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Blockchain promises to revolutionize the financial services industry just as the internet democratized information exchange and smartphones transformed communication. It is on the forefront of the rapidly developing “FinTech” revolution—the surge in innovative technologies and business models that are disrupting the design and delivery of financial services, including insurance services.
But first, what is Blockchain?
Blockchain provides a real-time public ledger of transactions and streamlines business processes by removing the role of intermediaries and automating manual processes. Backed by its distributed nature, Blockchain builds online collaboration and trust by allowing transactions to be secure, anonymous, peer-to-peer, and instantaneous.
"Blockchain could help enable insurance experiences that were not possible before and deliver greater efficiency and competitive advantage"
An important feature of Blockchain is its ability to execute ‘smart-contracts’. Smart contracts are automated, programmable instructions that contain self-executing protocols to perform certain task(s) or activities without the intervention of manual triggers. It is this capability of Blockchain, alone, that has potential to transform current insurance products and services to be much more engaging and enjoyable. Blockchain’s transformative impact is not just limited to improvements in customer experience but it can also increase effectiveness in fraud detection and pricing, automate claims processing and management, speed-up distribution of payments, and reduce administrative costs.
Using Blockchain technology insurers can enable many ‘new’ experiences to engage customers, such as:
- Automate and make claim payouts seamless: Imagine if the customer did not have to file a claim or go through the laborious and painful process of filing a claim with an insurer? Rather payments are automatically made to the customer whenever a claim event triggers, for e.g. delay or cancellation of a flight or the customer seamlessly receiving a payment for damaged property without filing a claim with the insurer. Blockchain’s smart-contract capability can help insurers deliver such an experience.
- Speed-up on boarding and Know Your Customer (KYC): Customers get frustrated if they have to file the same information multiple times, which often leads them to abandon the service all together. Insurers can speed-up and increase efficiency in the on boarding of customers by using Blockchain to create, organize, and maintain ‘data’ records in a single, reliable, and accessible repository, helping customers to avoid the need to repeat the full identification and verification process.
- Invisible experiences: Cars, electronic devices or home appliances can have their own insurance policies registered and administered by smart contracts in a Blockchain network, automatically detecting damage first and then triggering the repair process, as well as claims and payments.
Blockchain’s transformative potential in the insurance industry is huge but the reality is that it’s still ‘early days’ for Blockchain. However, evidence from across the banking industry strongly suggests that Blockchain could help enable insurance experiences that were not possible before and deliver greater efficiency and competitive advantage.
Insurance companies should seize the opportunity that Blockchain presents and take the following actions to tap into its vast potential:
1. Educate yourself, your executive team, and your decision makers about the disruptive potential and threat posed by Blockchain. Get involved with the industry, consortia’s, standard setting bodies, and other collaborations, as early as possible!
2. Build proof of concepts (PoCs) on select use cases that are applicable to the business to gain familiarity with the technology and test ‘new’ experiences with both internal teams and customers. Get feedback and iterate on the PoC to continue to learn and experiment.
3. Engage with startups, consulting firms, and other solution providers to learn from their biases and experiences.
Challenges to the widespread use of Blockchain remain–including a lack of standards or a proven scalable system that uses it–but its transformative potential is enormous. Blockchain may not be driving competitive advantage today. But it will certainly underpin the sector’s growth in the future. Insurers who ignore this new technology will end up playing catch up with higher costs and risk erosion to their market shares.