The insurance industry in the UAE has seen its fair share of technological advancement in the past decade. From online insurance comparison websites to instant insurance cover, the market has flourished and is constantly looking for new ideas to innovate the industry further.
Blockchain started as a public ledger for transactions made using bitcoin in the early 2000s. However, it wasn’t till 2014 that its potential in areas other than currency was explored. There is a lot of misunderstanding about blockchain. Ask a layman and they’ll tell you it’s a complicated computer system that deals in currency on the dark web. The truth is much more simple and far less sinister.
In simple layman terms, blockchain is a ledger that records business transactions. But what makes blockchain so special?
- Decentralized – Unlike traditional ledgers or databases, blockchains don’t require a central party controlling it. The ledger is available to everyone in the blockchain and is updated in real-time. Therefore it is not under the manipulation and control of any one party but operable by anyone.
- Transparent – Everyone can add information to the blockchain, but once information is added it can not be removed. Nor will the information be secret. Transaction details (how much, when, and to whom) are public information. This allows more transparency in dealings than was available before.
- Incorruptible – Blockchain allows more security for information because if one computer is corrupted or a copy of the ledger is lost, it is readily available on other systems. Information once added to the blockchain can’t be removed so manipulation and corruption of information aren’t possible.
So how can blockchain be applied to the insurance industry, and will it make much of a difference in how we buy insurance today?
Present Day Concerns of the Insurance Industry
There are a plethora of insurance providers in the UAE insurance market. From local vendors to international companies, residents in the UAE have a lot of options to choose from. Yet despite the internationally renowned vendors and technologically sound systems, there are a few challenges that are faced by the industry.
Cost of digital payment systems – Every time a payment is made online it goes through different channels of security and changes virtual hands with many banks and intermediaries. Each step takes certain transfer fees, which is either paid by the buyer or the seller. When you calculate the sheer amount of online transactions these fees can add up.
Amount of data – As the population of the UAE increases so do the insurance policies that are bought and renewed each year. Car insurance, as well as health insurance, are mandatory by law in the UAE. This means that every household in the UAE has at least two insurance policies, if not more. That is a lot of data. To sift through the insurance data, which is continuously changing according to the policyholders, needs a database that is easy to use.
Fraudulent claims – Fraud is a major concern in the insurance industry worldwide. A report by McKinsey & Company (News – Alert), a global management consulting firm, claims that about 5% to 10% of all insurance claims are fraudulent. There are enough loopholes in the insurance process at present that allows for these fraudulent claims to come through.
Ghost brokers – On the flip side, we have ghost brokers; con artists who try to sell fake insurance policies to potential buyers. Some only focus on buyers but some try to defraud both buyers and insurance companies. This adds to the false information out there that can muddy the waters of insurance processes.
A shift in industry perspective – Globally, the insurance industry is trying to shift the focus of insurance policies away from compensation to prevention. This is a major shift in perspective and requires a top to bottom restructuring of how every individual insurance policy is viewed, and structured. It has potential ramifications in how insurance premiums are calculated, and how claims process are designed. The current technology available doesn’t have the capacity to help take these changes forward.
How Blockchain Proposes to Move The Insurance Industry Forward
Let’s be clear, blockchain is not a miracle product that claims to solve all your problems and then some. It hopes to provide a base of transparency to the industry. Because of its decentralized nature, it can be accessed by anyone. Though blockchain is still being adapted to different industries it has already yielded some solutions which insurance providers find very useful.
More Security – Blockchain is a public ledger. It can be accessed by anyone on the network. However, this does not mean it isn’t secure. Information once added to the blockchain, can’t be removed. In fact, because of its decentralized nature, it provides authentication of customer data, their policies, and every detail about them that has been entered into the blockchain. If one file on the blockchain is corrupted, the other copies can verify the original blockchain and identify the attempted tampering within seconds. Therefore, making it harder for hackers and to steal or edit information for their gain.
Easier to consolidate large data – As we mentioned earlier, there is a huge amount of data involved in the insurance industry. From details of car registrations and ownership to medical data of each individual on a family health insurance plan to building insurance cover for the mammoth construction endeavors in the UAE, that is a lot of information to juggle on centralized databases. Blockchain can not only house all this information but it also makes it easier to navigate through this sea of data to arrive at the specific numbers you need. Auditing, financial portfolios, and future forecasts are all easier to manage on a blockchain. With the industry geared to shift from financial-loss compensation to preventive risk assessment, blockchain is the perfect datahub to minimize the work needed to crunch the relevant numbers.
All forms of transactions are noted – We noted in the beginning that a lot of insurance buying happens on online insurance comparison websites. Transactions being conducted on third-party vendor sites add to the complication of the data but it is easier to manage on a blockchain. Transparent access to third-party transactions allows both insurance providers and policyholders to confirm that they have not been dealing with insurance fraud or ghost brokers. This level of transparency promotes trust amongst the populace for the insurance industry.
Slashed administrative costs – Because blockchain has all the data consolidated on one platform it is easier to get the data you want. The claims process takes up the most administrative costs. The claims department needs to go through many documents to ascertain costs, premium payments, and the documents about the damages to determine if the claim will be accepted and paid out. In cases like health insurance, it is easy enough but the sheer magnitude of claims can make it a tedious affair. Car insurance claims take a little more time because verification of all accounts needs to be made. Blockchain helps cut the process in half. It expedites the process which in turn reduces administrative costs and reduces the time spent on one claim.
Bespoke insurance contracts – Since the industry is trying to move in the direction of risk-assessment being a priority when making insurance policies blockchain makes the transition much easier. In the past insurance premiums were calculated with a set of factors that didn’t allow much flexibility for unique cases. This was in part to keep the claims process as simple as possible. The more complicated a policy, the more complicated the claims process. It can be best described as having certain molds and cutting up people’s cases to suit the mold rather than the other way around. It made for safe business practice, but it didn’t give innovative insurance solutions to customers who needed them.
Business operations management – Because blockchain houses all the data on insurance policies currently in place with the insurance provider it is easier for them to determine their reserves. Where claims processes previously caused concern, and calculations to determine how many policies needed to be in circulation for the company to stay afloat, now they can easily be managed because those numbers can be crunched within moments. It will be easier in the future to manage finances, and operations with blockchain data.
Blockchain is just another stepping stone towards better, more seamless data-sharing and storage. Whether it will completely change the way we perceive data and its usage remains to be seen but one thing is for sure, many industries are investing in finding out just how blockchain can improve them. Insurance in the UAE is no different.