Tag Archives: blockchain

Blockchain in Insurance: 3 Use Cases

Insurance, being one of the most conservative, centralized and walled industries, is awakening from its slumber and probing new technologies. Its shy yet solid interest in innovations, particularly in blockchain, is powered by customers’ increased distrust in centralized financial services, which has led to high rates of underinsurance. 

Driven by both curiosity and fear, insurance companies seek to hire blockchain developers to help them out. Curiosity comes from blockchain promising to save time and lower transactional costs. At the same time, insurers fear this innovation as it can open up new approaches for cyber-attacks. 

Let’s explore how insurance companies can adopt blockchain technologies safely and cease to lag behind other financial service sectors.  

What is blockchain in insurance?

First things first, let’s define what blockchain is in the context of insurance.

The blockchain technology is based on the distributed ledger principle that eliminates the need for intermediaries. Copies of the shared ledger are stored across multiple users’ locations, providing any endorsed insurance company, agent, broker or underwriter with access to the same source of data updated in real time. All the transactions registered on a blockchain are verified and encrypted, while all the changes to the records are published as additions to the original data. 

The practical application can look like this: With the help of blockchain, medical records can be encrypted and shared between hospitals and insurers (even across borders), thus cutting duplicated and erroneous records, lengthy claim processing, claim denials and excessive checkups.    

How blockchain is implemented in insurance

According to the Accenture Technology Vision 2019 survey, more than 80% of insurance companies claimed they adopted or were planning to adopt the blockchain technology. It’s true: Many blockchain insurance projects are lingering at the proof of concept stage. However, to accelerate adoption, some companies choose to collaborate and form alliances, such as the Blockchain Insurance Industry Initiative (B3i) or the Institutes’ RiskStream Collaborative. 

See also: Blockchain: Seizing the Opportunities 

These trailblazing alliances develop blockchain-based platforms to make the following blockchain use cases possible. 

Fraud and abuse prevention

Fraud costs the insurance industry monstrous amounts of money, mostly because it’s impossible to detect fraudulent activities with regular methods based on the use of publicly available data and private data sources. As a result, the accumulated data is usually fragmented due to legal constraints accompanying personally identifiable information. 

Unfortunately, these gaps in visibility are being compromised by fraudsters. For example, multiple claims can be filed for a single case of care.

When data is stored on a blockchain-based ledger, it’s secured with cryptographic signatures and granular permission settings. It means that all the parties can share data and verify its authenticity without revealing sensitive information. A shared decentralized ledger facilitates historic data consolidation and helps companies spot suspicious patterns, such as:

  • Multiple processing of the same claim    
  • An insurance policy’s ownership manipulation
  • Insurance sold by unlicensed brokers

To attain even higher security, insurance companies can provide customers with encrypted digital ID cards that can’t be faked. 

Boosted transparency and trust

Insurance companies are called walled gardens for a reason. Customers have little chance to see how their data is managed. For example, they will never know that their data is shared with third parties. It’s no wonder that customers grow distrustful of insurance companies, particularly when facing long claim processing times or receiving claim denials—while the cost of premiums is ever-increasing. 

However, when multiple insurance companies choose to contribute data to the same decentralized and shared ledger, it can lead to three big advantages:

  1. Insurance companies can build more complete customer profiles and eliminate duplicate records. As the data in the blockchain ledger is immutable, the insurance companies won’t doubt its authenticity.  
  2. Customers will get visibility into what data their insurers have on them, and how this data is processed. Plus, when blockchain is combined with machine learning and AI, claim processing can be automated, thus accelerating payouts. 
  3. Blockchain helps automatically verify third-party claims or payments made through personal devices. Further on, the insurance company will be able to see all those transactions reflected on the blockchain.

Streamlined claim management

Selling and managing insurance policies is a labor-intensive process. In the context of high competition, insurance companies that stick to slow and paperwork-heavy traditional approaches lose to more digitally savvy competitors. The latter are able to offer lower premiums by automating claim management. 

