Reinsurance Blockchains Announce Their Arrival and a Global Adoption Beckons
Blockchain technology investment is an area that companies are giving attention around the world. Reinsurers have a lot to gain as they take to the blockchain.
Cisco Image displaying the blockchain networks
The blockchain and its applications are making inroads into many facets of life around the globe. Several areas of financial services have become the latest recipients of the disruptive power of blockchain technology. Reinsurance blockchains have become the latest area of impact that cannot be ignored. Processes, approach, and outcomes are likely to witness a turnaround as the insurance industry adopts this new technology.
As far as insurance companies are concerned, providing a risk cover for customers is their stock in trade. However, they can only remain in business when their total payouts do not exceed their inflows. So, what can they do about this? They either give room for probability and expect no liabilities or they can play safe by sharing their risk profile. As it is often believed and rightly so, a shared burden is easier for many hands to handle.
What is Reinsurance all About?
Reinsurance has to do with the insurance industry, and this is certainly obvious from the name. Reinsurers actively underwrite the risk of insurance companies, and in this way, they provide a window to reduce the possible burden. Effectively, an insurance company sells a risk policy to cover the exposure of the insurance recipient. However, the insurance policy is covered by a reinsurer so that the ultimate liability can be affordable when it crystallizes.
What needs to be clarified is that reinsurance provides an insurance company with a buffer against heavy losses. How can this loss arise? Insurance companies make a profit when risk payouts do not lead to a loss heavier than premiums received. Depending on the specific cover provided in an insurance policy, a reinsurer can decide to further share the policy with another reinsurer. This is described as retrocession, and the import is to prevent liabilities from exceeding what a reinsurer can cover.
The Blockchain Angle
The highpoints of the blockchain are its transparency, immutability of records as well as the ease of real-time access. One big area of savings that blockchain brings to insurance business is the faster processing of settlement claims. Closely aligned with this is the layers of security that blockchain technology provides.
According to a trending consulting report on the effects of blockchain on the insurance industry, efficiency will result with blockchain adoption. And this will lead to cost savings that could be up to $10 billion. How realistic these projections could be, subject to empirical scrutiny and analysis are examined here.
The cost of conducting insurance verification, paperwork of policies and other routines can be huge. Validators have to confirm the existence and beneficial ownership of every underlying insured asset. The work of experts has now shown that up to 20 percent of the existing cost can be avoided with blockchains. The effect will arise from the automated processing of data and the necessary inputs.
Reinsurers have to ensure that records are not altered for assets that they are taking on as secondary insurers. Blockchains have proven that records embedded in them cannot be mutilated or contrived. This is of particular importance to reinsurers as they look out to avoid collusion and fraudulent claims. By putting blockchain technology to use, a higher security threshold is ensured for records and processes.
Faster Processing Schedules
Insurance claims are often time-intensive before they are processed. This is as a result of the inherent verification processes. Since most of the work involved in verification involves sifting through physical proofs and title checking. Relatedly, reinsurers send investigators to the scenes of the crystalizing event. Wading through forensic reports and the required claims can be a cumbersome process.
However, with smart contracts, paperwork can be reduced, and payment outcomes can be arrived at faster and efficiently. This will ensure that the parties that require to be compensated or recompensed get their dues faster.
The Transparency Vote
Integrity is a baseline for good business practices in today’s world. However, too many parties are known to cross the line so often. So, what can be done? The answer is simple. Blockchain improves transparency in many areas of life. Not just are processes easier to follow, what is left to be confirmed or verified is open to review. The work done can be subjected to independent reviews and records remain for audit purpose.
When reinsurance happens, the track of transactions can become convoluted and difficult to trace. This is because records can be muddled when passed from hand to hand. However, with the blockchain, these records can be easily accessed anywhere in the world when permissioned. This in no doubt will confer more clarity on the reinsurance processes and outcomes.
Making a Difference
There is no doubt that reinsurance companies that can transition to the blockchain will make a difference. How this will happen will be evident in the processing times, faster validations, and fair outcomes. When a process is transparent, it is easier to review, and the parties can judge its fairness. This is a crucial edge that cannot be overlooked by reinsurance companies looking to make a difference in today’s world.
The evolving world of blockchain technologies makes it easy for private blockchains to be put to use. As private blockchains emerge, the data of the parties involved in each contract can be kept out of public glare. The point to note here is that with the use of permissions, interested parties can be granted access. This way, reinsurance companies can drive their verification and validation processes faster. This will surely make a difference.
There is no doubt that the blockchain revolution is catching up with the insurance industry and reinsurers can take a cue. In the days ahead, private blockchains can be utilized in insurance processes for the greater good of all parties.
Stevan Mcgrath, is a Bitcoin and cryptocurrency enthusiast, passionate about the potential these tools and blockchain technology bring to the world and writes consistently for CoinReview. He has been following development of blockchain for several years. To know his work and more details you can follow him on Twitter, Linkedin.