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Over the past few months, blockchain has been a much-discussed topic in the world of business, especially in the insurance industry. A consortium of the leading life insurance companies of India has developed Bitcoin applications that would facilitate cross-company sharing of data. This platform will help insurance companies reduce their dependence on data aggregators to obtain client and policy details for a wide range of insurance-related purposes.
The question is, “How is technology used in insurance?”. The Indian insurance industry has undergone many transformations in the past decade. From insurance agents promoting and selling their product door to door to customers buying a money-saving plan with a few clicks via their smartphones, the face of insurance has changed completely. All insurance companies now have super simple websites and portals that make insurance procedures very easy and quick.
How is Blockchain Being Used in Insurance?
Though still not mainstream, blockchain technology has surely created a buzz. Before we see how it works, let us first understand what blockchain is. Blockchain is a data structure that allows creating a digital record of transactions and the ability to share this record with a distributed network. Bitcoin, on the other hand, is the first cryptocurrency, a form of digital currency or electronic cash. The bitcoin rate is not backed by any government or country.
With the help of a blockchain, entries can be made into an information record. The updating of these records can be controlled. A blockchain thus allots an exclusive identification to a user whose details are not disclosed during the transaction process. Let us understand how blockchain technology is changing the life insurance industry.
Suppose Tarun Kumar gets in touch with a life insurance company to buy a term plan. However, his proposal is rejected due to his poor medical condition. Tarun then visits another insurance company to buy a term plan from them. Company 2 would now start afresh and run a pre-policy medical screening on Tarun. Had both the companies been using blockchain technology, Company 2 would already have access to Tarun’s medical reports.
Let us now take a look at the benefits of blockchain in insurance.
One major challenge faced by life insurance companies is fake and fraudulent claims. With the use of blockchain, it will be easier to validate the truthfulness of a claim. Insurance companies will be able to dig into historical data to detect a client's past fraudulent activities and eliminate such discrepancies beforehand.
Decrease in Administrative Costs
It is evident that blockchain will help minimize administrative costs for life insurance companies. There would be an automated verification of the customer’s identity, the validity of the contract, the registration of the claim, and the data from the third party.
Many policyholders feel a ‘trust deficit’ when it comes to claim procedures. The correct use of blockchain technology would ensure that updated and relevant information reaches the insurer at the earliest. When data streams such as hospitals, police teams, and insurers are available through digital technologies, the insurance company will be automatically informed that an unfortunate incident has occurred.
Speedy and Easier Claims
Blockchain can greatly help simplify the claim procedures. Let us see how with an example. Suppose Ravi Bhatia purchased the Tata AIA Life Insurance Fortune Guarantee Plus(UIN: 110N158V02) for himself with his wife Sarita as the nominee. After his untimely death, his wife would have to obtain a death certificate from the authorities and submit it with TATA AIA Life Insurance. The company would then verify the information and process the claim. This is a standard procedure that can take up to 30 days.
However, if blockchain technology is integrated fully with the systems, there would be a close network between the insurance company, the hospital, the health department, and the nominee. When a policyholder passes away, the details would be entered into the IT system of the hospital. This would be further connected to the network, and all entities would be updated simultaneously.
In simple words, the claim process would become quicker and easier not just for the insurance company but also for the nominee.
One of the key benefits of blockchain is that information sharing leads to the building of trust. Information/data, once recorded, cannot be erased in isolation. This provides for safer, much more secure transactions between the users. The insurance companies need to fully understand the pros and cons of blockchain technology, as only then would they be able to benefit from it. Internal concept proofs and customer processes must be tested before a full-size implementation can be carried out. However, there is no denying blockchain technology will ensure real-time availability, record-keeping consistency, transparency in insurance procedures, prevent procedure duplication, and reduce operations costs. There is no such thing as a bitcoin insurance policy as Bitcoin is only a technology that can be used to make selling insurance policies very efficient.
Tata AIA Life Insurance is one of the first thirteen Indian life insurer companies to have created a blockchain consortium(Source: Economictimes). With this, the company hopes to reduce the risk of a data breach, money laundering, and fraud. Through cross-company data sharing, it is anticipated that Bitcoin applications would improve efficiency, turnaround time, and record-keeping, thus promoting an excellent customer experience.
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