Some of the processes can be automated by means of smart contracts which are getting popular for property and casualty insurance. When used in combination with connected devices, a smart contract can trigger automatic claim processing when, for example, anti-theft sensors go off under certain pre-programmed conditions. 

However, the truly streamlined insurance management requires increased trust from both insurers and consumers. The best way to reach this balance is to create a blockchain-based ecosystem with a considerable number of high-profile participants. A model illustration is the Bank of China, which has recently partnered with leading insurance companies and launched its own blockchain. Once new records are added to the blockchain, the distributed ledger technology helps update and validate the data against other records in the network, which significantly reduces operating costs, at the same time providing high security for transactions.

The distributed ledger technology also deals with one more factor that slows down claim management—the need for bank transfers. As a rule, customers don’t see payouts in their accounts for weeks. However, when banks and insurers have a single system they trust, the payouts can be processed without considerable delays.

See also: Blockchain, Privacy and Regulation 

Final thoughts

Blockchain is a decisive factor in transforming the insurance industry and helping it break free from outdated traditions. The need for innovation in insurance is critical—customers are craving transparency, speed and cost flexibility. Blockchain is designed to deliver on these desires and meet all the participants’ particular expectations. 

When there’s little to no chance of fraud, people will trust their insurance agents more. When complex policy claims are processed 10x faster, there’s no room for friction. At the same time, when claim processing is automated, insurers have more possibilities to be flexible with pricing. 

What’s more, the covered use cases are just the beginning. With more blockchain-based applications going live and more companies entering into collaborations, the insurance industry can grow its tech ecosystem to create better products for case management, audit and risk modeling.

How Technology Is Changing Warranty

Let’s take a brief trip down memory lane.

In days past, whenever consumers wanted to make a major purchase—say, for a large appliance or the latest electronics—they had to leave the house and visit their local retailer. If they were concerned about the well-being of their new investment, they’d add a warranty plan once their transaction was complete. If something with their new fridge or stereo system went wrong, they’d need to pick up the phone to schedule a service visit.

Things have changed. Let’s take a look at just how much technology is influencing purchasing habits and changing the warranty experience for consumers, retailers and providers.

Click for Coverage

Today, when consumers need to make purchases both big and small, they’re often opting to make them online. For big box retailers, incorporating additional warranty protection on their websites to accompany those purchases is no sweat; they’ve got the capability and budget to do so. But what about smaller retailers?

According to a report by CBRE Group, about 30% of e-commerce retail is sold by small and midsize companies. While many of these companies might want to offer online consumers the benefits of product protection like their big box counterparts, integrating third-party warranty protection with a retail e-commerce platform can be cumbersome. But some providers have cracked the code and developed apps that allow smaller retailers to level the playing field and easily establish and manage valuable warranty programs.

Another technology solution being explored is blockchain. For as long as anyone can remember, returns, warranties and service contracts have required proof of purchase. Blockchain capabilities can eliminate that need by decentralizing record-keeping, so all relevant parties can instantly access a digital proof of purchase, as needed. Innovative companies are already jumping on board and using blockchain to improve industry collaboration, increase customer satisfaction, boost efficiency and reduce prices.

Make the Connection

As the Internet of Things grows and consumers replace their obsolete, non-IoT devices, the true benefits of connectivity will continue to be revealed. For example, smart home technology will take the guesswork out of claims. Service providers and technicians will no longer be forced to rely on a customer’s diagnosis of the problem, because devices will accurately relay data about malfunctions or damage in real time.

See also: How Tech Is Eating the Insurance World  

Administrators will be able to better identify issues and potentially help the customer find a resolution via phone or chat, without a service visit. If a service visit is needed, the customer representative can approve repairs and estimate out-of-pocket costs in advance simply by using the data already available.

But before the advantages of this new technology can be enjoyed to their fullest, there are some obstacles to overcome. The complexity of connected devices can be a lot to tackle for many consumers. Without the help of a professional, new device setup and network connections can be time-consuming.

