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The insurance industry
is a huge market. So, only in the USA in 2017 the volume of paid net insurance premiums amounted to 1,2 trillion dollars
. However, despite such volumes, the industry is experiencing great difficulties, due to which insurance companies lose more than 80 billion dollars every year
. Most of the problems are fraud, poor quality data or their lack, as well as the overall inefficiency of business processes
Blockchain allows you to open up new opportunities
in insurance, solve some of these problems and significantly modernize the industry:
- The efficiency of blockchain solutions will make the industry decentralized, transparent and more secure, reduce the processing time of requests and the cost of interactions and cash transactions.
- Reducing the number of intermediaries and full transparency of public platforms will significantly accelerate business processes, reduce their cost and increase confidence in the system and the industry as a whole.
- Smart contracts automate workflow, insurance payments, reduce the risk of fraud, the amount of poor-quality data (errors, inaccuracies, gaps) and improve the quality of customer service.
- New types of insurance will appear: parametric (exact) insurance, peer-to-peer (P2P) insurance, microinsurance and others.
- Availability of insurance services will increase.
We have selected for you 10 of the most interesting and promising examples of using the blockchain in the insurance industry: a problem, a blockchain solution and companies that solve this problem.
# 1 Fraud Prevention
. A survey conducted by Coalition Against Insurance Fraud
, showed that 95% of insurers use different technologies to combat fraud, because of which they lose more than 80 billion dollars annually. And this is a problem not only for insurance companies: because of fraud, the average American family loses from $ 400 to $ 700 each year
in the form of an increased insurance premium.
Most of the fraud is associated with the enormous complexity and inefficiency of information exchange between various market participants,
with each party using its own database and not in a hurry to share information with other companies. As a result, when insurance claims are moved from the insurer to the insurer and the reinsurer, companies along with the document transfer a minimum of data. This creates opportunities for criminals to make several claims for different losses to different insurers for one loss.
. The problem of fraud can be solved using an industry-wide centralized repository of information
, which will operate algorithms for the detection of chronic offenders, repeated statements, data inconsistencies and other signs of fraud. Similar solutions are already in place in other sectors, such as credit bureaus and multi-listing (MLS)
First successes (cases):
- Everledger. A distributed ledger in which the transaction history of diamonds is recorded for each individual stone, manufacturer, middleman, and buyer. Among other things, the platform allows you to check information about current and previous insurance claims. It helps to detect and prevent fraud, as well as to counteract such.
- OpenIDL (Оpen Insurance Data Link). IBM Blockchain-based network that provides efficient, secure, and permission-based statistics collection and sharing. Offers a secure and reliable blockchain-environment for storing data (about policies, insurance premiums and payments) and selectively sharing them with the American Insurance Services Association (AAIS) as an advisory organization and authorized statistical agent.
# 2 Claim Management and Treatment
Health insurance is a prime example of how mistakes and inefficiencies in the claims process lead to unnecessary and often excessive costs, which ultimately are reflected in higher insurance premiums
and an increased cost of medical services.
Thus, the 2017 Change Healthcare report found
that 9% of health insurance claims are rejected, which is accompanied by appeals. Each appeal response leads to a cost of $ 118 per claim, or $ 8.6 billion in total administrative costs.
These expenses are compensated by insurers by increasing the cost of insurance services.
allows you to create a single version of the document of claims, the management and filling of which will be carried out automatically. This allows you to achieve effective management of relationships with the service provider, increase their transparency, speed and flexibility.
First successes (cases):
- Insurwave. Platform for insuring ships. Uses smart contracts to accompany all documents related to the maintenance of ship and cargo insurance processes. Insurwave is developed by Guardtime with the participation of EY, AP Møller-Maersk, Microsoft and the leaders of the insurance industry XL Catlin, Willis Towers Watson, ACORD and MS Amlin.
