Well-established and valuable as it is, the insurance industry still has plenty of problems — including inefficiency, fraud, human error and, most concerning of all, cyber attacks. With blockchain technology, though, insurance systems can be made more stable and secure.
How Is Blockchain Used in Insurance?
With blockchain technology, insurance companies can create smart contracts to track insurance claims, automate outdated paperwork processes and safeguard sensitive information.
Blockchain optimizes the efficiency, security and transparency of the insurance industry. Distributed ledger technology has beneficial applications for streamlining insurance claims processing, boosting cybersecurity protocols and even speeding up payment times.
Along with artificial intelligence and big data, the potential that utilizing blockchain in insurance will unlock hinges upon three unique features in particular — smart contracts, automation and increased cybersecurity.
Blockchain in Insurance Examples
- Chainlink
- Deloitte
- Lemonade
- IBM
- Consensys
Blockchain Smart Contracts for Insurance
Smart contracts enable blockchain users to transparently transfer anything of value without the interference of a middleman. Like physical contracts, smart contracts stipulate the rules between two parties. Unlike physical contracts, smart contracts can track insurance claims and hold both parties accountable.
Insurance policies could be written as coded, decentralized smart contracts in which an individual agrees to pay the insurance company money in return for the company’s promise to help cover that person’s future medical costs. Blockchain smart contracts will create immutable data based on an insurance policy owner’s records that can immediately accept or refute any insurance claims made to the company.
If any false or fraudulent claims are made by the policy owner (or if an insurance company no longer agrees to cover a condition previously agreed upon), a smart contract will immediately dissolve and the premium payments will transfer back to the individual. The process creates a sense of mutual trust between the two parties for two reasons: all data is transparently displayed, and the slightest contractual deviation results in restitution to the harmed party.
Here are a few companies leading the way to apply smart contracts to insurance.
Chainlink is a decentralized oracle network that’s able to send and receive off-chain data and apply them to smart contracts, which can make insurance agreements both up-to-date and tamper-proof. For example, in the case of a catastrophic weather event, Chainlink can pull relevant weather data for use on a provider’s smart contract to verify and automate damage payouts.
Deloitte works with clients to integrate new technologies into their workplaces, such as introducing blockchain to insurance groups. After conducting a health and life insurance study, the company found it can use blockchain technology to protect health records, complete agreements via smart contracts and detect fraudulent claims. As a result, insurance entities can adopt Deloitte’s blockchain strategies to nurture stronger relationships with patients and customers.
The Lemonade Foundation (a nonprofit organization run under Lemonade) launched the Lemonade Crypto Climate Coalition in 2022, a blockchain-based system that allows subsistence farmers in Africa to sign up for at-cost crop insurance. The technology quantifies weather risk and uses smart contracts to automate claims based on rain data, so farmers were protected against climate events like drought and flood. As of 2023, 7,000 farmers across Kenya were paid insurance premiums from the project and had their crops protected.
Blockchain Automation for Insurance
Because the insurance ecosystem contains millions of insurers, healthcare providers and patients, it’s easy for the industry to get bogged down by money- and time-wasting inefficiency stemming from billions of forms, human error and poor communication between parties.
Digital ledger systems like blockchain can help automate outdated processes, save billions of hours of paperwork each year and reduce human error because all forms and data are safely stored along the chain.
Communication between important parties in an insurance claim can also be improved through distributed ledger technology. If stored on a blockchain, a patient’s medical history can be safely viewed by doctors and insurers to determine correct policies and procedures going forward.
These companies are leveraging blockchain to further automate the insurance process.
Allianz is an insurer and asset management company that provides property, life and health insurance services. Blockchain is one of its areas of expertise, which is used by its European subsidiaries to streamline international auto insurance claims. Allianz says this reduces time and costs spent on administration and settles claims faster for customers.
IBM streamlines various aspects of the insurance industry with its initiative IBM Blockchain. Through this field of research, the company has helped insurance groups automate their underwriting and claims processes. These changes can streamline documentation and reduce fraud, enabling insurers to increase trust with their customers and deliver more efficient and consistent service.
Etherisc is a decentralized insurance protocol designed to help build insurance applications. Its blockchain platform provides ready-to-use modules so businesses can create parametric insurance products. Etherisc is using ledger technology to automate claims processing, lower operational costs and increase insurance transparency.
Blockchain Cybersecurity for Insurance
Blockchain’s ability to safeguard sensitive information is especially enticing to an industry that heavily relies on data gleaned from being at the intersection of health, work and personal life.
Blockchain’s ledgers are decentralized, so they can’t be corrupted or manipulated by one authority. Instead, all data is chronologically timestamped to ensure a clear recording of events.
And while blockchain data is encrypted, it’s also completely transparent to members (nodes) on a chain — meaning that all nodes can view the actions of an individual whose true identity remains hidden. This system enables blockchains to quickly discern any unusual behavior and take care of problems before they become major issues.
A few companies are already applying blockchain to protect insurance data and reduce fraud.
Consensys offers cyber insurance solutions for blockchain applications through Consensys Diligence. It provides services like smart contract auditing and testing, security analysis, threat modeling and more to ensure blockchain security. Consensys says its blockchain solutions can be used across multiple industries, including insurance.
With Kaleido’s blockchain solutions, insurance companies can store insurance information and reports on an immutable, secured database. For insurers, this technology helps them detect identity fraud, automate claims and remain security-compliant. For customers, this means their data is kept safe against disaster and is completely private until their insurance policy changes or a new policy starts.
Frequently Asked Questions
What is blockchain insurance?
Blockchain solutions — such as smart contracts, immutable records and real-time data monitoring — can streamline operations in the insurance industry by allowing insurers and regulators to manage insurance agreements and automate payouts, as well as speeding up claims processing and securing data for those insured.
How is blockchain used in health insurance?
Blockchain can be used in health insurance to store and manage access to patient data, automate insurance claims, detect fraud, and ensure patients and healthcare providers share up-to-date insurance information.
What are the disadvantages of blockchain in the insurance industry?
Disadvantages of using blockchain solutions in the insurance industry can include:
- Potential for data exposure or breaches
- Limitations in blockchain scalability
- Lack of interoperability between different blockchains
- Difficulty integrating blockchain technology with preexisting or legacy systems
- Ensuring compliance with insurance regulations and standards
- Lack of wide-spread use and longevity within the industry
