A look at how new technology can transform insurance payments, by Bundeep Singh Rangar, chief executive, Premfina
Your flight from London to Nice is delayed by four hours. This is verifiable by the airport authority and the airline. You bought flight insurance. This is confirmable via your insurer and by yourself. Given the delay, you are now entitled to claim insurance compensation.
Now imagine both these facts were recorded on a public database at the outset. That is, every flight departure and arrival time was indisputably and automatically recorded automatically. And the record of each person who purchased flight insurance was also easily available.
In other words, there was no need to request such information from the various sources: The airport, the airline, the insurer and you. No need to spend the time and money confirming the above in order to process claims. This information was publicly accessible and verifiable, making the two facts undeniably true.
Next, imagine a smart piece of computer programming automatically triggered the compensation payment due to each owner of a flight insurance policy - within minutes of the flight delay.
Welcome to the world of BlockChain insurance. All the above would have happened almost instantly and human involvement in the process would be next to zero. The transaction cost too of processing the above, therefore, would also be nearly nothing.
“Distributed Ledger Technology,” commonly referred to as the BlockChain, makes possible such maintenance and access of immutable records on a publicly accessible database. And the automatic trigger of payments is what a “smart contract” accomplishes.
The compensation payment could be in cash or a free flight as would have been previously agreed between the airline and the insurer. Or it could be in the form of a token, a modified form of commonly used airline points that could now be traded online and exchanged for common currency. That token is another essential aspect of the BlockChain, i.e. a crypto currency.
Insurance technology experts believe Blockchain could revolutionize insurance. As illustrated above, the technology’s main benefits are a permanent storage of records that are immutable, time-stamped, indisputable and accessible. And an automation of existing processes such as the verification and payout of claims.
While there are many viewpoints on the way this technology will impact the insurance industry, one generally accepted prospect is the transformation of the current largely inefficient processes for Know-Your-Client (KYC) and Anti-Money Laundering (AML) verifications.
Often done manually and repeated at different points of the insurance sales process, they are wasteful, subject to human error, a cause of delays and an increase in costs.
Various participants in the insurance process currently work in silos when it comes to KYC and AML checks, which doesn’t help. Using BlockChain, participants could collaborate and share data such as KYC and AML verifications.
The first verification performed in the insurance sales process could thereafter be made available to all others involved. A trusted, updated and indisputable record of the customer’s information, accessible to all concerned, would remove the need for multiple checks.
The data would constantly be updated by trusted sources such as government records. An individual’s change of address, for example, would automatically propagate through Blockchain’s decentralized records.
Customer data would be held in encrypted form on the BlockChain. Each customer would be the sole individual with the decoding keys and the authority to give others permission to access such information. Theoretically, this process would conform to data protection rules and regulations such as the General Data Protection Rules (GDPR).
In its “Profiles in Innovation on Blockchain” report, Goldman Sachs suggest the “consistent use of BlockChain in KYC [and] AML could save $2.5 billion (£1.8 billion) of the estimated $10 billion (£7 billion) global processing costs.”
Many industry experts believe this is only the tip of the iceberg on how Blockchain technologies will positively revolutionize the insurance industry.
While the manner in which this will pan out is still being charted, what’s commonly forecast is cheaper and faster issuing of policies as well as settlement of claims. That’s something the insurance industry ought to embrace.
PremFina will be holding a Fringe Session at Biba 2018 to discuss BlockChain and its impact on the insurance industry. Please email Karolina.email@example.com to register your place today.