I am aware that the title of this article is going to turn away 99.9% of the population. Insurance claims and blockchain are two specialist industries which aren’t renowned for being ‘exciting’, however, both are industries I have experience in. Whilst learning more about blockchain technology, my brain has been working out ways it could help the insurance industry; more specifically the claims process. So, if this title doesn’t scare you away; this was written specifically for you!
Firstly, if you have any interest in Insurance claims or blockchain or even both, feel free to contact me via one of the social media platforms linked in the blog footer to have a chat; I always enjoy talking to like minded individuals. Anyway, without further ado:
Before you solve something, you need a problem. There are a few issues I have identified for insurance claims;
- Claims are time consuming processes which can be frustrating for customers and for Insurers who want to turn around claims as quickly as they can, so that resources can be better concentrated elsewhere.
- Claims are costly processes. The cost in 2019 for global natural catastrophes alone was approximately $150 billion! Insurers often employ claims handlers or entire claims teams and on top of this will hire loss adjusters who add another lump sum to the ‘cost per claim’ for Insurers.
I have personally seen claims take a few days to resolve or over five years to resolve / settle and have seen claims cost anything from under £100 to over £15,000 in loss adjuster fees alone. Don’t get me wrong, those higher fees are justified when you consider the level of time invested in the successful and just settlement of each claim, but Insurers are understandably concerned with reducing the amount of time each claim takes to reach settlement and the overall cost.
First, why blockchain?
Blockchain technology can be used for both centralised and decentralised systems. Here I will discuss how decentralised blockchain systems, such as Ethereum can be used by Insurers. The benefits of a decentralised system which uses smart contracts are:
- Insurers don’t need to trust the customer once the smart contract is set up or need to keep an eye out as much for fraud. The claims handler can turn their attention away from the claim and their productivity can therefore be greatly increased.
- The customer does not need to trust the Insurer or their claims handler or even appointed third party loss adjuster. They can know for sure that the terms of the policy which they agreed upon when signing the contract of Insurance will be implemented. The decentralised smart contract terms will adhere strictly to the policy wording and the customer will know that their Insurers aren’t trying to lie to them etc.
- Each claim will be embedded on the blockchain and therefore there will be an immutable record of each claim. This would mean other Insurers could check the blockchain for signs of a claim by a certain customer when a policy is being taken out. This could help combat fraud.
- More transparency! Customers can see exactly what the cost of their claim was and even a breakdown of this cost. The information will be freely available on the blockchain and cannot be falsified.
How can blockchain technology help reduce costs / the time taken to settle a claim right now?
An idea which came to mind for the use of blockchain technology within the claims settlement process is as follows;
Let’s imagine there has been an escape of water at a policyholder’s house. A loss adjuster can be dispatched to the property as per the current process, or for smaller claims, the customer can be asked to fill in a claim form and send in photographs.
The claims handler or loss adjuster can complete their task of validating the claim, making sure there is no evidence of fraudulent activity and also checking the policy wording in order to confirm that liability should be accepted. Once policy liability is accepted by either the Insurer or the loss adjuster (for example if they have a Delegated Authority agreement in place), then the claims handler or loss adjuster can check repair estimates submitted by the policyholder or by panel contractors. Once they have confirmed they are in agreement with an estimate; this is where the blockchain comes in.
If the policyholder and claims handler/adjuster are in agreement with a specific price; a smart contract could be set up on a decentralised system (such as Ethereum or EOSIO (Yes arguably a little centralised, but this is just an example)).
The smart contract would allow the customer to submit a photograph of the invoice once the work is complete and confirm that all work has been completed to their satisfaction. Once the invoice is submitted and the system confirms its value equals the agreed sum, then the correct funds would be issued to the customer and the claim automatically closed down.
Are there issues to consider? Yes, of course. However, the basic concept here removes the idea of a loss adjuster having to handle the claim from ‘cradle to grave’ and saves on costs and time. I have personally witnessed claim settlement being delayed for months with an invoice sat in an adjuster’s email inbox for example. This process would allow the loss adjuster or in house claims adjuster to concentrate on the validation of claims and analysing both policy wordings and repair quotations and would no doubt speed up the overall claims process for policyholders.