Recognizing the opportunity for increased customer satisfaction, streamlined processes and lower costs, service contract providers are stepping up their game to offer plans that not only cover repair and replacement but tech support, as well. This kind of 360-degree service plan can help simplify the consumer transition to the fully connected home experience.

Go Custom

Thanks to the intimate connection to products and data offered by IoT, the opportunity to customize service contracts and protection programs has never been greater. Driven by constant data collection, warranty analytics can be employed to create extended protection plans that categorize failures, identify customers who are most affected by these failures and key in on potential causes. These “intelligent” plans can help determine and customize proper coverage levels guided by each customer’s risk profile.

The opportunity to apply the data extends beyond the connected home to products on the road. Now with the help of analytics, the failures, causes and costs that affect drivers most can be identified to help create intelligent protection programs for automobiles.

Known as telematics, these systems facilitate the transmission of vehicle diagnostic data. Telematics can record a vehicle’s condition to provide quick, efficient analysis that can isolate an issue before it becomes a real problem. This technology can also simplify next steps by alerting the provider to the issue and directing the vehicle owner to the closest repair shop with relevant parts in inventory. This kind of efficiency can help consumers remedy potentially dangerous and costly situations early on, while also reducing expenses for service contract providers.

See also: Common Error on Going Digital  

While some may long for the old days, the benefits of new technology offer a chance to look on the bright side. For providers, retailers and customers, advancements have changed the warranty protection experience for the better and will continue to do so for years to come.

Blockchain: A Hammer Looking for a Nail?

Netting of subrogation payments, the exchanging of payments between carriers at regular intervals instead of on a claim-by-claim basis, is a concept that has been around since the mid-1990s. It is once again back in the news with the announcement that State Farm is developing its own blockchain solution to net subrogation payments between itself and another unnamed carrier. Some say this is an innovative solution for the use of blockchain for the insurance vertical, but is it really nothing more than a hammer (blockchain) looking for an old nail (payment netting)?

All will agree there is room for vast improvement in reducing friction of the subrogation workflow, including the exchanging of funds. Carriers send thousands of checks to each other on a monthly basis in the settlement of subrogation claims – the same process that has occurred since the beginning of time relative to the subrogation process. It’s expensive, involving the printing of checks, mailing costs and the labor to apply funds by the receiving company. Each payment needs to be broken down and applied in the claims system to the individual lines of coverage for the original claim payment and then balanced out in the accounting platform. In a “netting” scenario, the total value of what two companies owe each other is issued by one payment, but then still has to be reconciled on both an outbound and inbound basis, making sure to reconcile every claim that is affected. Remember, each side of the payment has premium ramifications. Many touchpoints, applications and processing.

No wonder this has been an issue, but why does it still garner so much focus, with the advancement of financial technology and the reduction of check processing fees? Shouldn’t we now be focusing on a more holistic solution for the industry affecting more than just the payment?

In the mid-1990s, banking costs drove the netting conversation as a way to reduce fees, but the industry wasn’t able to come together on how to solve the problem. Competitive pressures, internal constraints and the problem of how to reconcile the carriers’ multiple platforms contributed to the futility of the conversation. Industry organizations even tried to solve the problem but with no success.

9/11 changed forever how the banking industry dealt with checks. The country was brought to a standstill for three days due to air traffic being halted (remember, checks were physically moved between the Federal Reserve branches on a daily basis via planes at that point). One of the outcomes of this national tragedy was the implementation of the Check 21 Act in 2004, allowing the image of the check to have the same “value” as the original check. Financial technology, better known as fintech, was developed to place the imaging process of the check into the hands of the business customer, allowing it to image the payment and send it to the bank. The banking industry gave the insurance carrier a digital scanner so the carrier could do the teller’s job of scanning the payment instead of the bank incurring that cost, but the insurance industry still had to manage the application of funds manually as it did before.

Great move for the banks and yet carriers couldn’t figure out their now 10-year problem of netting even though technology existed to take that scanned copy of the payment and automatically apply it to the claim file via new insurance technology. No changes were required to claim platforms of the paying carrier or how the receiving company had to apply the funds – just a straight automation opportunity with a substantial labor savings. However, the major carriers still pursued the netting solution even though the problems they were originally trying to solve were no longer an issue.

