Federal Bureau of Investigation (FBI) estimated that the total cost of insurance fraud is over $40 billion per year. Basically, the sheer complexity of the modern insurance industry creates a visibility gap that is exploited by criminals to make multiple or false claims. The insurance setup is inherently complex involving brokers, insurers, reinsurers, and the product consumer. Along with that, the current insurance system is driven by paper contracts and the claims keep shuffling from insured entities to insurers and reinsurers. As a result, the claims and payments are prone to manual errors or frauds.
Blockchain technology promises to offer advantages like higher system efficiency, cost savings by eliminating middlemen, fraud mitigation, higher transparency, and faster pay-outs. That is why most insurance companies are trying to figure out how to implement blockchain in insurance. With the use of smart contracts and dApps (decentralized applications), insurance contracts can be moved to blockchain and automated. As a result, the industry will be able to maintain tamper-proof audit trails. This will significantly lower the cost of creating and executing insurance contracts without leaving an opportunity for fraudulent activities to thrive.
How can blockchain eliminate fraud in the insurance industry?
Blockchain technology provides an immutable ledger to the insurers. This ledger can be viewed publicly but its data entries cannot be edited. As a result, this ledger can help the entire industry to work in a coordinated manner to combat frauds.
- Data security
While the insurers can record the transactions permanently on the blockchain, the technology also promises insurance consumers that their data is secured. As the fraudsters cannot manipulate the data on the blockchain, false claims or multiple claims cannot be made.
Collaboration against fraud
Blockchain can help insurers collaborate and share suspicious activity data across the industry. As the blockchain can make this sensitive data public, insurers can use this data to identify the activity patterns of fraudsters.
- Multiple Claim prevention
The current insurance claim process is very complex. As a result, the fraudsters double-book the claims and get multiple claims processed for the same accident. The insurers can use blockchain’s smart contracts for every single claim. Effectively, double-booking will be completely eliminated.
- Reduced counterfeiting
Fraudsters tend to produce fake ownership documents to make false insurance claims. Blockchain can help produce digital certificates to establish the ownership of properties and automobiles.
Here is the list of 7 insurance processes where blockchain can play role in streamlining the industry.
- Claims handling
The digital ledger is used by insurers to maintain tamper-proof records of insurers. Along with that, the entire insurance claim process can be programmed in smart contracts for automated execution. As a result, the claim handling on blockchain in insurance is faster and devoid of fraud.
This also enhances the insurance product customer’s trust in the industry.
- Insurance distribution
The existing insurance distribution channels involve lots of broker layers. As a result, the information chaos and operational cost of the entire industry are very high. Blockchain can help the industry to provide their consumers with a transparent online marketplace where they can pick the product that suits them and manage the same easily. As blockchain can support faster premium and claim payments, it holds tremendous potential to streamline the distribution channel.
- Registry of high-value items
Product provenance is a big challenge across industries. It has a huge impact on the insurance industry too. However, blockchain can provide digital certificates for trusted product provenance. As these records are immutable, no fraudster can tweak them and make false claims.
- KYC/AML processes
The insurance industry operates on infrastructure which was suitable to serve the industry almost 2 decades back. Thus, there is a lot of paperwork involved which slows down the insurance buying and insurance claim process. In addition to that, it leaves a window open for fraudsters to carry out unlawful activities.
Blockchain can help insurers establish a paperless insurance system. Using smart contracts all the claim processing and pay-outs can be automated. As a result, the KYC/AML processes become more efficient and reliable.
Interestingly, the insured’s data is secured on the blockchain which can be used across the industry. Effectively, the insured will not have to undergo the long process of providing different insurers with his details again and again. He can provide the data once and it can be shared across the industry.
- Index-based Insurance
Index-based insurance is market-linked and is volatile as compared to other forms of insurance. To ensure the insurer is not put to loss when the market dips, the blockchain smart contract can be used to execute the claim processing in case of a loss event. In the current index-based insurance system, a lot of manual monitoring is required. Blockchain can eliminate this completely.
- Reinsurance process
Blockchain can offer primary insurers and reinsurers a collaborated platform where they can automate the audits, compliance checks, and risk modeling. Using smart contracts, the process of claims between the two can be expedited.
- Peer-to-Peer (P2P) insurance process
P2P insurance market offers tons of opportunities to the industry participants. However, due to the current infrastructure, the participants are not able to trust each other. Blockchain fits in the bill and provides users with an automated insurance processing platform.
If you are planning to build a blockchain-driven insurance platform, Antier Solutions can help. We leverage our blockchain expertise, deep domain knowledge, and technical prowess to develop high-performance blockchain-based insurance software that can help you disrupt the market.
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