The big difficulty with Property and Casualty (P&C) insurance, which insures items like houses or cars, is gathering the necessary data to evaluate and process claims. Today, this is an error-prone process that involves a lot of manual data entry and coordination between different parties. By allowing policyholders and insurers to track and manage physical assets digitally, blockchain technology can codify business rules and automate claims processing through smart contracts, while providing a permanent audit trail. You can think of insurance as a contract that stipulates the premium an insuree pays, as well as the conditions in which the insurer is liable for damages. The tricky bit is that “damages” can be pretty subjective, and insurance revolves around verifying that the conditions for each policy are met. Say that you’ve recently gotten into a car accident and the other driver was at fault. To recover losses, you have to submit a claim to your insurance company. Your insurer needs to examine the claim, and then recover the claim for the at-fault driver’s insurance company — which has an entirely different system and process for claims handling. That’s why property and casualty insurance is such a compelling use-case for blockchain technology, which can transform the way that physical assets are managed, tracked, and insured digitally.
Smart contracts on the blockchain can turn paper contracts into programmable code that helps automate claims processing and calculates liabilities in insurance for all players involved. A contract is a paper agreement between two or more parties that is enforceable by law; a smart contract is an agreement between two or more parties that lives on a blockchain and is enforceable by code. For example, when a claim is submitted with an insurer, a smart contract could automatically confirm coverage, and trigger a request for manual review for losses that meet specific criteria. For flight insurance, a smart contract could be linked to an air traffic control database, and automatically trigger compensation when delays or cancellations occur. Allianz Insurance recently launched a prototype for captive insurance, built on top of Hyperledger’s Fabric blockchain. Allianz’s blockchain connects to Citi’s CitiConnect API to accept instructions and payout contracts and is designed for professional and property insurance. The prototype records policy renewals, premium payments, and claims processing onto the blockchain, simplifying the flow of transactions between parties. As Yann Krattiger of Allianz has said, “Automated processing replaces the exchange of thousands of emails and massive data files.” While the blockchain can increase backend efficiency for insurers, it can also lead to superior user experience for customers. DocuSign, for example, in partnership with Visa recently launched a blockchain prototype that simplifies the process of leasing and insuring a car electronically through the Bitcoin blockchain. Each interaction in the process, from choosing a car to selecting an insurance plan and paying for it, is recorded, updated, and verified on the blockchain.
Health insurance today is plagued by a sprawling and inefficient ecosystem of providers, insurers, and patients. A single patient will typically see multiple doctors and specialists over the course of his life. Because there are so many different parties involved in healthcare, it’s difficult to share and coordinate sensitive medical data between them. Medical records get siloed within different healthcare providers and insurers, and duplicate and erroneous records across different organizations lead to costly administrative overhead as well as unnecessary procedures for patients. A cryptographically secured blockchain can maintain patient privacy, while creating an industry-wide, synchronized repository of healthcare data, delivering the industry billions in savings a year. Let’s say that you’re seeing an orthopedic surgeon for a broken leg. Getting the proper treatment is dependent on your physical therapist receiving accurate information about the fracture from the hospital, and prior medical information from your primary doctor. A secretary at your surgeon’s office has to painstakingly request documents from various providers, obtain prior authorization for the procedure from your insurer, and submit a claim. Your therapist’s office manually requests documents from each provider. Each link in the chain represents a possible point of failure. Sharing data and cooperating is currently difficult in the healthcare industry for two primary reasons
In the US, the Health Insurance Portability and Accountability Act (HIPAA) exists to help secure private patient data, but the negative side effect is that it makes it hard to coordinate patient care across various providers and insurers. The implications for this are dire. In the US, administrative spending accounted for nearly 15% of all healthcare spending in 2016. Costs can range from $20 for processing a visit to a primary doctor to $215 for a surgery. It’s estimated that two-thirds of these costs are related to billing and insurance. Considering that healthcare spending hit a whopping $3.3 trillion in 2016, that’s not table stakes.
Insurance claim denials at US hospitals alone cost $262B in 2017. Denials can occur as a result of anything from failure to obtain proper authorization for a procedure or improper data entry. While hospitals recoup roughly 63% of claims that were initially denied by insurers, securing payments itself is a costly process with a ton of administrative overhead. Blockchain technology can return control to patients over their medical data and give them access to it on a case-by-case basis. Rather than forcing insurers and providers to reconcile patient data across separate databases, a blockchain system for medical records could store a cryptographic signature for each record on a distributed ledger. The signature indexes the content of each document cryptographically and timestamps it, without actually storing any sensitive information on the blockchain.