“According to an Accenture study, only 27% of consumers consider insurers to be trustworthy. And Deloitte found that only 11% of people have strong trust in insurance agents and brokers.”
I’ve seen studies like this over the years. What is usually missing from these statistics is the Q&A related to the insurer or agent OF the consumer. If you ask consumers if THEIR insurance agent is trustworthy, the numbers are almost always WAY higher than those above.
The same is often true of politicians…when the question just refers to “politicians,” polls imply that they are universally despised, But ask people what they think of a politician they voted for and the statistics are completely different.
As has been said, “Torture numbers, and they’ll confess to anything.”
The driving force behind insurance policy evolution is litigation and regulation where the difference in coverage, according to the courts, can be the tense of a verb or a punctuation mark.
Berkshire just came out with a policy called “THREE” that combines property, business income, general liability, auto, professional liability, workers’ compensation and cyber liability (I’m probably forgetting something) insurance…IN THREE PAGES. And it’s going to be clear to business owners what is or isn’t covered?
Inarguably, the most important “customer experience” is the one that takes place at claim time. Insurance policies are complex, legal contracts whose terms and conditions have often been interpreted over decades. And the reality is that virtually no consumers read them…. Far too many insurance practitioners don’t even read them. I doubt that reducing dozens of pages to two to three pages will change that metric. When it comes to making contracts understandable, less is not necessarily more.
By the way, there is no such thing as “fine print” in regulated insurance policies.
The insurance industry has a trust problem – and that’s not even the bad news.
Consumers’ lack of trust in the financial services sector is well-documented. The Edelman Trust Barometer found that financial services was the least-trusted industry in the eyes of consumers. According to an Accenture study, only 27% of consumers consider insurers to be trustworthy. And Deloitte found that only 11% of people have strong trust in insurance agents and brokers.
The worse news is that the industry’s preferred instrument for narrowing this trust gap might actually be widening it.
That instrument is consumer disclosure, and it has long been the insurance industry’s go-to strategy for cultivating trust: trying to provide transparency in coverage parameters, commissions and other thorny topics.
However, as currently practiced in insurance (and most businesses), consumer disclosure is far from the elixir the industry purports it to be. If anything, it is the antithesis of transparency, for two key reasons.
Disclosure Downside #1: Readership
First, hardly anyone reads disclosures. Admit it – as a consumer, when was the last time you read one?
Amazon.com has underscored this point in a most amusing fashion via the terms of service it provides to software developers who use its Amazon Web Services (AWS) platform. In the excerpt below, Amazon explains that customers can’t use AWS software to build “life-critical or safety-critical systems.”
However, as the highlighted section shows, the agreement lifts this usage restriction if the U.S. Centers for Disease Control and Prevention declare the presence of a “widespread viral infection transmitted by bites or contact with bodily fluids that causes human corpses to reanimate and seek to consume living human flesh… and is likely to result in the fall of organized civilization.”
Yes, you read that right… Amazon is disclosing a contingency for the Zombie Apocalypse. If that catastrophe befalls us, you’re allowed to use AWS software for whatever you need to survive.
The fact that the flesh-eating undead can be referenced in an official document like this, with hardly anyone noticing, speaks to a larger and more serious issue: Disclosure documents are an awful way to communicate important information to your customer.
Companies bury important details in opaque disclosures that they count on no one reading. Examples abound – conflicts of interest for your financial adviser, service fees for your bank account, cancellation fees for your gym membership, price increases for your cable TV package and – of course – coverage exclusions for your insurance.
Organizations hide behind these disclosure documents and point to them as evidence that anything important is indeed revealed to the customer. The reality, however, is that many companies (and sometimes entire industries) use disclosures to convey information that they don’t really want anyone to see.
Disclosure Downside #2: Comprehension
The second reason why disclosures fail to advance transparency and trust is because hardly anyone can understand them.
These are typically large, dense documents filled with unintelligible legalese and fine print (a shortcoming that was noted by the Federal Insurance Office in its own study of the industry’s transparency).
The Edelman 2018 Financial Services Trust Barometer found that consumers viewed “easily understood terms and conditions” as the No. 1 factor that would increase their trust in financial services. But, as the same study revealed, a lack of information transparency is the top reason why consumers distrust this industry.
There is a fundamental misalignment between what consumers value (information transparency) and what insurance firms actually deliver (information obfuscation). That discrepancy will continue to haunt the industry until disclosures are transformed from legally mandated administrative documents into genuine displays of customer advocacy.
