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Perspectives

How Blockchain Can Transform Life Insurance Processes

2017-05-09


By embracing blockchain thinking and technology, insurers can simplify the death registration and related claims processes, creating new efficiencies across the value chain.

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With its shared, distributed ledger, smart contracts, super-strong encryption and innate ability to create transactional trust without a central authority, blockchain technology promises businesses across industries incredible cost and operational efficiency benefits as well new revenue opportunities. In fact, the 2016 World Economic Forum’s report on emerging technology trends called blockchain a potential “beating heart” of the global financial system, and predicted that blockchain will account for 10% of global GDP by 2027. In 2016, over $1.4 billion has been poured into blockchain technology globally across various domains. 

So like their banking brethren, insurers are avidly exploring blockchain’s potential for various solutions through technology start-ups such as Teambrella and Helperbit.  In fact, blockchain’s potential role in insurance is wide and deep. It can be leveraged across the insurance value chain due to its ability to reduce duplication of processes and counterparty risks, as well as enhance process  automation, and provide secure and decentralized transactions.

As a result, blockchain is seen as a transformative catalyst in insurance sectors such as:

Travel insurance

Building a unified ecosystem with travel departments and agencies to automate claims processing.

Crop insurance

Collaborating with weather experts to automatically process fraudulent crop insurance claims. 

Property and casualty 

Reducing claim processing to less than 48 hours by using a blockchain that spans insurers, auto garages and policy. (For more on blockchain in P&C, read “The Blockchain Imperative: The Next Challenge for P&C Insurers.”) 

Health insurance 

A blockchain that connects hospitals, physicians, lab vendors and insurers could enable a seamless flow of health information for improved underwriting and validating of claims. 

Simplifying Death Registration and Claims Process

In life insurance, blockchain offers carriers the opportunity to simplify death claims processing, a process that requires an already traumatized beneficiary to undergo a time-consuming activity to process basic claims. Due to the heavy manual labor involved, many claims are delayed up to six months, which can traumatize the beneficiary. In addition, the chances of fraudulent claims are increased since there are multiple data sources present in silos across the process. A blockchain-based solution can combine the current death registration and death claims processes into a single, simplified procedure requiring minimum intervention from multiple stakeholders. 

Devising future-ready blockchain solutions requires consideration of data protection and security, enablement of a multiparty shared network, disintermediation and the need for a unified, streamlined process. The nodes on the blockchain would be insurers, hospitals, funeral homes, a department of health and the beneficiary. Considering a scenario for a death occurring in the U.S., the steps in the proposed reengineered process include the following. (See the accompanying interactive graphic for a visual depiction.) 

Figure 1

  • Say a death occurs in a hospital or a hospice. The hospital enters the details of the deceased (information around cause, time and nature of death) along with other individual details (e.g., SSN) into the hospital records. The hospital’s IT systems would be integrated with the blockchain network. As soon as the deceased’s information is entered onto the hospital’s record, the information would be passed on to the blockchain network. Blockchain would ensure that data is transmitted in a secure manner by using cryptographic hashing techniques. 

  • This information is retrieved and processed by an insurer to check for a possible insured match in the company records. Blockchain would enable rules-based transaction processing to ensure that the data is received by intended recipients only, in this case the insurer. For a successful match, the insurer intimates the beneficiary and requests selection of a funeral home through a customer portal.

  • The beneficiary selects a funeral home from a customer portal where a list of available funeral homes resides (or, alternately, fills in information on the funeral home to be intimated) and initiates the death registration process. The blockchain network would ensure that this data is simultaneously available to the insurer and the funeral home in a secure manner, thereby ensuring the seamless flow of the information.

  • The funeral home receives the request from the beneficiary and initiates the death registration process. The funeral director logs on to a portal, which is integrated with the blockchain network. Rules are built into the blockchain network to ensure that the details are already available on the death registration form that must be filled out by the funeral director. These details are retrieved from the data that the hospital has entered onto the blockchain network. This ensures that the funeral director does not have to contact the hospital for patient records, thereby reducing turnaround time. 

  • The death registration form is shared via the network to the state health department. This form is further processed to generate the death certificate along with the burial permit. The documents are shared via the network to the insurer, funeral home and the beneficiary. The blockchain network ensures that the death certificate reaches the required participants simultaneously in a secure manner, thereby avoiding multiple exchanges of the document. This significantly reduces turnaround time, without compromising data security.

  • The insurer receives this information and then processes the death claim and disburses the claim amount to the beneficiary. The claim amount is calculated via an automatically executing smart contract on the blockchain network. When the claim amount is determined, the required amount is disbursed to the beneficiary. 

  • On receiving the claim amount, the beneficiary acknowledges receipt, thereby concluding the process.

As a result, life insurers can:

  • Reduce turnaround time. 

  • Minimize hassles to beneficiary.

  • Eliminate fraudulent claims.  

  • Enhance scalability. 

Carriers also can adopt and creatively leverage blockchain for automating reinsurance claims, processing subrogation claims payments and ensuring auditability. 

Next Steps 

To prep for blockchain, we suggest insurers consider the following: 

  • Start by evaluating how blockchain will align with your IT strategy.

  • Create a plan for developing capabilities and understanding blockchain’s applications across various lines of businesses.

  • Take the lead in driving adoption of blockchain-based solutions across various business stakeholders to help create a more secure and streamlined ecosystem capable of accommodating oncoming disruptive future business models. 

  • Consider joining large industry consortiums (such as R3 or B3i); or, as an alternative, work to build smaller consortia with key stakeholders.

To learn more, read our white paper, “Blockchain: A Potential Game-Changer for Life Insurance” or visit our Insurance Practice

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