# 3 Customer identification
Brokers, insurers, reinsurers, banks and other participants in insurance operations must comply with the requirements of KYC (Know Your Client) to all of their counterparties. This is a procedure for the identification of the individual, which includes the collection of personal data
about the client, his property, health, social status and verification of his personality, which requires time, money and labor resources.
In the insurance industry,
the KYC procedure must comply with global anti-money laundering standards that have put forward the Financial Action Task Force (FATF) and the International Monetary Fund (IMF), as well as local legislation, if any. There are no separate rules and standards for the KYC procedure in insurance, but usually it takes place in three stages:
- Customer Identification Program (CIP). The minimum CIP verification includes verification of the first and last name, date of birth, address and identification number. To do this, the user must provide several paper and / or digital documents: a passport, driver's license, social security card, electricity bills and other utilities.
- Customer Due Diligence (CDD). The audit should identify and confirm client objectives / actions, as well as assess the risk of money laundering and / or terrorist financing. Depending on the perceived risk, the check can take place in one of three scenarios: Simplified Due Diligence (SDD), Basic Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD).
- Current user monitoring. A program for continuous monitoring that tracks the relevance of the data, the status of the user and the compliance of the current level of risk prescribed in the insurance contract.
In some cases, after another routine check, it may be necessary to create a Suspicious Activity Report (SAR) if the user has violated the law, is behaving inadequately or is showing strange (atypical) activity.
. Insurers can create or use an existing blockchain solution
for KYC, where all documents are written to the distribution registry and encrypted using cryptography. Access to documents will be available only with the help of encryption keys (open and one-time closed) that are available to the client. Using these keys, the client will provide access to documents for a limited time sufficient to verify them.
This approach will allow users to retain full control over their data, which is important for complying with a number of laws relating to privacy and data protection.
For example, the rules of the European "General Regulations on data protection" (GDPR). In addition, the transition to the blockchain will reduce the time and cost of KYC checks.
First successes (cases):
- Prototype PwC and Z/Yen. Solution to speed up the process of user identification. The network keeps records of customer documents and evidence of verification by the authority that issued them. It speeds up the procedure and enables the client to maintain control over personal data.
- IBM Blockchain Trusted Identity. Hyperledger Indy DLT based platform for personal identification in accordance with the standards of the Decentralized Identity Foundation (DIF) and the World Wide Web (W3C).
# 4 Reinsurance
Reinsurance allows insurance companies
to reduce their exposure to losses by transferring part of the risks to a reinsurer or a group of reinsurers. Due to this, the insurer can issue policies with higher limits and protect itself from excessive losses in case of major disasters: forest fires, hurricanes, tsunamis, earthquakes, financial crises, etc.
Under the current approach, the reinsurance transaction is processed manually and is determined by one-time contracts,
which leads to difficulties, since each contract covers a partial risk or a specific event. Problems arise when an event occurs. It may take up to three months to make a decision on a contract. And if you consider that the insurer usually concludes a reinsurance contract with several companies, it becomes clear why reinsurance leads to an increase in premiums by 5−10%.
By the estimates of consulting company PricewaterhouseCoopers,
the introduction of blockchain in the reinsurance process will reduce the associated costs by 15−25%, which for the industry will result in 5−10 billion dollars in savings. The main way to achieve savings is to use the blockchain's ledger,
which will allow insurers to quickly and safely transfer information about insurance policies.
First successes (cases):
- iXLedger (formerly ICO InsureX). A solution developed by iX Technology Group for effective collaboration and data exchange between insurance providers and insurance agent networks throughout the insurance life cycle.
- B3i Services AG. Consortium, that belongs to 16 insurance companies. B3i develops standards, protocols and network infrastructure to eliminate friction when transferring risks in the reinsurance process.
# 5 Micro insurance
Microinsurance is the protection of people or low-income groups (up to $ 4 per day) from specific risks in exchange for the regular payment of insurance premiums, that is, insurance with micro-payments and low coverage. The main problem of microinsurance is that it is not available for those who really need it. Reliable insurance providers
are mainly located and operating in Europe, North America and East Asia. Whereas potential consumers of microinsurance are poor regions of India, Africa and Latin America.