Moving From Confusion to Clarity
Accomplishing that transformation will require reinventing the disclosure so it clarifies instead of confuses, and inspires confidence instead of undermining it.
Here are some examples of how the insurance industry could achieve that:
Make disclosures obsolete. One way to attack the disclosure problem is to minimize the need for these documents in the first place. While it would be naïve to think disclosures would ever go away in the highly regulated insurance business, firms should still ask themselves: Are there changes we could make in our business practices that would reduce the need for these mind-numbing disclosures? Southwest Airlines’ highly successful “Transfarency” strategy is a great example of this approach. In contrast to many of competitors, Southwest doesn’t have to agonize over consumer disclosures because it built the business around a simplified and nearly fee-free pricing structure (i.e., no baggage fees, no ticket change fees, etc.).
Design for visual appeal. Today’s jargon-filled insurance policy contracts, disclosures and amendments not only appear to have been written by lawyers, they appear to have been designed by lawyers. No offense to the legal community, but creating documents with visual appeal is not their forte. That is the domain of marketers, and it appears those folks rarely have an opportunity to work their magic on these types of insurance documents. They are often walls of text with little white space and few navigation clues. That might seem like an insignificant issue – marketing “fluff” – but it’s not. The layout, design and typography of a document can materially reduce the cognitive load it creates on the reader. Put simply, a visually appealing disclosure can engage and enlighten consumers much more effectively than a poorly designed one.
Use vignettes to build understanding. Even the most jargon-free disclosures suffer from an important shortcoming – they describe terms and conditions in an almost academic fashion, detached from the realities of people’s everyday lives. One can read a disclosure paragraph and gain a theoretical understanding of a concept (e.g., damage from floods vs. wind-driven rain), yet not fully grasp its practical application. This is where explanatory vignettes can be used to great effect. Serving as a complement to traditional disclosure language, these are short “stories” that depict a common customer episode and more vividly illustrate how the legal terms translate into real life impacts. (Some insurers, for example, use this approach to underscore what types of calamities are, and aren’t, covered by a policy.)
Leverage other communication platforms. The way people like to consume information has changed drastically in recent years, yet disclosures have not evolved accordingly. In today’s digitally enabled world, many consumers like to learn more by watching (video) than by reading (documents). Complex concepts that are conveyed in a written disclosure could be reinforced in a more engaging fashion via a few short videos delivered right to a policyholder’s inbox. The media used to communicate insurance disclosures haven’t changed in decades, but consumer behavior certainly has. It’s time for insurers to bring disclosures into the 21st century and leverage the digital communication avenues that so many other industries are using to great effect.
* * *
If insurance providers want to strengthen their customer relationships and instill greater trust in their industry, they need to move beyond regulator-mandated disclosure. After all, just because something is legal, doesn’t make it right for your customer.
The key is to communicate with consumers in a clear and forthright way – and disclosures, if properly constructed, can help advance that cause.
It’s a cause that insurance firms should vigorously embrace because, when companies communicate with clarity, they send an unmistakable signal to consumers. It’s a signal that you’re advocating for them, that you’re helping them avoid unpleasant surprises – be it in the form of uncovered losses, unexpected fees or the zombie-induced fall of organized civilization.
And in the insurance business, that’s the kind of advocacy that makes for a great, trustworthy customer experience.
The sharing economy is a system in which individuals may rent their possessions or time to other individuals, often through an app or website. Although the term first appeared in the mid-2000s, New Economy Advisor April Rinne says that it didn’t become a household word until recently. Still, the sharing economy has caused radical change in a very short time.
While real-estate booking apps like Airbnb and ride-hailing apps like Uber dominate our current understanding of the sharing economy, the options for such sharing aren’t limited to houses and cars, Cointelegraph writer Connor Blenkinsop explains. “You can share someone’s garden if you live in a bustling city, strike up job shares, team up with other travelers to share a tour, swap books and even take someone’s dog out for the day.”
Central to discussions of the sharing economy is a sense of disruption, research fellow Chris J. Martin says in a study published by Ecological Economics. This disruption may be framed in positive, negative or neutral terms, but the change itself and its challenges remain a constant topic.
The explosion of the sharing economy has brought a new set of challenges for insurance companies as well. Here, we look at some of the biggest obstacles in the industry — and how property and casualty insurers can meet them.
