Blockchain: Shaping the Insurance Industry

By Fire Labs Team | Apr 27, 2021

The blockchain provides extensive opportunities for the insurance industry.  It gives a chance to update the data exchange process, processing appeals for insurance payments, and protection against fraudulent activity. The blockchain can bring together developers from technological companies, regulators, and insurance companies to jointly create a new valuable insurance management asset.

At the expense of its distributed registry, smart contracts, and the impossibility of refutation, which work as a common infrastructure, the blockchain can convert all types of insurance processes.  Currently, many insurance processes are performed manually, not protected from errors, and require a lot of time.  Often the same data in numerous registration systems have different versions, which leads to additional costs and long-term disputes.

insurtech

With the help of the blockchain, manual processes are automated by distributing information about the participants of the program, the conditions for obtaining payments, and data specified in the applications for insurance payments.  Smart contracts are encoded by a computer by the rules for registering and verifying the powers of the participants. 

Data generality and computerization of smart contracts reduce the number of subsequent disputes.  Checking the size of insurance payments is based on data from several sources, which are unambiguously available to all service providers.

What is blockchain and its use

Blockchain transaction is carried out only when it is considered confirmed.  This is convenient and reliable if it comes to payment or the transmission of confidential data.  For the transaction to be considered reliable ("confirmed"), its format and signatures should be verified. 

After that, the transactions group is recorded in a special structure (the so-called block).  In these blocks, information can be checked quickly.  And still in each subsequent information about the previous one.  In operations with cryptocurrency, for example, the blockchain contains information about all committed bitcoins operations.

The block includes a title and a transaction list.  The block header includes its information, gash of the previous block, transaction information, and additional service information.  The first transaction in the block is always indicated by the receipt of the commission that will be the award to the user for the created block.  To carry out transactions in the block, wood gashing is used, similar to the formation of a gash-sum of a file in the BitTorrent protocol (therefore, which is used in torrent trackers). 

Transactions, in addition to the accrual of the commission for creating a block, content inside the INPUT attribute, the transaction link on this account was received by bitcoins (or other data or digital currencies).  Commission operations may contain any information (for them this field is called CoinBase Parameter) since they have no parent transactions.  The created block will be accepted by other users if the numeric value of the title gash is equal to or below a certain number, the value of which is periodically adjusted.

Since the result of coding (Sha-256 function) is unpredictable, there is no algorithm for obtaining the desired result, except in random selection.  If the information does not satisfy the condition, then an arbitrarily varied block of service information in the title - and the information is transferred. 

After matching options, the node sends the resulting block to other connected nodes that check the block.  If there are no mistakes, then the block is considered to be added to the chain and the next block should include its information.  And then everything starts first.

insurance pain points

Blockchain potential in insurance

According to official information provided on the portal of finance and analysts, we can draw some conclusions.

Representatives of the Banking Industry are currently attempting practical implementation of several Script Scenarios at once: from the development of direct customer interaction technology with a payment system before launching trading systems on the stock exchange and currency exchange.  

Despite the fact that the insurance area is lagging behind the banking industry in the technological plan, it is nevertheless, is in a unique position, allowing it to feel all the advantages of the blockchain.  New technology can help many industry players cope with competitive challenges, including weak customer interest in insurance products, limited growth in developed markets, and the tendency of universal transition to digital technology.

Block—Āhain combines smart contracts that turn paper contracts into programmable code.  It helps to automate the payment process. For policyholders, the Blockchain benefits are detected in that:

  • Coating conditions are more easily identified;
  • Require a smaller number of manual input;
  • There is an opportunity to speed up the process of payment of claims. The recovery process after loss will be accelerated.

The blockchain was originally created to simplify cryptocurrency transactions (such as bitcoin), but this is not the only option of its use.  For those who plan to register an insurance company in the UK or the EU, it is worth paying attention to that technology is used for innovation in all aspects of insurance, including:

  • Underwriting;
  • Processing claims;
  • Identification and prevention of fraud;
  • Development of new products.

It is expected that the blockchain will be more used to solve the two biggest problems in the insurance industry: processing claims and payments and commission payments to agents. 

insurance processes

Advantages for the insurance sector:

  • increasing customer loyalty and interest;
  • offers of new economically beneficial products for developing markets;
  • development of insurance products related to the Internet.

Success will be a reliably distributed platform.  The platform on which customers will be able to work directly with their data, collective insurance policies, and intelligent contracts.

"We are ignoring the challenge of your fear and risk: if the market leaders will not take a step forward, it will make new players."  - Bundeep Singh Rangar, Chairman of the Board and Executive Director Premfina.

Blockchain insurance options

Blockchain technologies are inherent in the following properties:

  • application of crypto (there are more than 2000 species, the most widespread bitcoin); 
  • availability of computing infrastructure; 
  • transaction platform use; use of a decentralized database; 
  • the presence of a distributed registry;
  • application platform; 
  • open-source software;
  • the trading platform of financial services;
  • PEER-TO-PEER network;
  • infrastructure trusted servers.

Also, the use of technology blockchain as a public base of all transactions, at any time Bitcoin implemented in the Bitcoin system allows each Blockchain system to find out which the number of bitcoin belonged to any particular destination in a specified time segment. The perspective of using Blockchain technology in the field of insurance is possible in the following areas:

  • certification of transactions without intermediaries and implementation electronic accounting;
  • making payments and money transfers faster and with lower commissions (especially in input operations and initial reinsurance);
  • increasing the level of cybersecurity in the insurer by checking data entering (transmitted) that is guarantee reliability (reliability) of sources of origin and prevent the interception of information at an intermediate stage;
  • participation in trading stock exchanges, that is, investment in various types of securities identified as assets that provide insurance reserves may be presented;
  • implementation of the mechanism of individual micro-insurance, in which Blockchain acts as a third party (guarantor);
  • obtaining certificates and other documents confirming the fact of the occurrence of an insured event, from the competent authorities (police authorities, medical institutions, etc.) and companies that provide a variety of services from Assistant (medical, technical, legal);
  • decentralized use of cloud storage facilities for storing data.
blockchain potential in insurance

Where to start?

