Blockchain Applications in Insurance | Use Cases in 2023

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How can Blockchain and Digital Assets help the Insurance Industry?

The traditional insurance industry is plagued by manual and inefficient processes, which bring about challenges such as insurance fraud, slow and cumbersome claims processing, intermediaries, lack of transparency, and inefficient data management, among others. 

Fortunately, with the benefits driven by the advent of blockchain technology and digital assets, they are increasingly seen as ways to revolutionise the insurance industry. First, the transparency of the blockchain can help improve KYC compliance and risk, authenticate documents and prevent fraud, thereby building trust between insurers and policyholders. Second, digital assets can reduce transaction costs, enhance customer engagement and experience, and improve people’s access to insurance products and services. Further, with smart contracts, insurers can streamline the claims process via automation, while minimising fraud and costs

Factors such as the highly competitive nature of the industry, and efficiency gains and transparency brought about by blockchain, present opportunities for positive growth, fuelling the growing demand for blockchain and related applications in the industry. It is predicted that the size of the worldwide blockchain in insurance will grow at an expected CAGR of 72.4% and hit USD39.56 billion by 2030, up from USD177.85 million in 2020.  

With high growth slated for the coming years, we have identified four key application areas of Blockchain and Digital Assets in the insurance sector for you to understand its current developments and trajectory.

Blockchain and Digital Assets Application in Four Areas

Customer-facing

When it comes to customer-facing applications, blockchain and digital assets can transform the customer experience. Insurers and policyholders can benefit from increased transparency and security, and the automation of policy payouts. An example of a real-life use case is listed below:

  • Policy Payout Automation

Policy Payout Automation is achieved through the use of pre-programmed rules and conditions that allows for the automatic payment of claims to policyholders. Smart contracts can streamline the claims process by paying out automatically when certain events occur under predefined conditions.

Real-world Application: Fizzy

French insurance company, AXA launched Fizzy in 2017, a flight delay smart insurance contract platform. One of the first commercial applications of smart contract technology, it aims to improve users’ travel experience by offering direct automatic compensation to policyholders whose flights are delayed by more than 2 hours. Fizzy is a digitised form of parametric insurance, which uses flight statistics as the parameter to trigger the performance of the contract. While the platform has since been scrapped due to insufficient market appetite, it represents a more efficient and innovative use of insurance in the consumer market. Find more on this project on CFTE’s analysis of blockchain projects.

Infrastructure

Blockchain applications in infrastructure can streamline business operations in insurance by allowing for more secure and enhanced data sharing and management, thereby improving efficiency and customer satisfaction. Some of the industry use-cases are listed below:

  • Distributed Ledger Technology 

Distributed Ledger Technology, or DLT, is the underlying technology behind blockchain. It is a type of database that is decentralised and distributed across a network of computers or nodes, allowing for the creation of a secure, immutable and transparent record of data. In the case of insurance, this technology is useful for creating a system that can store and manage insurance-related data and transactions.

Real-world Application: Corda

Corda is a blockchain platform that has applications to the insurance industry. It uses DLT to ensure that insurance sector participants can store and share insurance-related data and transactions in a secure and transparent manner. The platform aims to connect networks, automate complex and manual processes, streamline workflows and drive faster claims settlements. Find more on this project on CFTE’s analysis of blockchain projects.

  • Shared Events Database

Loss Events are events that trigger a claim under an insurance policy and lead to an insurer making a payout to the policyholder to compensate for loss or damage.  In the event of a “Loss Event”, the use of a Shared Events Database – which is a database that can store and manage shared events related to insurance policies – can help insurers have a better picture and record log of the loss events. This can  help them to quickly get notified of the events, validate them and reduce the risks of fraud in the system, thereby leading to better outcomes for involved parties.

  • Shared Records Database

A Shared Records Database is somewhat similar to a Shared Events Database. A Shared Records Database is a type of blockchain database that is used to store and manage shared records of insurance policies, claims, and related data. However, this type of blockchain-enabled database is focused on managing shared records of insurance policies and claims, where multiple parties can access and update the same set of records in real-time. 

Real-world Application 1: RiskStream

Riskstream essentially utilises a high quality SOC2 and ISO certified (security) blockchain infrastructure with off-chain data sharing capabilities with multiple parties in the insurance ecosystem to ensure that personally identifiable information data is exchanged in compliance with regulations. The blockchain-based shared records database aims to enhance the efficiency, transparency and trust of the insurance industry. Find more on this project on CFTE’s analysis of blockchain projects.