The Sharing Economy: Challenges for Coverage
Traditional insurance models offer a poor fit for the sharing economy, Wells Media’s Andrew G. Simpson says. “Also new multi-party relationships among platforms, providers and consumers draw further questions around who is ultimately responsible for managing and mitigating risk.”
For example, when an Uber or Lyft driver causes a car accident that injures a passenger, who covers the passenger’s medical costs? Who pays for the damage to the vehicle? What if the other car’s driver had insurance? What if the driver didn’t have insurance?
While some sharing economy companies provide coverage for those renting out their homes, vehicles or possessions, such support is usually limited. So when the accident, damage or loss isn’t sufficiently covered by the company, Capgemini Financial Services’ Ian Campos says that substantial risk may fall on the individual.
For example, Airbnb offers coverage of up to $1 million to homeowners who share their properties, WeGoLook CEO Robin Smith points out. But this coverage applies only to the actual scheduled hours of the visitors’ stay — not to shoulder times in which visitors might arrive early or stay late. Also, $1 million may be insufficient coverage for certain homes or losses, such as total destruction by fire.
Finally, the sharing economy is creating challenges to established P&C insurers themselves. Peer to peer (P2P) insurance is a sharing economy phenomenon that allows individuals to skip established P&C companies by pooling their own funds, finance expert at Money Under 30 Sarah Pritzker explains. This model excludes the value-added services an older, more established insurance company can provide — pushing new insurers to communicate that value more effectively to customers.
Rising to the Occasion of a Sharing Economy
It’s tempting to think of the sharing economy as simply a new model of ownership that requires only a slight change to existing insurance products. Some commentators, however, warn that this view misses the fundamental nature of the disruption the sharing economy represents.
“Taken together, the growth of [sharing economy] services suggests that we are entering an era in which consumers will value access over ownership and experiences over assets,” Financial Times reporter Brooke Masters says. Many companies have already made the shift: A focus on intellectual property over tangible real estate or equipment has supported the growth of organizations like Apple and Amazon, for instance.
This fundamental shift in ownership and access is problematic for current models of property and casualty insurance. Some types of insurance may not apply to businesses in the sharing economy, and others may be prohibited altogether. Jose Heftye and Robert Bauer, Marsh managing director and AIG managing director, respectively, explain this struggle in a 2018 report. “Where the distinction between personal and commercial use of assets in the sharing economy is blurred, regulators view personal lines of insurance very differently from commercial.”
By mixing personal and commercial use, sharing economy companies can cause coverage gaps for participants. For instance, an Uber driver’s personal auto insurance may not cover times the driver uses a vehicle to make money through Uber, but the cost of a commercial policy may be out of reach for someone who just wants to make extra pocket money by driving for Uber on the weekends.
Trust is also a significant issue in the sharing economy, both for customers who share their houses or cars and those who use them, Lyle Adriano writes in Insurance Business. For insurance companies, providing flexible products that explain the coverage gaps they address is a key factor in building trust among users.
To foster that trust, participants in the sharing economy are putting pressure on insurance companies to provide adequate coverage or to explain why such coverage is unavailable. From adopting new brokers to creating more out-of-the-box services, researcher and writer Esther Val highlights that the sharing economy is prompting insurance providers to offer more flexible insurance solutions.
They’re also being pushed to do so by insurtech startups, especially those that are already seeking to provide these services, reinsurance treaty analyst Alex La Palme explains.
For instance, Slice Labs is a new insurance provider that provides on-demand policies specifically for home and ride sharing. This helps fill in the gaps for nuanced situations — like damaged furniture or utility issues — that aren’t usually covered, Slice Labs CEO Tim Attia suggests.
To compete with these startups and meet customer demand, established insurance companies need to find new ways to cover risks they have not covered—or perhaps have not even seen in the past. One way is to partner with sharing economy platforms, Deloitte insurance consulting partner Nigel Walsh recommends. Another idea is to scrutinize the ways that the sharing economy has changed people’s behavior, understanding and approach to risk regarding insurance.
Addressing Customer Needs in the Sharing Economy
One of the biggest hurdles to participation in the sharing economy is risk. A study by Lloyd’s of London found that 58% of U.S. and U.K. consumers believe that the risks of sharing their possessions outweigh the benefits.
