Blockchain, the technology that many skeptics deemed unecessary only a few short years ago continues to reshape financial services, and the Insurance industry is not the exception. As technologists continue to find new applications in finance for decentralized infrastructures, Insurance products and services are about to get a long anticipated upgrade through the use of smart contracts running on blockchain
Operating principle of blockchain technology
According to the Euromoney website, blockchain technology is a form of technology that maintains a kind of digital data library. The data is divided into successive blocks, and the data is continuously added to new blocks in chronological order. The stored data can no longer be changed after addition, but new data is always imported into the chain as a new data block. As a result, all additions to the chain always leave a clear mark, the so-called digital fingerprint. The digital fingerprint makes it easier to view the data chain and detect changes, as changes are always found in separate blocks. The data in the chain can again be changed by creating new information in the new block as a continuation of the information brought in by the previous blocks.
Block chains contain programs called Smart Contracts. These programs can be described as a kind of block chain defining instructions that follow the requirements set for blocks. When a certain block requirement is met, a predetermined action always follows. The code may have been programmed, for example, so that when a certain amount of data is accumulated, the program sends an automatic report to the selected recipient. The purpose of smart contracts is to automate the processes and work involved in block chains, which creates security and reliability for the processes. Smart contracts are valid in every block of the chain.
One well-known application that uses blockchain technology is the cryptocurrency Bitcoin . The chain has been programmed to have a maximum of 21 million Bitcoins . Information is logged in the block chain when someone sells Bitcoins to another.
A blockchain technology project to automate insurance processes is underway in the United States
IBM, one of the world’s largest technology companies, and AIG , one of the world’s largest insurance companies, have been responsible for developing blockchain technology in insurance solutions . The companies are participating in the implementation of the OpenIDL project together with the American Association of Insurance Services (AAIS) and Linux. The goal of the project is to create its own block chain network in the United States responsible for insurance matters.
The network aims to create clearer and more transparent tools for managing insurance for the benefit of consumers, businesses, insurance companies and public authorities. Among other things, the project’s agenda is to create and distribute more consistent insurance policies, claims forms, claims statistics, payment information and insurance terms more securely using blockchain technology.
Although one of the main goals of the project is to create consistency, the project does not seek to make the insurance terms and other insurance-related features of different insurance companies identical. The aim is to create consistency only in the templates used by the different insurance companies . Uniformity in the documentation would clarify and speed up the management of insurance processes, as well as ensure that the full potential of blockchain technology automation is realized. It is estimated that harmonized templates could at least automate insurance, claims and claims processes.
Block chain technology opens up the future of the insurance industry
Block chain technology is a revolutionary solution in the insurance industry , both in streamlining the flow of information and its reliability. Block chain technology enables the storage of large amounts of data very quickly and securely, in addition to which a large part of the insurance processes can be automated through intelligent contracts. Based on the current development process, blockchain technology will be able to automate at least compensation processes, compensation payments and the storage and security of damage data in the future. In addition, it would provide security for the processing of personal data required in insurance matters, as the number of intermediaries through which the data passes due to current practices would fall out of the process.
The technological leap made possible by block chains would significantly reduce the workload of insurance operators while stabilizing the flow of insurance processes. For policyholders, this is good news, as these factors also affect the level of premiums, reducing insurance costs.
However, the insurance companies will not be at a loss in the situation, and the profitability of the insurance companies will increase as the processes are automated. Shared claims and compensation data would also bring new insights into the world of risk. Currently, not all insurance companies have the ability to meet all requested insurance needs (for example, in real estate insurance) due to a lack of a database. A common shared database would allow insurance companies to expand their offerings to areas where insurance services could not previously be provided.
Thanks to smart contracts, blockchain technology would also open the door to more accurate and efficient premium calculation. The insurance premium consists of four parts: Risk premium, risk premium, operating fee burden and profit margin. The information shared would make it easy to determine the level of premiums and premiums by type of insurance nationwide through smart contracts. It would no longer be the responsibility of insurance companies to assess the regional impact on risks and to determine their own price lists for operating expenses and profit margins. For mutual insurance companies , the potential for profit and return automation would also be far-reaching.
Block chain technology would also benefit public authorities. Automating insurance processes would make operational supervision easier and more efficient, thus saving a lot of time and money for public authorities. The information shared would also bring to the attention of the authorities issues that can be used in various risk management processes, thus improving official guidance on risk management. If integration were taken even further, health and injury inspection bodies could also be included in the system. This would save the time taken by insurance companies , authorities and companies to settle claims.
What does the introduction of blockchain technology require and who would be responsible for it in Finland? If it were decided to start using blockchain technology more widely in Finland as well, this would require careful planning and the selection of responsible persons. Someone should set up their own block chain network in Finland, which would be the responsibility of a trusted authority. The implementation would not require an unprecedentedly powerful supercomputer, but a few basic servers would be enough to ensure a secure and reliable data flow. When will the change take place? And who is going to lead the task? We do not yet have the answers to all of our questions, but let us look forward to seeing where the future takes us.