The insurance ecosystem is developing dynamically, but along with this growth, new problems emerge. Blockchain can be a great solution for the insurance sector and help with fraud detection, underwriting reduction or improve cyber insurance policies.
Cyber insurance policies are a relatively new product. Cyber insurance is intended to protect the insured against the costs associated with hacking, cyberattacks, and data breaches. The number of ransomware attacks is increasing year by year. 105% more attacks were reported in the first quarter of 2019 when compared with the first quarter of 2018. There was a 93% increase in the amount of ransom demanded over the same period, with the hackers requesting $224,871 on average to release data.
Fraud activities in the insurance industry
One of the biggest costs for the insurance industry is fraud cost. The insurance industry consists of more than 7 000 companies and the premiums they collect each year are estimated at over $1 trillion. This is a massive market and its development also creates new opportunities for committing illegal activities, which are estimated to be worth more than $40 billion per year. What is more, it is very difficult to detect fraudulent activities using standard methods.
Today’s underwriting process is highly dependent on paper forms, with minimal online-enabled applications. This is the reason for huge costs and disagreements about which information was shared, by whom, and when, which can cause problems for underwriters and their clients.
Blockchain technology as a solution for the insurance industry
Blockchain technology can help to understand and price risks better by allowing information to be shared more quickly and securely across parties in the insurance ecosystem. It creates a trust layer that adds security and the ability to establish trust between entities. This way insurance companies can build products fitted better to the market.
The insurance market is highly competitive and customers expect the best value for money. Blockchain technology can bring a significant increase in efficiency, cost savings, transparency, faster payouts. A very important advantage of implementing blockchain solutions is fraud mitigation while allowing for real-time data sharing between various parties in a trusted and traceable manner.
Smart contracts could save P&C insurers more than $200B a year in operating costs and lower their operating ratio by anywhere from 5 to 13 percentage points. Using blockchain allows for automatically collecting records of agreements, transactions, and other valuable information and taking actions using smart contracts.
There are just a few blockchain use cases for insurance companies.
The global market for blockchain in insurance is expected to grow to $1.39 billion by 2023. Blockchain technology can help to save reinsurers up to $10B and reduce risk by facilitating information-sharing and cutting costs by automating processes at the same time. No wonder that 65 percent of insurance executives agreed that their organization must adopt DLT to remain competitive.
If you would like to implement a blockchain insurance solution that allows creating a trust layer on top of your existing data layer and introduce transparency, increase efficiency, and cause cost reductions throughout a value chain, contact us.