See also: Blockchain: Seizing the Opportunities  

We are now 15 years removed from the introduction of fintech by the banking industry, and the netting conversation remains! Banks allow their business customers to image and deposit their checks through a scanner. Consumers manage their accounts through their mobile devices along with the ability to transfer money to each other through apps such as Venmo or Paypal. Moving money has become extremely inexpensive, with the result for all of us being the reduction in the processing fees. Then why does netting continue to be promoted as a problem that needs to be solved when the costs have dramatically decreased? One does have to wonder.

The industry is working through various use-cases for blockchain, and, yes, you guessed it, the financial transaction of the netting of payments is still being pursued. The original problem of check processing costs is no longer an issue, while the same issues of allocating the information to both claim files remains. Participation remains problematic, but the level of concern increases if a blockchain is being managed by one of your competitors. Who has access to the data? Where is it stored? How can it be used? Does a netting solution created and managed by a carrier create a competitive advantage for that carrier?

If we can get beyond these questions, the bigger issue remains as to why time, money and effort are being used to address a 20-plus-year-old issue that can be handled via existing technologies rather than complicating the process with the additional friction of netting being added to the industry’s expense? Maybe the alternative is to use blockchain to digitally transform the subrogation workflow affecting LAE in dollars rather than cents while also maximizing recoveries.

Our industry will continue to evolve and build on new technologies. Let’s be sure to swing our hammers at nails supporting the future building blocks rather than those 20-year-old rusted out nails.

2019 Trends for Customer Analytics

As we near the end of the first quarter of 2019, which trends are worth watching?

Data Visualization 3.0

To kick us off, let me highlight an area that is a regular topic on this blog, data visualization. Progress in this area is always a combination of skilled people as well as technology.

So, building on the positive examples from IIB Awards 2018, what is the trajectory for 2019? Well, I think this video from Elijah Meeks (senior data viz engineer at Netflix) highlights some important 2019 trends.

He not only summarizes the history of data viz tool development, but also the changing expectations of users. He may well be right about the 2019 theme of convergence — a third wave, not just of tool convergence but of developers and readers expecting one more flexible tool and communication medium.

Self-Serve Analytics Tries Again

There have been plenty of times when Gartner’s predictions of technology adoption have proven too ambitious, but they are always worth hearing. In a recent paper, Gartner predicted that by 2019 fully automated or semi-automated systems would be delivering more analytics than data scientists (or analysts).

Now, I am old enough to have seen at least two other waves of analytics “self-service,” with many predicting the democratization of analytics, only to later find that business leaders would prefer an analyst to do the work for them.

See also: 3 Skills Needed for Customer Insight  

However, with the rise of machine learning improving the intelligence and personalization of report/visualization delivery, this time may be different. This article from Dataversity does a good job of considering how this might happen for business intelligence (BI). However, I think it stretches the term BI too far and misses the difference between the advanced analytics and data science work, where data scientists should focus.

AI Applications Revitalize an Antiquated Trend

We shared several posts on the state of AI during 2018, focusing on financial services applications and even the issues of AI ethics. However, when worrying about potential threats to your career, it has become clear that many applications are hyped.

What we began to see in 2018 was a more mature production line to manage the delivery of AI products (including role of product manager). Several speakers at the Data Leaders Summit 2018 shared their practical experience in deploying AI models from lab to business lines.

So, I was interested to read this post on the reliable customer experience (CX) hub “Customer Think,“ from Vince Jeffs of Pegasystems. He provides a useful summary of how AI applications will evolve to better meet the CX demands for 2019, including familiar topics like empathy, human-machine collaboration, data protection and ethics.

Jeffs makes a good case for how AI applications will begin to demonstrate progress on all these fronts in 2019, an important milestone, if not yet the sci-fi destination of AI.

