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Superior customer experience is the fundamental attribute that delineates the highly successful insurers and brokers from the ones that are simply ambling along. So, it comes as no surprise that insurers and brokers are exploring and investing in technologies to improve their competency in this cardinal area. The latest technology to gain attention is blockchain—the distributed ledger technology that is expected to have transformative impact across industries including financial services.
There has been a fixation on blockchain across the financial services industry, including insurance, because of its potential to revolutionize data sharing, security, cross-border transactions and contracts execution. Industries that perform these activities will find relevant and useful application for blockchain technology.
Let’s consider insurance and examine some industry properties that make blockchain a technology for serious consideration:
- Multiple parties in the value chain: Insurance transactions typically flow through multiple parties such as customer, brokers, insurers and re-insurers. The transaction flow across these boundaries is broken, leading to significant effort and inefficiencies in distribution, reconciliation and auditing.
- Data-driven risk and claim assessment, placement and management: Actuarial and data science is the core expertise of the industry. However, given the siloed nature of data processing and consumption, the industry continues to struggle to maximize the potential through intelligent automation of data and to use insights to drive its next best actions.
- The aforementioned complexity and related inefficiencies multiply manifold for the corporate, multinational and specialty insurance line of business.
Timestamped transactions that are cryptographically secured are core features of blockchain technology. These features can be used to transform the current value-destroying activities and transform the customer engagement model.
Let’s look at some specific applications of blockchain technology to enhance property and casualty insurance customer experiences across the phases of customer onboarding, policy contract issuance, claims, risk management and renewals. It makes sense now to evaluate this technology for its potential to affect customer experience in the context of improved security, privacy and service levels at lower costs.
Client Onboarding Phase: This is the most crucial “first impression” phase, where there is a serious opportunity to improve the customer experience. With blockchain, insurers do not have to manually collect all the client information. Instead, consumers’ identities and insurance information are already verified, secured and registered on the blockchain. The actual information resides as a digital passport within clients’ personal devices while only the verification will be logged on the blockchain, giving them total control of their personal information. Customers can then grant a company instant access to specific identity or insurance data when required, which improves their sense of privacy and the confidence with which they share their information with the insurer.
Policy Contract Phase: Smart underwriting can rely on blockchain to fetch real-time customer and other relevant data from “oracles” or data sources on the blockchain (e.g. DMV data for auto, land registry for property, weather conditions or catastrophe models for earthquake insurance) to assess risks more accurately and arrive at personalized and more representative premiums that match the insured risk.
With blockchain’s ability to provide a shared data repository/ledger across multiple untrusted parties in the value web, insurers can eliminate the extended document submission; independently verify the authenticity of customers, third parties, policy contracts and transactions by storing a complete historical record; increase the velocity of the quote and policy issuance; and reduce or eliminate errors in the process. By incorporating the policy in a “smart contract,” which can self-execute, many activities like claims processing, renewals, endorsements and payments can be automated to help improve speed and accuracy, and the overall customer experience. Insurers can reduce their operating costs as well.
Claims Experience Phase: Smart contracts powered by blockchain can ensure that claims are managed in a transparent, efficient and irrefutable manner. A distributed ledger can enable the insurer and various third parties (including service providers) to easily access and update relevant information (e.g., proof of insurance, claim forms, evidence such as flight delays, weather conditions, adjuster reports, police reports) and serve the client by efficiently executing their roles via pre-established smart contracts. Images, loss descriptions and more can be uploaded and estimates can be updated on the blockchain and the claim gets initiated, verified, approved and paid based on the smart contract. Blockchain allows this to happen quickly. Broker intervention becomes unnecessary and processing times shrink, leading to timely and accurate claims payments for the customer.
For the insurer, this means significant productivity gains, minimized disputes and improved ability to detect claims fraud. Integration of trusted data sources combined with business rules encoded in a smart contract relieves loss adjusters from having to manually review every claim. Payment is automatic and accurate, using smart contracts to deliver without back office involvement and reducing the possibility of introducing processing errors. McKinsey & Company says 5 to 10 percent of all insurance claims are fraudulent, and the FBI says this results in more than $40 billion in costs to U.S. non-health insurers per year. With record of prior claims and asset provenance on the distributed ledger, suspicious behavior is easier to identify.
Ongoing Risk Management Phase: Insurers can now help consumers embrace internet of things (IoT) technology that allows devices to be placed on their cars that can monitor driving behavior and help them adhere to good driving habits to keep their premiums low. Consumers can also incorporate “smart property” and “smart health” technology to reduce risk and decrease insurance costs.
Underwriters now have access to data that allows them to determine risk more accurately and assign premium costs accordingly. A blockchain-based insurance solution can combine multiple data feeds including customer profile, location, third-party risk data and analytics to improve the risk selection process and help in product innovation. For example, data generated by devices can be valuable to insurers in helping them build more accurate actuarial models. The growing adoption of smart sensors, telematics and other IoT devices provides further opportunities for insurers to build on the smart contracts capability provided through blockchain technology.
Renewals: With blockchain, renewals can be automated via smart contracts and, based on trusted data sources, incorporate any change in the customer’s risk profile into the contract. Renewals would evolve from an expensive, convoluted process. With the potential to track risks in real time, the annual renewal business model itself may be reconsidered. The overall improvement in customer experience, especially in the claims processing, improves the customer’s trust and perception of the insurer leading to improved renewal rates. Further, the immutability and provenance of data on the blockchain will improve compliance across the policy’s lifecycle.
While there is significant action within lab environments, blockchain is already reality in the market. A few examples are www.everledger.io, fizzy.axa and the YoCoin insurance platform.
By reducing paperwork, accessing data in a secure, efficient, permission-based manner, facilitating informed underwriting, faster claims processing, and automating various front-office and back-office processes, an insurer can find many opportunities to improve the customer experience. A trust-and-efficiency engine such as blockchain technology has the potential to drive radical change in the insurance industry.