individual private wealth managers working to produce returns for insurance companies. A number of well-funded startups are already beginning to stake their place in the P2P insurance market.
Example – Enigma enables different parties to jointly store and run computations on data while keeping the data completely private. In the foreseeable future, specific P2P insurance platforms may begin to use smart contracts to set claims and match demand between consumers in an online market, solving many of the current issues when transferring digital assets or accessing private data.
Another use case for Blockchain is parametric insurance. Instead of indemnifying the pure loss, insurers would agree to pay a certain amount upon the occurrence of triggers within preset smart contracts. For example, if an earthquake were to occur in a given region above a magnitude of 5, the smart contract would automatically pay 20 percent of the insurance claim to policy holders. Contracts require mutually trusted Third-Party Administrators (TPAs) to adjust.
Example – Product-creating startups like Rainvow can be used to create cross-border risk pools, allowing individuals from all over the world to access its exchange protocol via digital currencies. Rainvow’s Ethereum platform facilitates niche coverages to automatically compensate unforeseen transportation costs on rainy days.
Blockchain has several perceived benefits in microinsurance. It can enable trust between peers to increase transparency for populations living in remote regions of the world. Its beauty lies in its simplicity. The virtual nature of the transactions could side-step governmental bureaucracy to make geographic limitations irrelevant within its context. These features make the future of micro-insurance very appealing.
Blockchain-powered smart contracts combined with real-time recording can be applied to automate the claims settlement. Claims can be verified by insurance agents and recorded on blockchain in order to trigger the right contract execution. Blockchain-powered automation can significantly reduce the time of settlement and streamline the operations in an efficient manner. Customers, in that case, would be the ones to benefit the most as the waiting time for payments would drop drastically.
Example – Helperbit, an Italian Blockchain startup, uses the Blockchain protocol to enable philanthropists to donate digital currencies to underfunded, hard to reach nonprofits in remote regions of the world. It even allows people to trace their donation and the manner in which it is used. Their risk assessment platform allows good samaritans to pool their money while limiting fraud exposure.
These are barely the limits for blockchain application in insurance. Distributed ledger technology made a lot of noise across industries, and is not baseless. The extremely beneficial properties of this technology can increase operational efficiency of companies in a range of ways which will positively impact customer service and improve insurance products and other blockchain-powered solutions.
The Anglo African team can assist you in unlocking the full potential of FinTech for the prosper of your business. If you have any queries, or if you would like further information, please contact us on 2331636 or by e-mail at firstname.lastname@example.org.