Even for those who do participate, risk is a concern — particularly the risk of events and situations that can’t be anticipated. P&C insurers can help enable participation and growth by clarifying their role in coverage in the sharing economy, Lloyd’s Chief Commercial Officer Vincent Vandendael offers. “Based on our findings, instilling consumers with confidence by clearly defining and protecting against risk can help remove barriers to engagement in the sharing economy.”
Ryan Ward, an actuarial analyst at American Modern, agrees, noting that educating insureds about coverage gaps is an essential first step toward providing adequate coverage and mitigating risk.
Risk is a concern for insurance companies, as well. Denny Jacob, staff reporter for PropertyCasualty360, writes that the sharing economy requires an entirely different approach to risk understanding and management. In particular, it necessitates that providers gain a deeper understanding of behavioral economics—especially how consumer preferences and attitudes change in the face of risk.
Participation in the sharing economy can change a customer’s risk profile. For instance, a customer who drives for Uber is out on the road more often, attorney Jeremy Heinnickel says. Helso explains that some users may be less careful when interacting with shared vehicles, houses or personal property that isn’t their own, which in turn shifts the balance of risk.
“It will never be possible to escape the fact that we just don’t treat other people’s belongings with the same care as our own,” Disruption Business writer Sarah Finch points out. “Sharing has therefore opened up the insurance business to a whole new kind of market.”
One golden lining? In an era where fewer people are owning cars, houses or large quantities of consumer goods, the sharing economy creates an entire new class of people who need property and casualty coverage. “The gig economy has created the ability for more people to pick up ad hoc, part-time jobs,” Insurance Technologies Corp. CEO Laird Rixford says. “The amount of people that insurers, agents and brokers can now sell additional coverage to has exploded.”
The insurance industry was built on mutual trust. Insurance companies trusted their insureds to give truthful accounts of losses and the events that caused them, and insureds in turn trusted their insurance company to pay what was owed under the terms of the insurance contract.
The ability to gather and parse massive amounts of data, however, has changed the way insurance companies and their customers regard the trust relationship, Wilds Ross at KPMG says. Available data can now help insurance companies create personalized coverage for each customer, but it can also raise doubts in customers’ minds as to how that information is protected and used.
Here, we explore some of the biggest trust hurdles to arise in recent years and how insurtech is poised to address the twin issues of privacy and transparency to rebuild trust.
A Crisis of Trust?
Customers are pretty evenly split as to their trust in insurance companies, according to data journalist Paul Hiebert. Forty-seven percent of Americans say they trust insurers, and 43% say they do not. There’s a clear generational trend, as well, with a greater lack of trust in customers younger than 55. Further, only 42% of people agree that insurance companies act in the best interests of their customers.
As a result, many people are choosing to go without insurance rather than work with an insurance company they don’t trust. For instance, 83% of California homes lack earthquake insurance, financial columnist Liz Pulliam Weston writes, in part because customers don’t trust that available earthquake policies will come close to addressing their needs after a catastrophe.
Insurtech startups are sensitive to the atmosphere of mistrust and are capitalizing on it, say Jagdev Kenth and Grace Watts at Willis Towers Watson. For instance, German startup Friendsurance uses the trust built in a peer group to take a sharing economy approach to insurance. Meanwhile, Lemonade publishes its flat fee of 20% of premiums and its donation of unused money to charity each year.
“We have been giving insurance a free pass for way too long,” says Sophie Grønbæk, co-founder and CEO of insurtech startup Undo. “The products are confusing, which means that customers are completely dependent on the insurance company.”
The power to change this relationship — and the atmosphere of suspicion it has created — lies with insurance companies, and insurtechs are taking an early lead. “The insurtechs can use their cost efficiencies to provide bespoke policies that create an intimacy with a customer and that, in turn, builds trust,” says Etherisc co-founder Stephan Karpischek.
Yet the use of technology for its own sake creates additional uncertainties, particularly when it comes to privacy.
The Links Between Privacy, Transparency and Consumer Trust
“Consumer trust in insurance has been badly hit by distrust of financial services following the banking crisis,” Fairer Finance’s Melissa Collett says. This mistrust sprang from countless stories of people losing their homes and life savings — a catastrophe that, in turn, sprang from a lack of privacy and transparency in the financial industry.
The mistrust spillover carries with it the same concerns in customers’ minds. Can insurance companies be trusted to keep their information safe, particularly in a world where identity theft and digital compromise is rampant? What are insurers doing with their information — and their hard-earned premium dollars — anyway?
