In this post, you will learn about how Blockchain and Smart Contracts could benefit Insurance Claims Payout processes resulting in faster and smoother payouts. Blockchain is already having a positive impact on insurers and reinsurers by removing frictional costs by reducing the need for manual data inputting and multiple checks and data accounting between parties.
Why delay in Insurance Claim Payouts?
One of the painful aspects of insurance claims is delayed payouts. There are several reasons including some of the following which results in delayed claim processing and hence, delayed payouts:
- Type of insurance product/program: Different types of insurances result in the different duration of payouts on an average.
- Structure of the insurance program
- Level of cover
- Size and complexity associated with insurance product/program
The following are some of the examples which represent the complexity associated with claim processing and the resulting duration of payouts vis-a-vis above reasons:
- Insurance payout due to the hurricane; Payouts related to this type of insurance generally results in delay due to the complexity associated with claims management processes. One of the primary reason is that the claim is of high value and thus, it takes greater time to process (due to complex investigation processes, people etc) before the payout is sanctioned.
- Travel insurance payouts are quick and claims processing is fast enough. This is primarily because claims are of low value.
- Health insurance payouts are generally faster when insured apply for insurance claims before going for major health-related operations. The payouts are faster because of well-defined processes and personnel involved in insurance claim management.
Blockchain with Smart Contracts for Quick Payouts
With Blockchain and smart contracts, the payouts could be faster than traditional payout processes. Smart contracts are computer programs which get deployed on the Blockchain.
The blockchain is based on the distributed ledger technology (DLT). It brings greater trust, transparency, and traceability in the execution of one or more business processes. Simply speaking, Blockchain is a chain of multiple blocks of transactions. It is maintained as a shared distributed ledger on different nodes in the Blockchain network. The transaction could be the exchange of a unit of value of any kind such as money, contract, appreciation etc between two entities which could be physical entities or physical entity and smart contract or just, smart contracts.
Smart contracts are self-executing contracts whose terms of agreements (rules and penalties around the agreement) between two parties are represented as computer code based rules. These smart contracts get stored and replicated on the system and supervised by the network of computers that run the blockchain. The execution of the smart contract results in the execution of these rules which could result in an event such as payout, or message/action notification to be sent to the physical entity or another smart contract. Ethereum was first to come up with the concept of the smart contract. Here is another great article on smart contract.
The following represents a scenario related to how Insurance payouts could be made faster as result of execution of smart contracts.
- The information (messages) related to claims could be sent to Blockchain by different stakeholders. Note that by virtue of shared distributed ledger, the transactions stored on the Blockchain are immutable. Also, the fact that the transactions are transparent and trace-able makes it trustworthy.
- These messages are sent to smart contract.
- Each time message is intercepted by the smart contract, it could result in the execution of different rules (computer code)
- In case, the execution of smart contracts (rules) satisfies the contract criteria, it immediately results in the payout.
- The smart contract helps remove issues related to multiple manual checks to be made by different personnel working in different departments.
An example of insurance policy which makes use of Blockchain and Smart Contracts is HurricaneGuard, an insurance policy that releases automatic claims if wind speeds are recorded within 30 miles of the insured’s home or business. This is currently implemented in Puerto Rico and saw an encouraging response so far. Here is the detailed news coverage on Hurricane.
- When to use Deep Learning vs Machine Learning Models? - January 17, 2021
- Most Common Types of Machine Learning Problems - January 14, 2021
- Historical Dates & Timeline for Deep Learning - January 10, 2021