Blockchain –heralded as revolutionary and the biggest disruptor of Industry 4.0 is remodelling insurance sector. Smart contracts, which are lines of code stored on a blockchain, is used to streamline paperwork, increase data security, save cost and help identify fraudulent claims.
Fraudulent claims widely plague the global insurance market. An estimate pegs the losses in the industry from fraud in the US alone at $80 billion per year. Insurance fraud also costs the average family between $400 and $700 per year in the form of higher premiums.
Although 95% of insurers employ anti-fraud technology, 71% of them with the primary aim of detecting claims fraud, yet insurers continue to be burned by fraudsters! To overcome this challenge, insurers are integrating blockchain to reduce fraud and simplify its complex transactions.
The blockchain is at the frontier of cutting-edge fraud prevention tools in digital transformation era. This technology can be utilized as a method to seamlessly and securely share fraud intelligence among decentralized institutions. It also minimizes counterfeiting, double booking, and contract alterations by establishing clear, timeless records of asset ownership.
How does Blockchain help in Fraud detection & risk prevention?
Blockchain, or distributed ledger technology, uses advanced cryptographic techniques to create a secure ledger of information. This prevents the unauthorized modification, addition or removal of data. The same ledger is held simultaneously on thousands of different computers in multiple locations with different owners, and the moment a line is added to one ledger, it appears on each shared ledger.
Insurance fraud is difficult and time consuming with high error rate to detect using standard methods. By moving insurance claims onto an immutable ledger, blockchain technology can help eliminate common sources of fraud in the insurance industry.
The frauds that can be stopped using blockchain are:
- Eliminating/reducing counterfeit is one benefit with the help of digital certificates and signatures.
- Double spending or booking can be eliminated as clients cannot claim for the accident twice.
- Removing unregistered sellers/unlicensed brokers and reducing premium.
Platform companies offering Blockchain:
Some of the platforms providing fraud detection and prevention using blockchain are:
- Etherisc built a blockchain-enabled insurance which is powered by smart contracts. The automated scrutiny can independently detect fraudulent claims before they’re ever subjected to human review.
- VouchForMe is a combination of conventional insurance and peer-to-peer endorsement on blockchain backed with social proof. It provides higher transparency and lower risks by having the social proof of a person to be locked into the blockchain.
- Aigang uses smart contracts to facilitate better and effective connection to insurance policies. This process will remove third-party interference and increase overall transparency.
- Bitpark is a decentralized insurance service. It provides users with services like contract fulfilment, user-directed screening, and billing process.
Challenges in adopting Blockchain in Insurance
Blockchain clearly facilitates innovative business models and promises cost advantages to insurance companies and their customers. Various barriers impede its widespread adoption, however.
Scalability: The technology requires consensus-based validation mechanism, its continuous replication, and ever-growing amount of stored data. For larger blockchains, there is greater requirement for storage, bandwidth, and computational power.
Security: Recent incidents have shown that for all blockchain’s security attributes, it is not impregnable. For example, hackers stole $65 million from Bitfinex, a Cryptocurrency exchange. Such threats are not as well understood as those related to conventional database architectures.
Standardization: A distributed system that depends on collaboration between competitors, suppliers, and others will take time to evolve. So will the resolution of legal and regulatory issues. Thus there is a high risk of initiating inefficient solutions, and investment decisions need to be taken carefully.
Key partnerships of Insurers with technology providers
Overcoming challenges, insurance companies are majorly partnering with Tech-giants for security and identity management solutions.
- Accenture partnered with RiskBlock, an insurance blockchain consortium, as a Lead Framework Architect, to build production grade platform for testing and implementing use cases including fraud reduction within the insurance industry. Other partners include Deloitte, IBM and Capgemini.
- Cognizant with leading insurance consortiums including Max Life, ICICI Prudential Life, Bharti AXA has developed a blockchain solution that facilitates cross company data sharing, enabling the insurers to reduce the risk of data breaches, fraud and money-laundering.
- Microsoft, Maersk, and EY collaborated to launch marine insurance using blockchain. The distributed ledger will be used to record information about shipments, risk and liability, helping firms to comply with insurance regulations.
In transactions involving multiple parties, where an iron-clad record of data is needed, and no central trusted authority is available or needed, there blockchain technology holds out huge promise. This is where insurers would be wise to explore. Draup is an AI-Driven Sales Enablement Platform. Draup empowers sales teams with comprehensive industry, company & key stakeholder intelligence to enable micro targeting.