While state and federal regulations set the bar for privacy in many ways, insurance companies that rely solely on regulations for guidance often find themselves at a loss, entrepreneur Jason T. Andrew says. Because lawmaking tends to lag behind the rise of the social problems it addresses, concerns about data breaches and identity theft are already common — and customers want to see every business, including insurers, taking an aggressive approach.
Even insurance companies with a strong commitment to privacy, however, may not be able to build trust on that commitment alone, particularly if it is not communicated or demonstrated clearly.
Customers want to know how, where, why and with whom their information is shared. Thus, the shift to a customer-focused model has started to encourage transparency among insurance companies, consultant David Cabral says. Transparency sells, which means customers are hungry for it.
Yet when it comes to implementing transparency, many insurance companies find themselves with little regulatory guidance. “Consumer protection in most domains of financial regulation centers on transparency,” University of Minnesota Law School Professor Daniel Schwarcz wrote in a 2014 article for the UCLA Law Review.
Insurance companies, however, are an anomaly: State regulations of insurers typically don’t address transparency at all. Where transparency regulations exist, they’re often misguided or poorly written, which can make consumer trust issues worse.
Building transparency and the trust that comes with it, then, lies in the hands of insurance companies rather than in the regulatory power of the state. And as Risk Cooperative founder and CEO Dante Disparte writes, insurtech ventures are demonstrating technology’s myriad opportunities to build that transparency.
Building Trust Through Technology
Technology alone won’t solve the trust problem. Far from being neutral or disinterested, algorithms have been found to replicate societal biases in everything from job recruiting to evaluating parole requests, FiveThirtyEight’s Laura Hudson reports.
Meanwhile, interactive voice tools like Google Duplex have been criticized for misleading customers who believe they’re talking to a human, reporter James Ball points out.
Instead, insurance companies seeking to build trust with customers — and to rely on their own ability to trust those customers in turn — will need to apply technological solutions thoughtfully to their current processes to produce results consistent with their own visions, missions and goals.
“Gathering data is only beneficial to insurance companies insofar as it raises the profit/policy ratio or increases the overall policies sold rate,” Sureify CEO Dustin Yoder writes, arguing in favor of a well-thought-out approach to customer privacy and transparency.
Cake & Arrow’s Christina Goldschmidt suggests that to improve customer trust relationships, insurers could learn from the application of e-commerce tools in the retail sector. By using tech tools like a SaaS platform to establish consistent workflows, enable customization, build a more interactive marketing approach and protect customer information within a de-siloed company, insurers can make it easier to provide trustworthy service and to gather trustworthy data.
Building trust with customers is a multi-step process that technology can facilitate, says Alex Schmelkin, also at Cake & Arrow. For instance, tech tools can make it easier to allow customers to interact with the company via their preferred channels; help insurance company staff stay on track with the company’s goals; and incorporate new products, services and tools to provide a better customer experience.
The single best step may be to talk more about customers and less about tech. By focusing on words like tech and digital, companies are focusing on the tools, not the customers, says Zaid Al-Qassab, chief brand and marketing officer of telecommunications group BT.
“Write a brief that’s about your customer and business results you hope to achieve,” Al-Qassab says. “Let’s talk about target audience and how to sell to them” — and how to leverage technology to do so in a trustworthy fashion.
From better risk visibility and faster claims processing to collectively fighting fraud, blockchain can provide comprehensive benefits across the insurance value chain.
Blockchain implementation can enormously accelerate insurance transformation and steer the industry toward digital collaboration and interoperability. Permissioned blockchains deployed in insurance consortia yield comprehensive industry benefits across the value chain in three categories: (1) preventing fraud, (2) championing interoperability in multi-party processes and (3) facilitating consumer trust and ease of auditing through data transparency and immutability.
Insurance is a multitrillion-dollar industry, but the workflow in brokering trust, insuring parties and reinsuring risk items today remains an expensive, slow and fraud-prone process.
Although the digital age has inevitably brought about technological innovations, the centuries-old insurance industry seems to still be heavily drowning in paperwork and redundant manual procedures. Layered with the required collaboration from a multitude of parties needed to execute certain industry tasks like enforcing policies, processing claims, underwriting contract items or drawing up contracts, the insurance process remains far from transparent, coordinated or secure. Each new party engaged in a particular insurance transaction — be it insurer, reinsurer, broker, consumer or vendor — adds a compounding set of paperwork and potential for fraud, cyber attack, lost data, misinterpretation and human error.