Blockchain technology is one of the examples of such innovations, which allows to reduce costs time for the implementation of separate business processes of the insurer, reduce the degree of risks of insurance and financial transactions, as well as provide a high degree of trust between partners in the conditions of maximum transparency.

This technology is now a database for a faster exchange of information with a high degree of protection, precisely therefore, in its use are interested financial institutions.

Using Blockchain Technology in the Insurance business makes it possible not only to optimize operating activities but also effectively build relationships with partners (other insurers, reinsurers, and them associations; by banking institutions, tourist firms, companies leasing housing, cars, and equipment, medical institutions, stations Maintenance of vehicles, etc.) and state authorities.

Getting started with insurance companies related to blockchain

A very interesting technology is blockchain by Harvard Business School.  In their opinion, the block unit does not have a destructive nature, technology is not capable of breaking a traditional business model by using a cheap method, but is a basic technology that can create the latest foundations for existing economic and social systems.

However, despite the expectation of a significant influence in short-term Technology Block Technology, in the opinion of experts, this technology will require a decade, to integrate into existing economic and social infrastructure.  We will have to go through a large number of obstacles including technological, managerial, organizational, and even social. Yes, the adaptation process will not be sudden, but gradual and steady, as they would recruit the forces of the wave of technological and institutional changes.

It should be noted that the research of various analytical agencies and institutions certify the prospects of technology blocking in the global market.  2017 reached 2.4 billion dollars.  At the same time, 26% of these funds were involved in venture funds, the rest of the same 75% - through the direct primary placement of digital coins of ISO.  By volume of investments in this sector leads the United States (1.3 billion dollars), Great Britain, Ireland, Singapore, and China.  

Most in demand Investors sector are projects that are associated with payment infrastructure.  So, in 2017, 512.9 million dollars were invested in this segment.  Among the blockchain starts operating in this direction are most allocated companies such as Digital Asset and Ripple.

Leaders in the amount of invested funds and the number of investment rounds became Startups Digital Currency Group and Blockchain Capital.  Yes, the first took part in 89 rounds and invested in various projects 413.2 million dollars, and the second - in the 51st round for the general amount of 445 million dollars.

It should be noted that Market analysts predict the growth of the market block with 210.2 million dollars. In 2016 to 2 312.5 million dollars.  In 2021 at the past year's growth rate of 61.5%.

how blockchain can disrupt insurtech

Blockchain benefits for the insurance industry

In the field of insurance, the need for new insurance risk transfer tools and investing in financial markets is increasing. Fintech is innovative technologies used by financial institutes, Public Administration, Commercial Organizations for meeting the needs of consumers of financial, administrative services, and goods in the development of the consumption economy.

Insurtech is a component of Fintech, in which innovative technologies are used by the participants in the insurance market.  According to a Global Fintech 22% Insurance Business, Active Management Business has prospects for growth and separation from other market participants as a result of financial technologies.  At the same time, almost three-quarters of the respondents of the insurance market believe that insurance will be the most active in this direction.

In the field of insurance by positive opportunities related to practical, the use of technological innovations is: simplifying access to insurance services for developing countries, improving the attraction of sellers of insurance services of new customers, the emergence of new startups and companies, improvement of accounting methods, stimulating the development of insurance products that are implemented on-line, improving quality Insurance services.

What do we get?

Blockchain can be used in micro-insurance.  Inviolability TA blockchain can be used in micro-insurance.  Simplicity TA the reliability of the product will be interested in people, with less developed countries.  The virtual nature of transactions allows you to bypass the government bureaucracy, and make geographical restrictions not important.  

Another example of using a blockage is parametric insurance.  Instead of reimbursing a clean amount of losses, insurers could agree to pay a certain amount after the trigger mechanism specified by a reasonable contract.  For example, if the quake of a given force occurred in this region, a reasonable contract may automatically implement a certain share of payments to the owners of insurance policies.

Thus, insurance companies use technical innovations, including Blockchain.  In the insurance sector, this technology helps to solve the following tasks:

  • automation of processes of creation and monitoring of insurance history;  
  • operational access to certificates from state bodies;
  • accounting of insurance events, their instant fixation;
  • concluding online contracts insurance;
  • expertise and preliminary risks assessment;
  • interaction with brokers and network sales;
  • reliability of settlement and response to customer requests.

Final words

Blockchain allows you to open new opportunities in insurance, solve some of the following problems and significantly upgrade the industry:

  • The efficiency of blockchain solutions will make a decentralized, transparent and more secure industry, reduce the processing time of requests and the cost of interactions and cash transactions
  • Reducing the number of intermediaries and complete transparency of public platforms will significantly speed up business processes, will reduce their cost and increase confidence in the system and industry as a whole
  • Smart contracts automate the workflow, insurance payments, reduce the risks of fraud, the number of substandard data (errors, inaccuracies, gaps) and improve the quality of customer service
  • New types of insurance will appear: parametric (accurate) Insurance, peer-to-peer (P2P) Insurance, microstroyment and other
  • Increases the availability of insurance services to a larger audience

From the point of view of the insurer, the blockchain can give a secure and simultaneously secure way to track transactions and storing information, integrate affiliate ecosystems in their business and develop brand new products for the client.  Experts allocate several areas in which the use of the blockchain can give a new impetus to insurance business:

  • Financial security
  • Work with compensation requirements
  • Cybersecurity.

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