There are few industries as byzantine as insurance. This isn’t entirely the business sector’s fault. By definition, insurance operates in a high-risk environment. Premiums are quietly collected until some major incident forces a sudden – and large – release of funds.
Such an incident throws the insurance agent’s calculations out of whack, as rates and benefits now need to be adjusted to replace the missing funds and ensure that future calamities are already in the budget.
This gets complicated when physical things are involved. Cars, boats, motorcycles, and airplanes all need insurance, and those real physical objects come with very real physical histories. A kaleidoscope of dents, dings, scratches, and scrapes affect the calculation of insurance premiums and, ultimately, the payout should those cosmetic issues become something direr.
It gets even more complicated when intangibles like health and life come into play, and another level of complexity arrives when different parts of the insurance chain – say, a hospital, an EMS service, and a customer – must talk to each other to figure out who owes what. It’s like divvying up the bill at a restaurant where each diner has ordered something different – and only has limited abilities to pay.
Then there are the legions of actual humans involved. Agents, underwriters, estimators, providers, and more all have a hand in the insurance pot, and a mistake by any one of them can cause untold headaches down the line.
The transparent nature of the blockchain has the potential to simplify the industry from the bottom up.
When you eye up a used car, you look for certain things. Is there apparent rust? What’s the mileage? Where has this car been sitting for the past decade or so?
An insurance company approaches a car much the same way when it’s calculating premiums and available coverage. Unfortunately, almost no one but scrap companies is interested in making a car appear worth less. Fraud is rampant in the used auto industry, with the result that insurance calculations are guesses, at best.
Establishing a reliable chain of ownership on the blockchain takes most of the guesswork out of the equation. Reconstructed titles are logged and reported accurately, and major repair work can likewise be documented and shared.
“In order to simplify their calculations, classic insurance companies set several client categories and try to fit each and every one of us into one of those. We are hundreds of millions and each one of us is different and unique! The incumbent insurers do not know us and are unable to get acquainted with each one of us,” the company wrote. “And we are paying for that: it’s way easier to set a higher premium and distribute it evenly among all the drivers. Ossification and clumsiness of the insurance companies make them keep the immense number of in-house qualified specialists. And the driver pays for that! It can’t be acceptable.”
When each car – or driver – has an open, transparent, and guaranteed honest record to present to an insurance provider, the entire insurance pool benefits from more accurate calculations and, hopefully, lower premiums. The risk inherent in a business segment defined by it drops off just a little.
Making a Claim
It’s a fact of life that using insurance is hard, perhaps deliberately so. After all, it’s only supposed to be triggered in the event of an emergency.
Making an insurance claim is never an easy task. Hordes of individuals become involved, and those individuals all occupy different strata of the insurance food chain. Insurance players need to be able to bill and dispute, sometimes both up and down the chain, as quickly and as accurately as possible. These players are likely all using different computer systems, timetables, and criteria.
The result is usually a mess. In fact, whole television advertising campaigns have been designed around a company’s relative ease in processing claims – notably Liberty Mutual’s recent campaign.
Implementing a blockchain solution provides a common ground for all levels of the insurance chain to talk with each other on an equal footing. Moreover, it ensures that the flow of information is uniform; everyone should know the same thing at the same time. This could be particularly useful in the healthcare field, and not just for making insurance claims. A doctor could theoretically write a prescription and nigh simultaneously send that prescription out to be filled at the same time an insurance company becomes aware of it being written.
This not only stands to drastically reduce claim processing times, but it may also simplify payments. Imagine a system where the execution of smart contracts takes the place of invoices, with all the associated transfer and banking fees that entails. And once those hassles have been done away with, the insurance provider’s costs ought to drop, ultimately translating into lower overhead and possibly lower premiums and fees for everyone involved. Acceptance is also likely to be aided by blockchain tech. One significant hurdle for some insurance providers is an incompatibility with certain hospitals or physician networks. This could be based on something as trivial as geography, fee structures, or time zones. Blockchain handily eliminates those barriers.
The Insurance of Things
It’s a given that blockchain technology could completely change the way the antiquated insurance industry operates. It’s also possible that blockchain technology will identify a few new insurance avenues that have only just recently been discovered.
The internet of things is the concept of semi-intelligent machines talking with one another through the cloud or a blockchain system. In an ideal world, this creates synergy in the home or workplace between machines originally created for very different jobs. Say your refrigerator notices that its average temperature is way up. It sends an alert to your smartphone, notifying you of the problem and advising you to call a repair-person.
In the same way, imagine your sprinkler system is now on the blockchain.
“Connected devices could identify a loss event and report it to the insurer before the insured even knows about it,”
Wrote Tom Johnsmeyer, assistant vice president of PCS Strategy and Development at ISO Claims Analytics.
“For example, if the sprinklers in a home are activated, the loss is assumed to be of a certain magnitude based on readings from water sensors and data indicating how long the sprinkler was active. What follows could range from fast-tracked claim payment based on IoT (internet-of-things) data—potentially before the insured is even aware there’s a loss—to the judicious deployment of a claim handler to validate key details of the loss and ensure that there are no inconsistencies or improper claimant activity (such as device tampering). The cost and duration of the claim life cycle could decline profoundly.”
Insurance is the business of dealing with the unexpected. It’s ironic, then, that one of the biggest disrupters for the industry itself is just around the corner. Blockchain technology has the potential to streamline insurance evaluation, estimation, and claims processing. Within a few years, the insurance industry should have the computing knowhow to roll back centuries of inefficient pen-and-paper practices, with a cheaper, more reliable, and more effective system as the end result.