NOT the Year That Blockchain Transforms Businesses

This is a strange one for me to finish on, but I thought it worth including this (non) trend. Given that we have focused before on blockchain, and the outstanding questions if it is to help data science leaders, this caught my eye.

The title is almost clickbait, which is rare for a great site like Datafloq. However, the thoughts are worth reading. In this short post, Steve Jones helpfully summarizes both the progress in business adoption and the problem of still over-promising.

See also: Key Insurtech Trends to Watch  

I hope wise businesses will continue to adopt blockchain technology only where it is a more appropriate data solution. That could achieve its status as a data source that begins to matter to data leaders for analytics, too. But more likely it will be 2020 before we see serious use.

Which Waves Are You Preparing to Ride?

I hope those trends were useful to share with you and help inform your planning. There are many more topics I could have covered, including wider developments in data scienceIoT and virtual reality/augmented reality (VR/AR).

Which technology waves will you be riding in 2019? Are any essential to you achieving your 2019 goals? I’d love to hear your priorities or forecasts.

Blockchain: Seizing the Opportunities

Forty-six percent of insurers expect to begin using blockchain within the next two years, and 84 percent say the technology will change the way they do business, says Jim Struntz at Accenture Insurance.

It’s clear that blockchain offers a number of exciting possibilities for P&C insurers, but its implementation comes with both risks and challenges. Here’s where blockchain stands today — plus how to understand the inherent risks and opportunities of using this exciting technology in insurance.

How Blockchain Technology Works

Blockchain technology has become a buzzword in dozens of industries, where the technology promises to revolutionize processes across the board.

A blockchain is a distributed ledger, with entries stored across the entire network on which it operates, says Michael Mainelli, executive chairman at technology company Z/Yen. Participants in a blockchain can add to the entries in the chain, but cannot delete or modify previous entries. Consensus is reached when everyone’s version of the ledger matches; anomalous entries are instantly recognizable as improper, incomplete or suspect.

Blockchain technology got its start as a driver of digital currencies because it solved a logistical problem: the need for a third party, such as a bank, to guarantee a record of money transfer between two parties.

Funds can’t be spent twice because their existence depends on the transactions that record them, says Michael Taggart, president of Cryptonomex. Instead of values being copied, the ledger is continuously updated with a series of transactions, detailing who has what at all times.

See also: Blockchain, Privacy and Regulation  

The same model can be applied to other types of sensitive transactions, says Brian Kelley, founder and managing director of Quincy Analytics. For instance, it can allow sensitive data to be shared directly between parties, reducing or eliminating the chance of it being altered or falling into unauthorized hands. Blockchain can also reduce the amount of time required for certain transactions.

The “blockchain’s immutable properties make it a natural partner for insurance, where settlements and reconciliation between multiple parties across the insurance and reinsurance chain can be painful and protracted,” says Helen Beckett at Raconteur.

The existence of a single record that no one party can control can end many disputes before they even begin.

How the Blockchain Benefits the Insurance Industry

Insurers can imagine myriad uses for a system that verifies its own accuracy, isn’t siloed in any one company or server, and can automatically perform certain tasks when particular conditions are fulfilled. A blockchain’s opportunities in insurance have only begun to be explored.

Transparency

Since blockchain technology is distributed and participatory, it offers new opportunities for transparency in the insurance field. This is something the current industry sorely needs, says Adrian Clarke, founder of the blockchain-based platform Evident Proof.

Greater transparency would help customers better understand why and how their claims are handled, for example. This can help reduce the cost of litigation due to misunderstandings, says Clarke, making the claims process more efficient.

Better Security Through BYOID

The blockchain can also streamline customer-insurer transactions by implementing a bring your own ID (BYOID) system, says Abbey Gallegos at Zeguro.

Early versions of BYOID already exist, and they’re powered by application program interfaces, or APIs. They’re a common sight: Options to log in with Google or use your Facebook ID make use of APIs, allowing individuals to use one set of login credentials for a wide range of tasks.