Another benefit here is that with a decentralised smart contract, the policyholder knows that once the contractor’s invoice is submitted, permitting it is for the agreed value or less; this will be accepted and paid instantly. The requirement for the customer to trust the Insurer or their allocated claim handler is somewhat removed and the second part of the claims process is sped up dramatically; helping to remove anxiety which some customers feel when going through Insurance claims.
How can blockchain technology help reduce the costs / time taken to settle claims in the future?
Next, it is time to get a little more futuristic. Consider the technology that Tesla is implementing with their vehicles; now let’s use a dash of this and think a decade or so ahead. The last example I used was for home insurance and this next one is for the automotive insurance industry:
A policyholder is driving along the road and gets into an accident. Their vehicle is fitted with a smart box and it is able to confirm what speed the driver was going, whether this was the correct speed for that section of road and maybe even a few other things like whether the driver was paying attention or could be under the influence of alcohol or drugs.
The smart box has now established whether the driver was driving legally or not and either was not at fault themselves or simply made an error. Next the smart box can check various sensors on the vehicle to confirm the level of damage to it. For example if there is a large dent in the driver side door and structural damage. Another safety benefit could be that if the incident appears to be significant, the police or ambulance service could be notified automatically.
The smart box now notifies Insurers of this incident and should something seem wrong about the claim; for example the box has been tampered with or the driver may be under the influence or was speeding, then a specific ‘issues’ or ‘fraud’ team would be notified and the more ‘classic’ claims handling approach could be utilised.
If the smart box confirms that the claim is legitimate and is covered by the policy, it sets up a smart contract on a decentralised blockchain (or a human claims handler could set up the contract, depending upon how much human intervention Insurers want… remember we are using our imagination here). The details of the damage are then sent to the closest ‘approved repairer’. The repair shop can look over the requirements and confirm whether they are able to accept the job or not. If they decline, then the next approved repairer is sent the repair specification etc. Once an approved repairer has accepted the job, they will complete the work and will then upload pictures onto a file which is then uploaded to the system. This sends a trigger to the smart contract, which then releases the correct sum for the work to the approved repairer as per pre-agreed rates. The claims system also issues a text or email to the customer notifying them that their car is ready for collection.
Now, could this be implemented with current technology? No. For example, multiple smart contracts would need to be set up on the blockchain as things currently stand in order for this process to work, not just one. For example, the acceptance of the work by the approved repair shop and the confirmation that works have been completed would need to be set up as its own smart contract in order for the correct sum to be released to the repair shop.
The above idea does require a lot of thought, some technical advancements, some designing and a lot of programming work; but the idea is there and is one you can have for free! With an understanding of blockchain technology and how far we have come in this last decade; one can see how a future such as this is possible.
What are the benefits of such a system? You can remove possible fraudulent activity, the customer can see without any doubt how far along the repair process their car is, costs for claims handling or loss adjusting are nearly removed entirely due to trust being placed in a decentralised system and the requirement for trust between Insurers and the policyholder is nearly entirely removed due to the use of a decentralised system. Finally the claim itself will be immutably cemented on the blockchain; so anyone can check the claims history of a person or Insurer (goodbye CUE?).
As with anything, there are drawbacks to the above systems. Careful thought and advancements in technology will help remove many of these drawbacks, but the most prominent concern will be fraud.
An example here would be that should no claim handler be involved in the automotive claim process above, the policy holder could know someone at the closest garage and they could agree for example to tamper with the smart box. This would mean a claim would be wrongfully set up, the garage could accept the repairs (knowing there are none actually required), upload some photographs of a previous repair to the claims system and have the claim automatically paid out.
Ways to avoid fraud are tactical interventions by claims handlers (making the process require only a few clicks could mean Insurers could cut their claims handling team by over 90%) and another possible resolution for the above issue is that the claims system could choose between the local garages within a certain mile radius from the accident location / customer address at random, so that customers are unlikely to be able to fraternise with garages.
There are many more drawbacks and pitfalls; albeit this blog post is more of an ‘ideas’ article. Should an Insurer wish to hire myself and/or blockchain professionals to actually design and look at implementing such systems, then a good amount of time would need to be put into identifying each weakness of the specific tailored claims settlement system and the potential ways to resolve them.
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