By Abhishek Sinha
Introduction
Emerging technologies have always played an important part in modernising conventional industry, making their products more accessible, convenient and easy to use. It is no different with insurance and blockchain tech – when the Amicable Society sold its first insurance policy over three hundred years ago, it would have been unfathomable that there can be an immutable source of truth that cannot be falsified, which can in turn be used to underwrite or process a policy – this is possible today with blockchain technology. Several insurance companies use blockchain in some form or other to improve the claims experience, reduce fraud and minimise overheads.
National Health Claims Exchange
There are several applications of blockchain that are possible in the insurance domain – but one of the major points I am optimistic about is the possibility of using blockchain to ensure interoperability of data in a secure manner without the risk of exposing underlying PII. The national health stack strategy document published by Niti Ayog almost five years ago talks about using blockchain technology. Specifically on health insurance, electronic health records can be maintained in a secure fashion, and used for insurance purposes using blockchain based technology. Estonia’s success in managing a nationwide EHR system based Keyless Signature Infrastructure (KSI) is a case in point. The advantage in this case is that unlike traditional encryption tech, KSI does not rely on the private key being secure to prevent breaches, and therefore makes it more secure than conventional systems . It is very likely that our own proposed NHCX (National Health Claims Exchange) will eventually use blockchain for multiple purposes.
Applications of Blockchain in insurance
Smart Contracting
One of the most explored applications of blockchain in insurance is smart contracting. Contract terms are managed on the blockchain and payments can be triggered automatically, without manual intervention if certain conditions are met. The payment records are also stored on the blockchain. The main advantage here is that the execution does not require a manual intervention, and records of any action executed as per the contract are stored in the blockchain ledger, making it impossible to forge. Several insurers have experimented with smart contracts and many have implemented it as well. One of the biggest success stories here is the smart contract based policy built by AIG & Standard Chartered, in partnership with IBM that piloted in 2021. What’s more, this was done in a multinational multi risk transfer policy – making the implementation extremely complex, with multiple jurisdictions adding to the complexity. Coming to much simpler applications, AXA’s now discontinued platform ‘Fizzy’ provided immediate refunds and compensations automatically to customers who were impacted by flight delays and cancellations.
Closer to home, insurers like Bajaj Allianz have been building homegrown products based on blockchain based smart contracting.
Fraud Control
One of the major problems beleaguering the insurance industry in India is fraud control- with the current state of paper-based processes, it has become very hard to control the myriad forms of fraud that still exist among insurance claims in India. Records stored on blockchain are incredibly difficult to forge or modify – any change will require modification of all the linked ‘blocks’ in the chain. It becomes impossible to conceal relevant information, or pass incorrect information, making any kind of fraud extremely difficult.
Reduction in fraud cases often has another outcome – increase in the trust in the ecosystem, which today, at least in India, is deeply lacking. Improvement in ecosystem trust should further ease out processing, ensure fair pricing and improve the payout ratios.
Data interoperability
Blockchain uses ‘hashes’ (A hash function is nothing but a mathematical function that can generate an integer value that uniquely identifies the original information/text) to store data- which means data can be validated without actually revealing the underlying PII(Personally Identifiable Information) – thus protecting the privacy of the individual, while allowing relevant information to be shared rather freely across necessary actors. This is usually referred to as ‘zero-knowledge proof’ as information is verified without actually revealing the underlying data. This has major implications for insurance underwriting and processing, as this also means that all relevant data is available to make a policy decision with near perfect accuracy. It will allow players to share data with each other in a safe manner. For example, using a common network, any insurer could possibly validate if a new policyholder has declared all the pre-existing diseases correctly.
Challenges
One of the major challenges has been finding commercially valid use cases for blockchain applications. However, of all industries to use blockchain, insurance is one of the most promising ones.
Conclusion
To conclude, there are several avenues where blockchain and insurance could be a match made in heaven, and insurance might be one of the first sectors to have a valid, long term and sustainable commercial use case for blockchain. What’s more, being a distributed system, blockchains are far less susceptible to data losses. While blockchain does have security risks, it is still safer than conventional data storage. Add to this the privacy protection that blockchain promises, and it starts to make sense why so many insurance companies are building or acquiring blockchain tech for their products.
The author is co-founder, Healspan
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