With the blockchain, identification credentials don’t belong to any one company or server. Instead, users maintain their identification on their own device and choose whether and with whom to share it. Eliminating stored usernames and passwords speeds transaction time and reduces the number of data points available for exploitation by hackers, while improving assurances that the person logging into their account is who they say they are, says Armin Ebrahimi, founder and CEO at ShoCard.

Nationwide has begun testing a blockchain-based proof-of-insurance tool and a BYOID model, says Abizer Rangwala at Accenture. The tool, called RiskBlock, is intended to help insurers, regulators and law enforcement officials verify auto insurance details in real time, without the need for paper insurance cards.

Improved Claims Handling via Smart Contracts

Smart contracts monitor when each party has fulfilled certain obligations or taken specified steps. When the right conditions are met, the smart contract automatically executes actions contingent on those conditions being fulfilled.

“A life insurance smart contract could immediately release funds to a beneficiary upon the death of a policyholder through electronic checking of death certificates,” says James Maudslay at Equinix.

Smart contracts monitor themselves without the need for a third party to verify condition fulfillment. This feature allows insurance companies to further digitize routine processes, says Mike de Waal at Global IQx.

By eliminating the need for a human to check every routine claim, smart contracts can resolve claims more quickly and free up staff resources for more complex claims.

Smart contracts can also make claim management more effective, says Rajesh Shirsagar at DZone. For instance, a smart contract could automatically record claims and substantiate certain details, releasing payment only when specific conditions are met. Smart contracts could also be used to track the number or type of claims from certain customers and automatically trigger an investigation in pre-set conditions.

New Verticals and Future Preparation

The use of tools like BYOID and smart contracts can not only allow for quicker claims handling, but also for expansion into insurance products that were previously too labor-intensive to benefit either customers or insurers.

For instance, several companies have begun using smart contracts to offer flight delay insurance, says Olek Shestakov at Livegenic. Customers put in their flight data and choose a delay time, and if the flight is delayed longer than the time chosen, the smart contract automatically pays the customer. Because the transaction is simple and is based on a single data point, blockchain technology can handle the task without intervention from adjusters (except in unusual circumstances).

Blockchain technology may be particularly well-suited to address other emerging transformations in insurance, says Magda Ramada Sarasola at Willis Towers Watson. For instance, a blockchain’s adaptability enables organizations to respond more nimbly to rapid changes in technology, risk and customer expectations.

See also: Blockchain’s Future in Insurance  

Obstacles to Blockchain Technology

As with any new technology, a blockchain present certain growing pains to insurance companies.

Security is a continuing concern as blockchain-based companies find their offerings exploited, either by illegal means or by individuals using the code legally to execute tasks that have unintended consequences, says David Roe at CMSWire.

For instance, in 2016 hackers used a flaw in the code in an Ethereum decentralized autonomous organization, or DAO, to siphon out digital currency. $70 million was stolen before the hacker chose to stop, says Samuel Falkon of COTI.

Blockchain technology itself is also going through a growth phase, challenged by its own inefficiency. The more data is included in each addition to the ledger, the more energy and time each transaction takes, slowing down the process, says Alexander Lielacher, founder of Bitcoin Africa.

These inefficiencies also limit the scalability of blockchain projects. Blockchain systems will need to strip out these inefficiencies in order to provide on their promise of faster transactions for insurance companies and customers.

Energy consumption in blockchain technology is a rising concern, as well. In 2018, Bitcoin consumed about 0.2 percent of the world’s total energy consumption — more than that used by the entire nation of Bulgaria in a year, says Tam Hunt at Green Tech Media. If these trends continue, blockchain applications could consume more energy than every other human endeavor combined by 2020, says Eric Holthaus at Grist.

Finally, insurance companies face the same risk with blockchain as with other new technologies: In the rush to stay relevant, they may end up embracing a tool that isn’t effective for their approach to business, says Neeraj Sabharwal at Forbes. While blockchain may promise a way forward for insurance companies, its implementation in the face of each company’s unique challenges will determine its effectiveness for the insurer and their customers.