Cryptocurrencies like bitcoin have become all the rage with people viewing them either as an investment opportunity or a bubble waiting to burst. However, the technology on which these are built, the blockchain, holds significant promise for insurance. Jonathan Jardim, senior software developer at SilverBridge Holdings, takes a closer look.
The blockchain is a digitised, decentralised, public ledger of all cryptocurrency transactions. This continuously growing list of records are linked and secured using cryptography, making it virtually unhackable. Deloitte published this example of how blockchain technology can be used:
You (a “node”) have a file of transactions on your computer (a “ledger”). Two government accountants (let’s call them “miners”) have the same file on theirs (so it’s “distributed”). As you make a transaction, your computer sends an e-mail to each accountant to inform them. Each accountant rushes to be the first to check whether you can afford it (and be paid their salary “Bitcoins”). The first to check and validate hits “REPLY ALL”, attaching their logic for verifying the transaction (“Proof of Work”). If the other accountant agrees, everyone updates their file.
So, what does it mean for the insurance industry? For one, it effectively cuts out the middleman linking the insurer directly with a customer. There is no need for an intermediary to act on behalf of either party as the stakeholders have direct access to information on the blockchain. This greatly improves the speed of transactions (real-time) and reduces the cost (no need to pay extraneous parties in the process).
Moreover, the blockchain can reinvigorate the claims process for an insurer. Gone are the days of submitting a claim and waiting for days (if not weeks) for it to get approved. The blockchain acts as an enabler that facilitates the processing of claims verification almost instantaneously. Because the public ledger cannot be altered, it greatly reduces the risk of fraud taking place or inaccurate information being processed. And only people with the right permission can gain access to view the data specific to an insurance claim so the potential for human error is also virtually removed from the process.
Because the blockchain is built on a transparent environment, it lends itself perfectly as a vehicle of trust. It results in the development of Smart Contracts where information is recorded and verified in the blockchain. Once a claim is submitted, the blockchain can ensure that only valid ones are paid out. If multiple claims or fraudulent details are submitted, the blockchain will immediately be able to identify and reject it without any intermediary intervention required.
It also eliminates outdated and inefficient systems. With information easily shareable, greater insight to data provided, and security integrated with every step of the process, the insurer (and customers) have access to a unified system for buying and selling policies as well as paying out claims.
Even medical records can be secured on the blockchain and shared between healthcare providers without ever having to go through a human process.
The blockchain is a significant disruptive force in the market today. But if an insurer is looking for a fast, secure, and effective environment to drive business growth, it provides the perfect path to do so.