Most insurance executives in 2021 pointed to digital transformation as their number one priority, with cybersecurity and cloud computing in second and third place respectively, according to 2021 State of Tech Spend report by Flexera.
COVID-19 has continued to serve as a catalyst for organizational digital initiatives and changes to fit the new norm. Working remotely was among the first challenges along with additional drivers such as various threats and concerns including cybersecurity and a rise of fraudulent claims.
Blockchain to the rescue
Insurance companies can benefit from blockchain as part of their digital transformation journey with an immutable layer and secured digital database using blockchain technology. Blockchain gives you the ability to confidently exchange information with other parties across the business and automate processes.
Simply put, blockchain is a database – but not a typical database. Blockchain provides the ability to have a single book of truth in the shape of a digital database that can be trusted by different parties who have access to that database. The database is not based in a single location and there is no one authority to validate any of the records. Instead, database copies reside on multiple computers and distributed among those who participate in a network that owns that database. This way, records are validated using multiple comparisons with other copies of the database and if one of them is not identical, it’s neutralized and marked as an untrusted record. Removing the dependency on a central authority is the most important and powerful blockchain feature. Any community with distributed users and computers can now exchange records inside their network in a secured way, knowing that the data is reliable and can be trusted. Records cannot be changed. They can only be appended so that a history is always kept.
Let’s look at it in a different way – imagine that you are writing a journal and every day you add a page.
Now imagine that each newly added page starts with a summary of the previous page. This way, all pages are linked (chained) to their previous pages. You want to share your journal with other authors and allow them to also add pages. You want to ensure that no other authors can alter information on any of the pages or delete them. They can only add new page. To do so, each author must keep a local copy of the entire journal. To authenticate a page of the journal, the majority of the authors will have to verify that the page is identical to the local copy they keep. Any transaction to and from the journal is encrypted by an agreed upon method (algorithm). Voilà– you have just imagined blockchain! The authors are now participants in a network with a distributed digital database on multiple computers with secure, immutable data.
Insurance companies can use blockchain to achieve reductions in operational costs by:
• Competitive advantages via excellent customer experience that is much faster thanks to possible automations and lightning-fast decision making
• Prevention of revenue leakage from human errors
• Detection and prevention of fraudulent claims
In part 2 of my blog, I’ll discuss how blockchain has the potential to change how we think about the insurance claims process.