Blockchain and future applications on insurance technology – Digital Transformation News

Written by Abhishek Sinha

introduction

Emerging technologies have always played an important role in modernizing traditional industry, making their products more accessible, convenient and easy to use. Insurance and blockchain technology are no different – ​​when the Amicable Society sold its first insurance policy over three hundred years ago, it was incomprehensible that there could be an immutable source of truth that could not be falsified, which could in turn be used to underwrite or manipulate a policy – ​​and that Possible today with blockchain technology. Many insurance companies are using blockchain technology in one form or another to improve the claims experience, reduce fraud, and reduce overhead.

National Health Claims Exchange

There are many possible applications of blockchain in the insurance space – but one of the main points I am optimistic about is that blockchain can be used to ensure data interoperability in a secure way without risking exposure of underlying personally identifiable information. The National Health Stack Strategy document published by Niti Ayog almost five years ago talks about the use of blockchain technology. Especially with regard to health insuranceElectronic health records can be maintained in a secure manner and used for insurance purposes using blockchain-based technology. Estonia's success in managing a nationwide EHR system-based Keyless Signature Infrastructure (KSI) is a clear example. The advantage in this case is that unlike traditional encryption technology, KSI does not rely on the private key being secure to prevent breaches, thus making it more secure than traditional systems. It is very likely that the proposed NHCX (National Health Claims Exchange) will eventually use blockchain technology for multiple purposes.

Blockchain applications in insurance

Smart contracting

One of the most explored applications of blockchain in the insurance space is smart contracting. Contract terms are managed on the blockchain and payments can be initiated automatically, without manual intervention if certain conditions are met. Payment records are also stored on the blockchain. The main advantage here is that implementation does not require manual intervention, and records of any action performed in accordance with the contract are stored in the blockchain ledger, making it impossible to forge. Many insurance companies have experimented with smart contracts and many have implemented them as well. One of the biggest success stories here is the smart contract-based policy created by AIG and Standard Chartered, in partnership with IBM which was piloted in 2021. Furthermore, this has been implemented in a multi-national risk transfer policy – ​​making implementation very complex, with Multiple jurisdictions add complexity. In terms of simpler applications, AXA's 'Fizzy' platform, which has now been discontinued, offered instant refunds and automatic compensation to customers affected by flight delays and cancellations.

Closer to home, insurance companies like Bajaj Allianz have built home-grown products based on blockchain-based smart contracting.

Anti-fraud

One of the major problems besetting the insurance industry in India Anti-Fraud – With the current state of paper-based processes, it has become extremely difficult to control the countless forms of fraud that still exist among insurance claims in India. It is extremely difficult to forge or modify records stored on a blockchain – any change would require modifying all “blocks” linked in the chain. It becomes impossible to hide relevant information, or pass on incorrect information, making any type of fraud very difficult.

Reduced fraud often leads to another outcome – increased trust in the ecosystem, which is sorely lacking today, at least in India. Improving ecosystem trust will make processing easier, ensure fair pricing, and improve payment ratios.

Data interoperability

Blockchain uses a “hash” (a hash function is nothing but a mathematical function that can create a numerical value that uniquely identifies the original information/text) to store data – meaning that the authenticity of the data can be verified without actually revealing the underlying PII (identifying information Personal) – thus protecting an individual's privacy, while allowing relevant information to be freely shared across necessary actors. This is commonly referred to as “zero knowledge proof” where information is verified without actually revealing the underlying data. This has major implications for underwriting and processing in the insurance industry, because it also means that all the relevant data is available to make a policy decision with near-perfect accuracy. It will allow players to share data with each other in a secure manner. For example, using a common network, any insurance company can validate whether a new policyholder has correctly declared all pre-existing diseases.

Challenges

One of the main challenges has been finding commercially viable use cases for blockchain applications. However, of all the industries using blockchain technology, insurance is one of the most promising.

Conclusion

In conclusion, there are many ways in which blockchain and insurance can be reconciled, and insurance may be one of the first sectors with a viable, long-term, and sustainable business use case for blockchain. What's more, being a distributed system, blockchain is less vulnerable to data loss. Although blockchain technology has security risks, it is still more secure than traditional data storage. Add to that the privacy protection that blockchain technology promises, and it makes sense for many insurance companies to build or acquire blockchain technology for their products.

The author is the co-founder, Healspan

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