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Ever since its introduction, Blockchain technology has caught the fancy of various industries. The initial success of crypto-currencies being the primary reason behind it. But since then, Blockchain has come way forward. Many industries are looking to commercialize Blockchain technology. They are taking services of expert Blockchain development companies.
Blockchain has the potential to resolve several financial and logistical problems. Blockchain becomes particularly useful when many parties are there for a particular transaction. It offers benefits like confidentiality of data, saving on transaction costs and transparency. The insurance industry can enjoy several benefits from Blockchain.
Blockchain for Insurance
At the heart of Blockchain technology is a distributed ledger. A distributed ledger is a shared database of transactions with validation and encryption. These transactions conform to a fixed protocol. It maintains a central data repository and undergoes updating with each transaction. This is better in the sense that the individual data of all parties may not be up to date.
In simple terms, insurance is a contract that offers security from monetary loss. It helps with risk management and prevent against unexpected losses. The primary issue that affects the insurance industry is lack of transparency. This lack of transparency causes most problems facing insurers as well as customers.
In the insurance industry, Blockchain has excellent potential. Generally, in an insurance contract, there are several parties. There are parties like insurer, third-intermediary, and customers. Their databases may not be up to date. But Blockchain takes care of this issue. All the data and transactions have validation from all the parties. This includes those parties also which are not part of an insurance contract.
There is incredible growth going on in the Blockchain insurance sector. The market for Blockchain in insurance will increase from $ 65 million in 2018 to $ 1.4 billion by 2023. This translates into a fantastic CAGR of 85%. As a result, demand for Blockchain development services in the insurance industry is increasing.
How Blockchain can Impact the Insurance Industry
Blockchain offers solutions to most problems facing insurers as well as the customers. Let’s have a look at critical points of Blockchain that can affect the insurance industry:
1. Enhances Efficiency: The process of changing an insurance company is a tiresome process. There is also the risk of losing control over information by the customers. Blockchain answers this problem. It offers the security of information and the efficiency of operations. An individual has complete control over the information while the confirmation is present on the Blockchain.
2. Increases Trust: The financial services industry is suffering from a lack of trust. Despite institutions being strong, the lack of trust is palpable. High expenses, the inefficiency of operations, and lack of trust result in under-insurance. With elements of transparency and straightforwardness, Blockchain encourages trust amongst all the parties.
3. Claims Processing: Blockchain and smart contracts resolve issues facing the insurance industry. Customers find insurance contracts to be too long and confusing. While insurance companies are facing frauds at various levels, smart contracts help in overseeing of claims transparently and responsively. The whole process starts with recording and confirmation of contracts on the Blockchain. At the time of submission of a claim, Blockchain ensures the passing of only valid claims. In case there are many claims about the same incident, Blockchain would again come in to play. It would ensure the passing of only proper claims is. All this without human intervention. Thereby improving the speed of resolution of claims.
4. Prevention of Fraud: Insurance industry loses over the US $ 80 billion to fraud every year. Blockchain can detect and prevent fraudulent activities. This is one of the biggest reasons for the rapid integration of Blockchain in insurance. Blockchain technology stores transactions in a decentralized manner. It can check for authenticity of transactions, policies, claims. By harnessing synergy of operations, insurance agencies can save a lot of money.
5. Product Development: Blockchain provides insurance agencies with the latest data and information. It is not possible to combine data from various sources. Blockchain technology handles these issues. Blockchain can help plan efficient actuarial models. This is possible with linking of various data sources. These products will be in sync with the latest requirements of the customers. And will help with the expansion of the business.
6. Cost Saving: Blockchain helps in reduction of cost for insurance companies. This is achievable through the automation of processes. These processes are verification of claims, the identity of policyholders, the validity of the contract. This will help reduce administrative costs for the insurance companies.
There are significant benefits on offer with Blockchain. Many insurance companies are trying to commercialize it. As a result, the need for Blockchain developers is on the rise in the insurance industry.
Limitations of Blockchain
The benefits on offer from Blockchain technology are enormous. But there are certain limitations to it also. Some of the significant challenges that Blockchain needs to address are:
1. With the increase in the number of users, Blockchain is becoming more prone to cyber-attacks.
2. Not recording original events compromises the integrity of data.Cost of transactions and complexity of operations will also increase.
3. Cost of transactions and complexity of operations will also increase.
These challenges are significant and need proper handling. But there is no denying that Blockchain is the future of the insurance industry. Adoption of Blockchain by insurance companies offers long-term benefits. It will help with the efficient delivery of services and fulfillment of regulatory requirements. It is thus a natural fit for the insurance industry.