Real-world Application 2: AIA Bancassurance Blockchain

The Bancassurance Blockchain is a blockchain-based platform that AIA rolled out with its bank partners, allowing all insurance parties to share policy data and documents in real time with reduced processing times and improved transparency.  Through this platform, banks and insurers could collaborate and enhance the streamlining of the insurance sales process. Find more on this project on CFTE’s analysis of blockchain projects.

Compliance and Risk

When it comes to compliance and risk management for the insurance industry, blockchain technology not only allows for the use of smart contracts in compliance with regulations and contract terms, it also allows for a more secure and efficient KYC/AML compliance. Similarly, digital assets also minimise errors and fraud while improving the speed and delivery of secure transactions. Typical use cases are listed below:

  • Document Authentication

Using blockchain-based document authentication systems is particularly beneficial to insurance companies when dealing with compliance and risk management because blockchain technology is able to authenticate documents by creating a tamper-proof record. Implementing a distributed and decentralised ledger can lead to operational efficiency gains, better risk management and a reduction in costs.

Real-world Application: Ping An Technology

Ping An Technology’s subsidiary, Ping An OneConnect, launched the “Smart Insurance Cloud” in Beijing, and released its two latest products: “Smart Verification” and “Smart Fast Claim” to the insurance industry. The “Smart Verification” function aims to bring about an innovative transformation to insurers’ traditional operation model by using AI technologies, such as facial recognition and voiceprint recognition to construct a biological record of each customer, thereby improving the efficiency and security of document authentication processes. Find more on this project on CFTE’s analysis of blockchain projects.

  • Cybersecurity

Blockchain and digital assets both have the potential to improve industry-wide cybersecurity by providing secure, decentralised and transparent systems to manage and protect customers’ data. The distributed nature of blockchain technology can enhance data privacy and reduce risks of data breaches as the data is encrypted and shared across the network. Similarly, digital assets like security tokens can be used to create immutable digital identities, which can authenticate users and access sensitive personal data. Securing sensitive information is crucial to the smooth functioning of business in the industry, and the use of blockchain and digital assets can help to ensure that this requirement is met. 

Real-world Application: InsurWave – Consortium of shipping companies and technology firms

InsurWave is a digital platform that was created by a consortium between shipping companies and private companies, such as Guardtime, EY and Microsoft. The platform uses the KSI blockchain technology that was designed by Guardtime. This initiative enabled secure storage of data related to marine insurance policies and claims and provides a distributed ledger that can enhance the traceability of important data. Further, it allows for the automation of claims processing and settlement via a smart contract. It is an innovative demonstration of the potential for blockchain technology in transforming the insurance industry by improving efficiency, reducing costs, and enhancing security. Find more on this project on CFTE’s analysis of blockchain projects.

ESG

Blockchain technology has the potential to enhance the ESG initiatives in the insurance industry by promoting transparency, accuracy of ESG-related risk assessments and the streamlining of ESG-related processes. Understanding the relationship between ESG factors and insurance firms’ performance is becoming increasingly important for the industry, with companies playing an important role in financing the move to a more sustainable economy. A use case is listed below:

  • Decentralised Autonomous Organisation (DAO)

DAO is often a blockchain-based governance system that allows for members to vote on proposals and take part in collective decisions. Importantly, each member has an equal say in the organisation’s operations as the decision-making process is transparent and democratic. This means that DAOs can allow stakeholders to have a direct say in the ESG policies and initiatives of insurance companies. 

Real-world Application: Lemonade Crypto Climate Coalition

InsurTech company Lemonade formed the Lemonade Crypto Climate Coalition – constituted as a DAO – to provide ‘affordable and instantaneous’ climate insurance to farmers by using blockchain. It aims to build and distribute parametric weather policies to subsistence farmers and livestock keepers in emerging markets in a quick manner. Find more on this project on CFTE’s analysis of blockchain projects.

Conclusion

As illustrated in the use cases above, the transparency and efficiency gains enabled by blockchain technology and digital assets are transforming the insurance industry by enabling more secure, accurate and efficient transactions. As a result, many insurance companies are exploring ways to leverage the game-changing technology to drive the innovative front.

Whether you are an individual or a business, understanding the potential of blockchain and digital assets is key to staying relevant. So why wait? Stay on top of the latest developments and applications of blockchain use cases by checking out the links to our other free resources below!

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