Using Blockchain to Improve the Efficiency of the Insurance Value Chain
The ever-evolving sophistication of the insurance industry is defined by the constant need to scale up offers based on the client’s premium needs. As society progresses and customer outlook evolves, insurance companies are delving deeper into their customer needs. They want a hyper-personalized offer to fit each emerging generation of professionals, households, and business leaders.
With the sophistication needed to support the hyper-personalized premiums and the entailing demands set in meeting expectations with value, the competitive insurance industry is now in a technology race as the landscape is being reshaped by technologies such as Blockchain.
The Need to Innovate and Evolve
A challenging and evolving landscape of the insurance industry means that the expense ratio is also evolving. As the cost per insurance transaction rises – spurred on by the need to constantly innovate, tailor policies, and offer greater value proposition to clients.
The property insurance market and its reinsurance market are also facing challenges due to the volatility of the climate, where premium real estate areas are also affected.
The global pandemic has also increased the demands for healthcare as health insurance premiums are caught in the disruptive cycle of extreme demand, coverage challenges, and the need to scale and evolve even in the midst of the pandemic.
From the start of 2010 and the pre-pandemic 2019, the global insurance industry has posted moderate growth. In the ongoing pandemic, the volatility of the climate and significant market shifts will go down as pivotal years and benchmark how the insurance industry copes moving forward.
Scaling cost, process efficiency from Know Your Customer (KYC) processes to underwrite and executing policies is a value chain that is constantly changing. The insurance process observes a spaghetti effect from one process to another as each case remains unique, and often, unique approaches require more resources to win over opportunities.
As technology evolves, it is becoming increasingly objective to adopt emerging technologies such as Blockchain to make efficient several insurance processes for the industry to generate more growth on the expense ratio frontier and be in a driver seat to generate value creation within the value chain.
Blockchain: Seamless Process and Efficiency
Blockchain is a disruptive force for good in the insurance industry. Launching from the Insurance- Technology market (Insurtech), Blockchain’s ability for self-executing contracts via smart contracts is promising enough to enable greater efficiency in the value chain. Blockchain’s distributed ledger function allows insurers to significantly cut down fraudulent claims and help make the process tamper-proof as distributed ledger technology (DLT) allows everyone in the
participating network to have a copy of the agreement, the records, the files, and the policies. The Blockchain enables only valid claims with a structure geared at permission participation that locks in trust regulations. Every participant has time-stamped records of the transactions and all the important knowledge. Using pre-built permission blocks, information based on transactions is allowed only to progress if it satisfies conditions set of what makes an insurance claim genuine.
Much of the insurance policies’ losses are centered on time and process efficiency. Meaning, the processes that require redundant means and long lead times generate less profit and have a substantially weaker claim to the overall efficiency of their value chain.
Time = The overall amount of time needed to complete a successful enrolment and a claim to be successfully made.
Process = The number of processes and sub-processes embedded into the transaction cycle.
In the layer of time and process, invisible costs accumulated in the ‘waiting in-between’ processes are increasingly looked at the microscope in advance performance optimization by process experts. The space and time between one process to another is costing the insurance millions, if not billions annually.
The future of Blockchain and its use case in the insurance industry is making the time and process to complete one verified transaction – swifter and more manageable. First and foremost, take away the waiting in-between the processes that are usually dependent on human actors. Blockchain introduced distributed ledger with capabilities to self-process, enter verification stages and track conditions that launch insurance coverages – seamlessly.
It is done through smart contracts, where agreements are coded instead of primarily being paper-based. Blockchain saves time and process as it alleviates the industry from paper-based handling and its attributed lead times.
The earliest use case of Blockchain in insurance is within the complicated reinsurance industry where a combination of retrofitted Blockchain working across its industrial counterparts to verify, process, and execute insurance – sets the stage for other insurance industries to explore and adopt early.
DynaQuest is an award-winning Blockchain solutions provider that offers a strategic change management solution for insurance companies as they journey into Blockchain.
For more information, visit their official website.