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How blockchain technology is transforming the insurance industry?

  • May 26, 2022
  • 4 minutes read
Reading Time: 4 minutes

The standard insurance business dynamic has shown itself to be very resilient and robust throughout the decades. However, it is starting to experience the digital influence as new technologies transform how customers engage with businesses and the way consumers receive products or services.

Blockchain technology has become one of the latest technological trends. According to research, the international market for blockchain technology in insurance is predicted to increase from $64.5 million in 2018 to $1.39 billion by 2023, exhibiting a CAGR of 84.9 percent.

Blockchain technology is a fully decentralized public ledger with free transactions that have the potential to dramatically transform the way insurance is procured.

How is Blockchain Disrupting the Insurance Industry?

It is noteworthy that many ongoing practices in the insurance sector are obsolete. Printed contracts are used to administer policies, and several interactions and transactions are conducted over the phone or in person.

There is a high likelihood of human error, manipulation, and data loss with these outdated methods. These issues get addressed by blockchain technology, which digitizes transactions as an element of a protected and verifiable ledger.

The following are some of the top blockchain features:

top blockchain features

1. Enhanced transparency

There is no centralized organization in power when using blockchain technology, which improves network transparency.

Blockchain provides a decentralized consensus-based validation mechanism in which network members are in charge of processing and validating transactions.

2. Heightened security

Every transaction occurring on the blockchain must get validation from a consensus of network participants. They are always encrypted and use hashing to connect to past transactions.

Furthermore, the validation gets backed by a robust computing mechanism that eliminates the need for human interaction.

3. Cost-effective solution

Costs associated with vendors and middlemen can be eradicated as there is no involvement of a centralized player.

Transactions require less participation, saving time because they can all get authenticated over the blockchain.

4. Transaction traceability

Transactions through the blockchain cannot be manipulated or destroyed, giving them distinct advantages over conventional supply chain networks vulnerable to fraud, theft, and biased claims.

5. Improved efficiency through DAOs

Decentralized anonymous organizations (DAOs) are reshaping the insurance industry by acting as the unified repository for transactions, thus optimizing procedures and making them quicker and more efficient.

Moreover, the monetary transactions and regulations of a DAO get stored on a blockchain. It eradicates the involvement of a third party in the transaction, streamlining them via smart contracts.

Top 6 Applications of Blockchain in the Insurance Space

Let’s explore some of the most prominent use cases to discover why organizations are switching to blockchain for insurance:

1. Smart contracts

These are self-executing contracts that are autonomously processed via core blockchains to verify that the agreement terms are fulfilled or not.

The terms of agreements involving insurance providers and policyholders get encoded upon which smart contracts are developed.

Furthermore, since the manual inspection is no longer required, claims verification, coverage analysis, and processing have become much speedier.

2. On-demand insurance

On-demand insurance requires buyer’s records, underwriting, policy paperwork, risk, claims, etc. However, because of blockchain technology, managing ledgers has gotten much easier.

Owing to this technology, on-demand insurers can securely store and manage vital data right from the insurance policy’s beginning until its expiration.

3. Fraud and abuse prevention

Insurers could use blockchain to eliminate prevalent types of insurance fraud.

When insurance claims are transferred to a blockchain-based ledger, all processed transactions get time-stamped and immutable.

This implies that no one can manipulate the data because of the blockchain’s immutability. As a result, this could ultimately reduce fraud.

4. Automated claims handling and underwriting

When insurers and reinsurers share a blockchain ledger, comprehensive premium and loss transactions can be updated and maintained in real-time on their systems. It can save both time and money, and reinsurers can automate settlement and claims processing.

Unwriting and claim processing can also be automated based on predefined norms in the microinsurance sector.

5. Healthcare and life insurance

Blockchain enables insurers and medical providers to exchange medical data in real-time, securely, and accurately.

Furthermore, it could aid in the automation and streamlining of the manual claims registration procedure when processing a life insurance claim.

6. Auto insurance

Blockchain can expedite the payouts process in the auto insurance space.

While the client can expect instant compensation in case of a car accident, the insurer can verify that the car is getting serviced by an authorized service provider.

Challenges Associated with Using Blockchain for Insurance

1. Complexity

Blockchain and its intricacies make it challenging for users to fully comprehend its use cases. As a result, some stakeholders are still not prepared for the transition.

2. Uncertain regulations

There are no worldwide standards governing the insurance sector; each country has its own set of rules overseen by institutions.

Since the landscape remains uncertain, blockchain is experiencing trouble garnering widespread acceptance among insurance firms.

3. No hands-on experience

Insurers face difficulty implementing blockchain due to a huge skill and practical experience gap while working with blockchain technology.

4. Cost considerations

The initial costs of integrating a private blockchain into insurance processes are high, which acts as a deterrent for the industry.

5. Nascent technology

The technology is still in its formative stages, dealing with concerns like data constraints, network security, transaction speed, scalability, consistent data point support, etc.

The verification process will be significant in making blockchain universally viable.

Conclusion

With multiple convincing applications that emphasize automation, efficiency, accuracy, security, and reduction in costs, blockchain technology has the potential to be a disruptive force for insurance.

Although still in its early stages, blockchain is making progress and will emerge as a cornerstone of this sector’s future, especially with the increasing emphasis on Industry 4.0.

Thoughtfully developed blockchain technology integrated solutions can drive quantum leaps in efficiency, agility, and innovation for your business. Cygnet Infotech has been working with global brands enabling them to realize numerous benefits of the rule-based intelligence of blockchain technology to perform business functions.

We start with project discovery to ascertain the development of result-driven blockchain solutions for you to achieve the desired business outcomes. Our cutting-edge Blockchain Technology Capabilities lead the way to a disruptive future for numerous businesses striving for transparent, secure, decentralized, and productive business solutions.

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