Challenges arise in verifying this data without breaching trust, so auditing is a widely used process to ensure consistency and accuracy. But even still, trust is at an all-time low, according to a recent Edelman industry poll.
The current insurance industry landscape in a snapshot:
The insurance industry is widely known to be slow in adopting technology and is behind digitally.
Legacy systems have perpetuated a closed-off insurance information environment with data silos and resulting operational inefficiencies. These gaps of knowledge between insurance stakeholders are exploitable.
In terms of fraud and fraud prevention spending, the numbers are unfortunately astronomical. In addition, human error also finds its place wherever manual entry and paperwork is involved.
The insurance industry epitomizes a blockchain use case. Adoption of blockchain as a standard system of industry transaction can improve collaboration between market participants and streamline market operations — freeing billions of dollars in capital otherwise spent on auditing and administrative costs, lost in fraud or frozen in collateral as a result of low risk visibility.
A blockchain is a permanent and immutable ledger of transactional records distributed across a network of participants in a decentralized manner. This network can be unknown and completely decentralized (i.e. bitcoin), or known with permissioned access (consortium).
Blockchain’s system of hashing a new transaction by cryptographically tying its metadata to previous transactions gives the ledger its immutable nature — where the entire history of transaction is transparent, available and indelible. Blockchain’s mechanism of arriving at consensus with no central authority allows for the decentralization of data — where no central party can control or manipulate information. This is attractive to many applications that interact with sensitive data; because there is no central authority, DDoS (distributed denial of service) attacks are futile.
Blockchain is typically well-suited for environments where transactional records must be time-stamped, immutable, trust-worthy, shared and readily available. These characteristics lead blockchain to be very desirable across the industry spectrum as:
A trusted repository of accurate, transparent and updated data with comprehensive read/write access controls
An effective measure against fraud, data manipulation and human data input error
A champion of interoperability between data systems, thus an enabler of more efficient collaborative processes
A facilitator of trust between parties that may have competing interests, different incentives or separate data compliance standards; a mechanism for cross-boundary and cross-industry collaboration on workflows; an eliminator of the need for intermediaries as a trusted central authority
An efficient provider of quick and accurate auditing
Within the context of insurance, these features not found in traditional databases have great potential to effectively empower operational efficiency, trusted collaboration, transparency and fraud prevention. As a result, blockchain can help insurers and other insurance stakeholders reduce overhead spending, decrease margins and regain consumer trust.
Blockchain can drive the insurance industry shift toward digitizing industry processes, encouraging cross-industry collaboration for visibility and compliance and collectively fighting fraud. Paired with additional emerging technologies such as IoT and smart sensors, blockchain can be a facilitator for increased automation in capturing and acting on claims data, analyzing risk more thoroughly and streamlining payment processing.
Let’s dive into some areas of impact:
Reinsurance & underwriting
Streamline Reinsurance and Underwriting Times
In reinsurance, each risk in a contract requires individual underwriting — and in many cases, insurers engage with multiple reinsurance parties to secure the best negotiation for each contract item. Each institution has its own data system and standards — and these differences in process can lead to discrepancies in interpretation of the contract. Thus, currently, reinsurance and insurance institutions need to constantly engage in reconciling their books to ensure consistency in interpretation for each individual claim.
In sum, the complexity of different data systems and consequent wrangling between multiple third parties to secure individual risk reinsurance leaves the reinsurance process slow, expensive and subject to misinterpretation.
Blockchain technology should be leveraged in the reinsurance process to increase interoperability. With a shared digital ledger, no longer can there be the discrepancy in data format, process and standards that currently plague the industry.
A permissioned blockchain ledger can be used to streamline communication, flow of information and data sharing between insurers and reinsurers as an available and trusted repository of contract information. This becomes a faster, more efficient and less-risky process as data related to loss records, asset ownership or transaction histories is recorded on a blockchain that is trusted to be authentic and up-to-date. Access to this information can be heavily permissioned with granular access controls, with exhaustive rules governing read and write capabilities per user. Reinsurers can query a blockchain to retrieve updated, real-time and trusted information rather than rely on a centralized insurance institution to report on data relevant to items (i.e. losses or transfer of ownership). This can massively expedite underwriting times.