Blockchain technologies can help bring together suppliers and consumers of microinsurance
on one site, giving them the opportunity to enter into direct insurance transactions. Such platforms will facilitate simple, transparent and peer-to-peer contracts, as well as help circumvent corrupted bureaucracy.
First successes (cases):
- PAL Network. A startup from Singapore, created to provide insurance protection to people outside the countries of the first world, reducing the gap between consumers and insurance providers. The desktop version can be downloaded on Github, the PAL Wallet mobile app on Play Market.
- VouchForMe (formerly InsurePal). Social insurance platform that provides discounts to insurance company customers if there are guarantors. It is a combination of traditional insurance and P2P approval, backed by social proof of financial security.
- SafeShare. The solution is to formalize the insurance relationship between the parties that use a shared consumption economy. That is, to insure the transactions of one-day rental housing, real estate and equipment.
# 6 Peer to Peer Insurance
Peer-to-peer insurance is when people, instead of giving money to the insurer,
join together in groups (partnerships, communities), form a mutual aid fund from which insurance payments are made. Traditional P2P insurance involves transactions on a non-commercial basis. In 2015, this market was estimated at 64 billion dollars
, and it is estimated that by 2025 it will reach 1 trillion dollars.
There are several problems with peer-to-peer insurance:
- Lack of standards. All communities decide for themselves how to formalize their relationships and on what conditions to interact.
- No guarantee of honesty (decency). If something went wrong, it is rather difficult to enforce the peer-to-peer insurance contract, especially in countries where there are problems with the judicial system.
- Locality of deals and communities. Usually communities are created between people who know each other or business partners. P2P insurance at a distance is too risky.
- Complexity and duration. The parties spend a lot of time and make complex contracts to reduce the risks of their violation, check the occurrence of the insured event and the targeted use of payments.
- Risks of theft of funds from mutual fund.
. You can create a platform that standardizes and automates peer-to-peer insurance.
Participants in mutual funds will open a deposit on such a platform and transfer their insurance premiums to it. All community deposits will be added up and form a mutual aid fund, and the funds on it will be in escrow. Only a smart contract will have access to the money, which will withdraw the required amount and make the payment when one of the participants confirms the occurrence of the insured event. If during the validity period of the contract the insurance event does not come, the money will automatically return to their owners.
First successes (cases):
- Teambrella. The insurance platform, where community members, by results of an open vote, decide on the accession of new members, determine for them the level of risk and the size of contributions, confirm the occurrence of insurance events and give the go-ahead for payments.
- Lemonade. The project was recognized as № 1 of 270 companies for usability. It integrates distributed ledger technology and artificial intelligence to provide peer-to-peer insurance to tenants and homeowners.
- Friendsurance. The platform provides the possibility of peer-to-peer car, housing, legal and private liability insurance. 40% cashback is declared in the absence of serious insurance payments in the community.
- insChain. The platform allows you to use IoT technology to automate decisions about the occurrence of an insured event. There is also the possibility of using artificial intelligence for underwriting and making decisions on insurance payments.
#7 Parametric insurance
Parametric or index insurance is when payments
are made on a predetermined amount when a certain parameter is triggered. For example, if the temperature has risen to 50 degrees Celsius, then the farmer receives $ 100,000. Another example: if the goods were not delivered within 30 days, the shipper receives an amount equal to the cost of the goods + penalty + transportation costs.
When the payment
can be reduced to the formula “if the parameter on the sensor reaches parameter X, then the insurer pays the client the amount Y”. Such an algorithm can be easily digitized and automated using smart contracts
. This will speed up payments and allow insurers and policyholders to save on administrative costs.
First successes (cases):
- Etherisc. Ethereum-based decentralized platform for developing and deploying decentralized applications for the insurance industry. There is already an application for parametric flight delay insurance. In developing a solution for crop insurance and cryptocurrency wallets.