Companies in financial sectors are exploring and experimenting innovative ways to execute transactions quicker for an enhanced customer service, ensure cost efficiency in its operations, and assure transparency to customers and regulators. With large volumes of data getting generated regularly owing to digitization of records, it becomes important for every organizations to effectively manage the security threats and achieve significant cost efficiencies. This is where Blockchain, with its promises of decentralized ownership, immutability and cryptographic security of data, is catching the attention of the C-suite executives. Multiple use cases are being implemented across industries as everyone has started realizing the disruptive potential of this technology.
Blockchain can be described as a data structure that holds transactional records and while ensuring security, transparency, and decentralization. You can also think of it as a chain of records stored in the forms of blocks. Once stored on a blockchain, it is extremely difficult to change or alter it.
Each transaction on a blockchain is secured with a digital signature that proves its authenticity. Due to the use of encryption and digital signatures, the data stored on the blockchain is tamper-proof and cannot be changed.
Blockchain technology allows all the network participants to reach an agreement, commonly known as consensus. All the data stored on a blockchain is recorded digitally and has a common history which is available for all the network participants. This way, the chances of any fraudulent activity or duplication of transactions is eliminated without the need for a third-party.
In saturated markets, i.e. the industrialized countries, InsurTech companies have grown significantly in importance over the past three to four years, but the high level of saturation there means that additional premium growth is not very likely. We also think it unlikely that start-ups will squeeze out traditional insurance companies to any major extent, as capital requirements and regulations in the industrialized countries make it difficult for new players to acquire an insurance license. Most InsurTechs currently operate as digital brokers or in partnerships with traditional insurance and reinsurance companies. Although InsurTechs, in their role as digital brokers, constitute competition for traditional sales channels – which could lead to a shift in market shares – the overall impact on premium volume across the market is most likely to be quite small in the industrialized countries.
In developing countries and emerging markets, however, InsurTechs play a different role. FinTechs in general are expected to see major growth in the emerging markets. According to studies1, in these markets alone, FinTechs could generate additional GDP of US$ 3.7tn by 2025, as mobile phones facilitate access to financial accounts. By 2025, low per-capita-income countries like Ethiopia, India or Nigeria could augment their GDP by 10–12% through FinTechs, while middle-income countries like Brazil, China or Mexico could still add 4–5%.
These possible developments also hold additional potential for the insurance industry. This is because rising per-capita income also leads to increased insurance penetration; this is currently still low in emerging markets, especially in developing countries, and offers tremendous catch-up potential.
Traditionally, the insurance sector has been slow to adopt new technology and is often the last financial sector to incorporate any technological evolution, and Blockchain is no exception. However, it is important to note that the concept of Blockchain is being looked at as one of those rare innovations, which has the potential to disrupt the insurance industry much ahead of the trend. The insurance industry is all about managing financial risks and includes a high volume of financial transactions on a day-to-day basis. This makes the industry vulnerable to a potentially large number of intrusions, attacks, and fraudulent transactions. The insurance space is also highly complex with composite contracts between multiple stakeholders that require a large processing potential. In this thought paper, we will review some of the current challenges in the insurance space, and analyze if Blockchain can provide the much-needed solutions.
By moving insurance claims onto an immutable ledger, blockchain can help eliminate common sources of fraud in the insurance industry.
Within claims prevention, new data streams can enhance the risk selection process by combining location, external risk and analytics. A distributed ledger can enable the insurer and various third parties to easily and instantly access and update relevant information (e.g., claim forms, evidence, police reports and third-party review reports).
Global insurers can use blockchain to cut asset management costs by reducing the hedging fees they pay to protect themselves from currency fluctuations in international transactions.
By securing reinsurance contracts on the blockchain through smart contracts, the blockchain can simplify the flow of information and payments between insurers and reinsurers.
With HC NET Blockchain, insurance companies can convert multiple policies into “smart contracts” giving a single, consolidated view of policy data and documentation in real time. The solution allows visibility into coverage and premium payments, delivering automated notifications to network participants following payment events.
A transparent blockchain solution allowing multiple companies to collaboratively assemble relevant records can streamline claims recovery. Its shared ledger capabilities can help insurers agree on claims, build trust that evidence is being shared and improve the overall customer experience.
HC NET Blockchain can be the vital link across a vast ecosystem of third-party administrators and service provider networks. Its shared ledger transparency can help employers reduce errors resulting in improved claims processing, better provider management and lower operational expense.
HC NET Blockchain helps ensure contract certainty and improve risk-handling capabilities — from managing contracts among reinsurers to maintaining shared accounts and managing claims payments. With transparency across the reinsurance value chain, blockchain can eliminate the need for participating companies to regularly reconcile their reinsurance accounts.