The risk transfer process is delicate: Insurers need to ensure they are appropriately rebalancing capital exposures against specific risks and be confident and calculated in offloading their contracts. The newfound visibility from participating in a permissioned blockchain ledger provides confidence and flexibility in moving capital to other areas of business, as well as a more accurate and expedited risk assessment. If blockchain is leveraged to provide more visibility into risk information, reinsurers can more accurately and confidently take on the calculated risk.
Fraud Detection & Prevention
The total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. That means insurance fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums.
The lack of interoperability within the insurance industry doesn’t just kill efficiency — it also hinders progress toward the digital collaboration required to identify patterns, trends and known actors in preventing fraud. These gaps in visibility leave consistent vulnerabilities for fraudulent activity, where brokers can pocket premiums, individuals can make multiple claims for the same loss or capital can illegally move offshore. The centralization of data within the four walls of each institution leaves little room for the industry to collectively fight these common insurance crimes.
Blockchain implementation could support this needed coordination, while also providing granular access controls to ensure data security. As an immutable ledger decentralized among all parties in the insurance process, blockchain closes the paperwork gaps and bridges the data silos, allowing for fewer potential areas for exploitation.
Blockchain within a consortium of insurance entities could facilitate the sharing of fraudulent claims for heightened visibility into known actors and for better preparedness. Blockchain provides validation and verification on an unalterable ledger, which can be leveraged for the identification of duplicate transactions, repeat actions by suspicious parties, fraudulent movement of funds across borders and more. Pairing this technology with machine learning would make an excellent fraud detection strategy.
Blockchain can also be used as a ledger to track ownership of assets through digital certificates, and then be queried to validate their authenticity, ownership and provenance. This can reduce counterfeiting while also improving the efficiency of the entire claims management process.
As a shared, transparent and decentralized ledger, blockchain will inevitably discourage future attempts at fraud, as the opportunity for exploitation is smaller and the potential for detection greater.
Less fraud = higher margins = cheaper premiums for consumers. A win-win situation, indeed.
Improve Claims Processing for Property and Casualty Insurance
Processing a claim in today’s insurance environment is a complex, multi-party task. To evaluate and process an insurance claim, insurers, regulators and third parties (like a private healthcare institution or an auto repair shop) need to coordinate and arrive at consensus across a host of data points. For example, a car accident between two drivers necessitates a loss assessment that assembles information from an asset database, weather statistics, credit reports, inspections providers, authorities report and other sources. Each driver’s insurance company likely collects and analyzes this data in an entirely different system and process.
Because each entity has its own data standards and processing technique, the claims process typically involves significant manual data re-entry and duplication across the value chain. This not only increases needless redundancies and inefficiency, but also widens the opportunity for human error and even fraud.
A distributed ledger can be used by insurers and third parties to digitally access and update data relevant to claims for a faster, more secure and less error-prone claims management process.
Blockchain facilitates the interoperability needed for this level of collaboration without the associated risk of DDos attacks or falsified transactions. This level of visibility is not only advantageous for institutional efficiency and accuracy but also helps consumers firmly trust in the fairness of the claims process.
Paired with streaming data sources, such as sensors, mobile phones or IoT technologies, blockchain can also help significantly streamline a claims submission, reduce settlement time and reduce loss adjuster costs. Adding to the auto wreck example above, an IoT sensor in one of the cars involved could automatically initiate a claim with the necessary reference data. A smart contract could automate coverage confirmation and consequent settlement payouts with programmable code — with essentially no human intervention along the entire payment process. While digital contracts like this exist already, the benefits of a blockchain-power smart contract lies in its transparency and credibility.
Auditing & Trust
Immutability for Efficient Auditing; Trust
Auditors evaluate scores of ledgers — both online and offline — to reconcile reports and data spanning multiple locations and years. Needless to say, the process to ensure consistency and reliability in transactions and generate a compliance certification is lengthy and complicated.
Digital signatures, sequences of events and actors of a particular transaction can be easily and efficiently audited if those events were to be recorded on a blockchain ledger. Institutions need to simply add access for an auditing party to their relevant permissioned blockchains. Blockchain immutability and finality guarantees the integrity of the entire transaction history, all in one place.
Companies like Docsmore have announced pilot programs for recorded signatures on a blockchain.
