The insurance industry has been traditionally governed by three leading players – insurers, insureds, and agents. In a nutshell, the insureds are buying insurance directly from insurers, agents act as intermediaries between the insured and insurer, and all of them run a risk of fraud or data errors. A website like Quantum Code is a wholly automated cryptocurrency trading platform offering the best features like liquidity, trading tools, and customer support. The blockchain can resolve this inherent problem in the way data is stored by storing them in a distributed ledger with an immutable audit trail.
Blockchain technology offers great opportunities for the insurance industry to change its structure and processes by reducing costs and improving efficiency. Unfortunately, the agents will be most affected by these changes due to their role in adding value while at the same time acting as a potential source of fraud. Insurance fraud is a global phenomenon that directly impacts the insured, insurer, and society. The direct effect is a payment by the insured to the insurer for fraudulent claims. This funds transfer depletes the insurer’s revenue that could have been used to cover future claims.
The indirect effects are more difficult to quantify but include moral hazards from understating reported value (for example, by an insured owner falsely stating its vehicle value to receive a higher premium) or negative externalities (for example, an insured deliberately destroying their vehicle).
There are also informational costs from information asymmetry between an insured and its insurer resulting from fraud. There are two main approaches for the blockchain to disrupt insurance – reducing fraud and enhancing the trust relationship between all players by securely sharing vital information. Let’s discuss the use of bitcoin and blockchain in the insurance industry.
Blockchain use in the insurance industry
Blockchain can securely store insurers’ and insured KYC records and prevent, detect or provide proof of fraudulent actions. Fraudsters often use fake identities and addresses, so blockchain provides an immutable audit trail of documents on this data. Insurers can also support their customers with a secure way of sharing vital information like medical history or insurance policies when travelling abroad. These days’ insurers have to spend time and money on complex manual processes for verifying documentation provided by their clients.
Blockchain for checking the legitimacy of a trade
A blockchain-based system will ensure that parties to an insured transaction can track it from inception. People could link this tracking of a trade with the production of policies and payment documents. Proper implementation and robust security measures could help insurers prevent fraudulent claims.
Blockchain for real-time information sharing
If all processes are automated, data can be transferred by the user securely between all players in real-time. That way, if an insurer needs additional information about a claim or a client, they could automatically request the additional information from their partners in the blockchain network via secure APIs (Application Program Interface). In addition, since all parties in the network could verify and validate data, this reduces the fraud risk significantly.
Blockchain for identity management
There are many ways in which different parties related to a single insured asset can share information securely – for example, an insurer and a customer, an insurer and a network of repair shops, or an insurer and in-house claims adjuster.
The blockchain approach could include access rights for all these parties, providing better control over data access, especially when sensitive or confidential information is involved. For example, the insurance industry has traditionally been a closed system, not allowing agents to access data required for their job. The blockchain would allow agents to access critical information needed for the job. It could also reduce fraud risk by reducing the data given to an agent so they could not use it maliciously.
Blockchain for managing claims
Insurance companies that manage claims daily need manual processes such as those in the “Claims Management System (CMS). Unfortunately, these.” systems often fail because of their complexity, high costs, and lack of trust between insurers, adjusters, and customers. Blockchain would replace these traditional systems and provide a central place for all parties related to a claim to review, validate or have their input into the claim process.
Bitcoin for paying insurance plans
Bitcoin or other cryptocurrencies could be used as a payment method in the same way as traditional fiat currencies. However, it is essential to note that bitcoin is only widely accepted in some jurisdictions, and some countries and states still need to learn how to approach this new technology. Bitcoin in the insurance industry. Users can use Bitcoin primarily in two ways in the insurance industry: paying for insurance premiums and investing in reinsurance. This direct transfer of value could be as necessary as cost savings, but it could also significantly improve transparency and reduce fraud.
Blockchain is still a young technology, but it has already proven itself in areas like online currency (bitcoin) and contract management (smart contracts). As a result, many large financial institutions are already looking at blockchain’s potential opportunities.
Blockchain limits
Legal issues could limit blockchain benefits significantly as they affect taxation systems. Blockchain implementation requires data transparency which eliminates the possibility of using tax-free zones and other beneficial arrangements for people living in offshore financial centres like Jersey or Bermuda. It creates a problem for these jurisdictions and the life insurance industry, which operates mainly within these financial centres and uses them to manage their funds.
