Future Prospects of Insurance and Decentralized Record-Keeping Systems
The insurance industry is gradually embracing Distributed Ledger Technology (DLT), with its adoption lagging slightly behind that of the banking sector. However, as industry sentiment improves and technological maturity grows, insurance companies are exploring ways to utilise DLT throughout the value chain.
Currently, DLT is primarily being used in the insurance industry to enhance transparency, reduce fraud, and automate claims management processes. Key applications include secure transaction data sharing, automated claims settlements, fraud prevention, and improving overall trust and efficiency across insurance operations.
One of the most notable applications is automated claims processing. Insurers like AXA, with their Fizzy product, use blockchain-based smart contracts for parametric insurance, automating payouts based on verifiable data, such as flight delays, thereby eliminating manual claim filing and speeding up compensation. Similarly, Etherisc uses blockchain to drastically reduce claims settlement time via smart contracts triggered when conditions verified by trusted data sources, like IoT or databases, are met.
DLT's immutable and decentralised ledger characteristics make unauthorised modifications extremely difficult, enhancing data integrity in claims management and underwriting, and thus reducing fraud risks. Furthermore, DLT enables insurers to safely share sensitive transaction and policy data within a peer-to-peer network, improving accuracy, lowering costs, and enabling faster decision-making.
Potential and expanding applications of DLT in insurance include smart contracts across more complex insurance agreements, tokenization of assets and deposits, integration with IoT and AI, regulatory compliance and auditability, and the creation of new insurance products and services.
The growth projections for the blockchain in insurance market show an expansion at a compound annual growth rate (CAGR) of about 53.7%, from $2.96 billion in 2025 to nearly $60 billion by 2032, driven by demand for automation and blockchain solution investments.
In summary, DLT in insurance is evolving from pilot and concept phases towards widespread adoption, focusing on automating claims payments, reducing fraud, enabling transparent data sharing, and building integrated digital insurance ecosystems leveraging smart contracts, tokenization, AI, and IoT technologies.
In the context of medical insurance, DLT can facilitate immediate and precise patient data sharing between healthcare providers and insurers. Additionally, KYC information can be distributed on a private blockchain, reducing the need for multiple submissions and improving the accuracy of information provided by insurers.
A private DLT network can be used to retrocede or cede a risk, negotiate agreements, notify all participants, and manage premium and commission transactions. DLT's potential applications in the insurance industry include underwriting, pricing, reinsurance, and claims management.
As the insurance industry continues to adapt to this transformative technology, it has the potential to overcome challenges such as restricted expansion, growing costs, and shrinking profitability. Shared ledgers in the insurance industry can allow participating insurers, brokers, reinsurers, and others to access the same data and avoid repeating operations, streamlining processes and increasing efficiency.
Sources:
- Blockchain in Insurance Market Size, Share & Trends Analysis Report By Component (Solution, Services), By Application (Underwriting, Claims Management, Reinsurance), By Region And Segment Forecasts, 2021 - 2028
- How Blockchain Technology is Changing the Insurance Industry
- Blockchain in Insurance: A Comprehensive Guide
- Insurance and Blockchain: A Match Made in Heaven
- Blockchain in Insurance: Applications, Benefits, and Challenges
- Forward-thinking insurance companies are exploring ways to utilize technology like blockchain for finance, not only in claims management processes but also in more complex insurance agreements, underwriting, pricing, reinsurance, and other areas to streamline processes, increase efficiency, and reduce fraud risks.
- The integration of finance technology, such as blockchain, holds significant potential for the medical insurance sector, enabling immediate and precise patient data sharing between healthcare providers and insurers, and securely distributing Know Your Customer (KYC) information on a private blockchain, thereby reducing the need for multiple submissions and improving the accuracy of information provided.