Increase security and share-ability of identity information
With recent, massive data breaches from some of the largest institutions over the past few years, improving the security of personal data — and thus customer trust — should be the forefront initiative for insurance institutions. Manual data entry — often repeated — should be replaced with a better, decentralized system with no single point of failure
Blockchain is a perfect tool for sharing identity information while ensuring the privacy of consumers. Specifically, KYC (Know your Customer) and AML (Anti-Money Laundering) laws require institutions onboarding new clients to go through expensive and comprehensive steps to ensure compliance with these laws. This is traditionally accomplished internally, with multiple ledgers resulting in multiple certified identity versions across the entire insurance network.
However, blockchain technology could provide a secure, distributed ledger for network participants to engage in cross-institutional client verification for KYC/AML compliance. In addition, a simple query of the blockchain can reproduce an immutable history of identity data, making regular compliance checkups and monitoring for changes an easy and inexpensive process.
Query permissions could be set in place to ensure that consumer privacy is protected and that access to information is appropriately handled. The distributed nature of the blockchain ledger is also attractive for storing sensitive data — like identify information — because it limits the viability of DDos attacks.
This standardization in identity management would require collaboration from not only the insurance industry, but also governments, tax authorities, bureaus, banks and other financial corporations. However, the savings for all would be well worth the coordination.
Tracking assets along a supply chain
As demonstrated comprehensively in our previous blog post, insurance fraud can be prevented when assets along a supply chain are verifiably tracked with blockchain finality. Auditing becomes a breeze, and risk provenance can be proven for better estimates, faster claims processing and a reduction in fraudulent underwriting.
As an enabler of consortium blockchains, FlureeDB can provide a single source of truth for harmonized insurance data to be stored, queried and transacted with blockchain characteristics.
Data-Centric —Most blockchains operate on the “business logic” tier, where enterprises still need to push data and metadata related to blockchain transactions to a static, centralized legacy system. FlureeDB brings blockchain to the data tier — allowing for an entire database to be distributed across its network. Network participants can query at will and know they have the full data set.
Modern Database Characteristics for Enterprises —FlureeDB is first and foremost a powerful database with familiar, SQL-like syntax. Any development team would be able to set up a blockchain database without having to learn a complex set of new skills. With modern database characteristics like ACID compliance, a RESTful API and a graph-style query structure, FlureeDB is optimized to meet traditional enterprise requirements.
Granular Permission Logic for Access Control —Because insurance information is stored in a decentralized manner as one record, granular and highly functional access/permission models are essential to protecting data security. FlureeDB uniquely builds permission information (both read and write) directly into application data at the most granular of levels. This simple and flexible approach to data accessibility lends itself perfectly to blockchain environments — where a distributed ledger is shared across third parties in a network. Companies using FlureeDB can even hand a customer or vendor a direct line of access to the database without needing to use multiple API endpoints — queries only return the information for which a particular user has explicit read access.
Blockchain Immutability —FlureeDB builds every transaction into a block within an immutable, append-only blockchain. This allows for massive auditing savings. Holding a complete and indelible history of transactions also enables institutions to throw highly advanced analytical queries to return increased visibility into practices like fraud prevention measures, internal compliance validation checks or risk assessments.
Time Travel —“Time travel” is enabled by the blockchain’s immutable history: Queries can be issued at any point in time, empowering an application to reproduce any instance of the database with no extra development effort. This capability strongly reduces waste in development time and allows for apps to “rewind” to any database state with ease.
Composite Consensus —With varying relationships and diverse data, insurers need to partition information to be read by only the appropriate parties. FlureeDB allows data to be segmented onto multiple databases — both publicly and privately held — but join together to query as one set from an application point of view. This means a singular application dealing with insurers, reinsurers, third parties and consumers can keep private information out-of-sight, but still leverage blockchain without having to figure out multiple integrations.
Blockchain technology, its believers, its vendors and its growth in adoption won’t wipe out the $40 billion-plus fraud, nor will it “fix” the insurance industry in one fell swoop. Such silver bullet claims are overzealous. But blockchain does pose unique characteristics that should be included in the discussion for industry transformation.
Blockchain — simply in its very existence — won’t disrupt anything unless it is leveraged by and collaborated on within the insurance industry and with its secondary players and its technological partners. Brokers shouldn’t be paralyzed by blockchain’s potential to disintermediate their industry, but should rather embrace and harness its value to drive costs down and remain competitive.
The few entities that take the bold step forward to early adoption will be rewarded with consumer trust, lower margins and larger market share.
Now is the time for industry leaders to drive a sweeping transformational agenda with digital collaboration as the key theme and blockchain as the key mechanism.