When Kelly Thomas started to work as an independent insurance broker in 2003, she only had a brick-like cellphone and a clunky laptop on which she made her presentations to company directors, hoping they would buy policies for their employees. Fast forward to 2018, Kelly has a successful insurance consultancy in New York and is often asked when she is going to adopt blockchain technology. She feels overwhelmed but is constantly looking for ways to implement blockchain. Overview of Blockchain For the uninitiated, blockchain as-we-know-it-today began its journey in 2009, when crypto-currencies such as Bitcoin started to become popular. What was initially a vehicle for the digital currency, quickly metamorphosed into the next big thing after the Internet. In a Blockchain, transactions are stored in discrete data blocks. These blocks are stored on decentralized registers, also known as “ledgers”. Every transaction is immutable, which means, once a transaction is registered as “having taken place”, no one can edit it. This is the very premise of Blockchain and the reason why it is so secure. Human intervention cannot alter previous transactions, and every human intervention is recorded, and for it to take place, there needs to be the consensus of the sort. This consensus can be mutually agreed upon so that future transactions take place automatically, over a super-secure and decentralized network. In short, Blockchain makes sure that every event or transaction is recorded permanently, and the transaction goes through only when certain pre-agreed conditions are met, and there is absolutely no room for hacking, tampering, altering of facts, or unsupervised editing. Such a technology finds itself invaluable in various industry sectors such as insurance, banking, and finance, identity management, healthcare, etc. Evolution of Blockchain in the insurance industry The insurance industry is one of the most conservative environments in the world, alongside banking and finance. Insurance entities need to be conservative because claims handling are based on trust, and both insurers and policy-holders depend on mutual trust for creating an environment of security against various threats (against which policies are bought, and risks are underwritten). Insurance industry’s reluctance to adopt newer and innovative technologies is often viewed as its tendency to be recalcitrant towards innovation. However, this is not true. The insurance industry has traditionally adopted the “wait and watch” approach when it comes to making big changes, and this tendency has helped it to survive for centuries. The situation today is no different than when insurance agents were skeptical about using online methods and mobile applications to process policies and claims. The insurance industry consists of $1.2 trillion of global economy, and 74% of this space is dominated by online policy purchases. Technology adoption has so far been from the side of consumers, who have adopted IoT technology in cars, and incorporated “smart home” technology to lower their premiums and insurance costs. However, insurers and underwriters too have slowly adopted technologies such as data analytics, predictive analysis, and artificial intelligence to determine risk and assign premium costs accurately. These technologies are part of what is now termed as “InsurTech”, a space that consists of various technologies to help move the insurance industry forward. Blockchain is increasingly part of InsurTech because it adds a layer of trust and safety that other technologies simply cannot. Indeed, the most successful insurance companies have already begun to implement blockchain to validate transactions and to authenticate claims processing. Insurance giants which have remained reluctant to adopt blockchain stand the risk of becoming irrelevant or losing out to competitors. Let us take a look at how blockchain helps insurers. Insurance policy criteria are programmed into smart contracts Smart contracts determine if insurance claims are authentic and if they meet the criteria set by authoritative sources Once authenticated, Smart Contracts use Blockchain to process payments automatically. Blockchain eliminates biases and prejudices on the part of the insurer while processing payments, while it also eliminates false claims made by consumers. How Blockchain can be used in insurance Let us take a look at how Blockchain can be used by insurers, and why it is so important to begin now. Identity management The identity of the policyholder is one of the most crucial factors while processing claims. Blockchain is the safest and quickest way to authenticate an individual or a group of individuals’ identity. Using blockchain-based identity management helps insurers to eliminate identity thefts, impersonations, and errors in claims processing. Fraud detection Insurance frauds are etched in popular memory, with Hollywood noirs often using them as the basis of their plots. Billy Wilder’s 1944 film noir Double Indemnity comes to our mind. Whether it is a well-planned insurance heist or an unethical insurer trying to outwit a genuine claim, it is straight down the line for both the insurer and the policy-holder. Blockchain eliminates all kinds of frauds and helps reduce costs associated with fraudulent insurance claims. Peer-to-peer insurance P2P insurance consists of a group of individuals with similar interests, who pool their premiums to insure against a certain risk. Blockchain helps to authenticate claims processing in P2P insurance, and eliminates false claims altogether, and automates the process of claims processing. P2P insurance is also known as social insurance, and Blockchain can help increase trust in such P2P models. Minimize errors Claims processing is often riddled with errors, both intentional and unintentional. Blockchain helps to mitigate this by automatically cross-verifying with various data sources before authorizing transactions or events. This reduces the probability of errors and minimizes unwarranted payouts. Risk reduction Blockchain technology helps bring like-minded people together and work on a consensus basis to authorize transactions automatically. This means multiple insurers can come together and agree to share risks by taking a portion of the responsibility when huge losses occur. Participants in such a model can consent to use Blockchain as their reference data as it is immutable and transparent. Smart contracts One of the reasons why Blockchain is so popular is because of Smart Contracts. Smart Contracts work on the principle of Blockchain, and approve
