Use of Blockchain in Insurance

Blockchain Application in Insurance

In life risks are prone to occur, the risks may be something that may come to halt a business such as calamities, fire accidents or theft. To mitigate such risks one has to take measures such as transferring the risk to another party, this is mostly through taking an insurance cover.

What is an Insurance Policy?

An insurance policy is a financial contract between  between a policy holder and an insurance company (insurer) whereby the insurer agrees to compensate  in the event the insured property or person suffers a loss named in the policy agreement.

In the insurance business the insurer takes charge in case the issued risk happens and is under obligation to compensate or indemnify the subject matter to the state it was before unless it’s in a life assurance policy where lost life can’t be indemnified. The business by the insurance companies are faced by very high chances of fraud where there are cases of double claims.

How insurance claims are processed

Current core systems in insurance companies use relational databases with unilateral consensus across different stakeholders to deploy reconciliation, settlement and audit services in order to build a consensus among stakeholders. Once a claim is reported, transaction are processed and entered into multiple databases, to make sure that there is only one version of the truth all stakeholders must reconcile all these versions constantly.

Use of blockchain to adress insurance claims challenges

These challenge can be by-passed by using blockchain technology, blockchain is simply a distributed database that stores data in blocks across different computers referred as nodes in the distributed network. By using distributed ledger, blockchain will break down these large batch services by systematically incorporating them in a digital protocol based on consensus that includes all counterparties and stakeholders of the transaction. A distributed ledger can enable the policy issuer and various third parties to easily access and update relevant information such as claim forms, evidence, police reports and third party review reports.

When different stakeholders use the same piece of information, inefficiencies associated with relational databases, fragmented processing such as multiple reconciliations that creates operational risks.

Using blockchain technology starts with recording and verifying contracts on the blockchain. Blockchain would also ensure that once claims are submitted only the valid ones are paid. Smart contracts can trigger payment of the claim even without the need of human intervention.

Smart Contracts in Settleling Claims

Smart contracts can also help on improving the process of processing claim. Smart contract are computer programs that are set to trigger certain actions when predefined conditions are met. Through smart contracts and blockchain both parties can benefit from managing claims in a responsive and transparent way.