Becoming an Intelligent Insurer with Blockchain
By Arijit Banerjee
The Indian insurance industry is having its blockchain moment. 15 leading names comprising SBI Life, ICICI Prudential, Max Life, PNB MetLife and others have formed a consortium and partnered with Cognizant Technologies to test insurance blockchain. If successful, blockchain technology could save the industry between USD 5-10 billion in routine expenses. The industry-wide solution will also be a game changer in redefining insurance industry operations by facilitating cross-company data-sharing to improve various outcomes - from reducing fraud and money-laundering, to delivering exceptional customer experiences.
Let’s deep dive to see how Indian insurers plan to use blockchain:
#1 Enhancing fraud detection and risk protection:
Crime ‘syndicates’ that focus mostly on insurance fraud cost the Indian insurance industry an estimated Rs10,000 crores annually. True, insurance is a gamble but blockchain can help insurers reduce risk significantly by making the underwriting process more transparent and automated. Besides making internal data secure, blockchain can also integrate external data to decrease risk liability and enable end-to-end visibility for faster and more streamlined policy underwriting.
Blockchain can also reduce incidences of fraudulent claims by enhancing provenance, minimizing identity theft, preventing false billing and tampering of documents. Since data on the blockchain ledger resides in an encrypted and decentralized form, multiple permissions at multiple levels are required to make any change, significantly limiting chances of data theft and breach. Moreover, when insurers access one version of truth across the value chain, fraud detection and risk protection can be significantly enhanced. According to a PwC report, blockchain’s potential in fraud reduction and enabling efficient data processing could offset 15-25% of expenses for the Indian insurance industry as a whole.
#2 Automating and capturing real-time data:
Time delays are common in routine insurance processes such as KYC, document verification, and reconciliation as multiple third parties and internal departments are involved. With blockchain, insurance companies can securely share and access real time information across sources, including external and internal data. What’s more - new blocks and data changes show up on the blockchain ledger in near real-time as transactions are approved.
Blockchain’s automation potential coupled with the promise of real-time data visibility enables flexibility in operations and allows insurers to offer superior customer experiences. Bajaj Allianz recently rolled out a new travel insurance product named ‘Travel Ezee’ and an “On The Spot” facility for motor claims. Both products leverage blockchain technology to capture real-time data and enable customers who have flight delays or motor vehicle damages to instantly process their claims.
#3 Enabling smart contracts:
An insurance contract typically involves a number of processes - from rating a client, to deciding premium value to paying claims, and more. A smart contract is one that leverages blockchain to facilitate, execute, automate, and enforce the negotiation or performance of the insurance contract. A smart contract serves as a complement or substitute for legal contracts and can help insurers verify third party vendor contract terms, master service agreements, and improve vendor optimization by reducing operational complexity. Such contracts also detail an item’s (physical or digital asset) authenticity, existence and ownership, significantly simplifying operations for insurers.
In a first, Standard Chartered bank, AIG, and IBM recently partnered to pilot the first multinational, “smart contract” based insurance policy using blockchain. The technology simplifies the otherwise complicated process of coordinating management and placement of multiple insurance policies across multiple countries by enforcing trust and transparency in the entire value chain.
What lies ahead?
From improving the way insurers record risk to enabling unprecedented speed, accuracy, and transparency in operations, blockchain has the potential to transform every part of the insurance value chain. And the good news is - most Indian insurers are readying to embrace the technology with open arms. Established and startup players are collaborating to build an insurtech ecosystem of connected entities to access shared information, best practices, and liaise with regulators to iron out compliance issues.
Investments in InsurTech too are seeing an upward graph - insurers plan to more than double their investments in blockchain by 2019. However, talent still remains a concern. Lack of specialized IT talent within the industry, coupled with the industry’s large inability to attract top external talent is a major reason that prevents insurers from testing and deploying new technologies and use cases. Developing technical talent from within by providing reskilling and upskilling opportunities to the right people will be a key enabler to seizing the blockchain opportunity. Insurers that mobilize early and select the right partners in their journey will be best placed to test out potential use cases and ultimately reap the benefits of innovation.