Fake claims are a huge problem for the Indian insurance industry. India reportedly has crime “syndicates” that focus mostly on insurance fraud. Such fraudsters identify individuals with terminal illnesses, promise their families a cut, pay minimum premium and even undertake all the paperwork. Cases range from fake certificates for a “Ms Sonia Gandhi” to sham funerals of unclaimed corpses. These syndicates know that insurance companies cannot verify the information of every single applicant. Annually, fraudulent claims cost an estimated Rs10,000 crore to the industry.
Insurers are constantly trying to establish safeguards that can raise red flags during the claims processes. Many are applying advanced analytics, deploying eKYC (electronic know your customer) forms and automation to help identify cases of fraud. But, despite improvements, many times these safeguards trigger only after the “ship has already sailed”.
What if there existed a system that could detect fraud instantly? A system that would minimize fraudulent claims or loss adjustment expenses with a massive, decentralized database using real-time data sources?
Enter blockchain—the platform for bitcoin, the world’s most popular cryptocurrency. A distributed ledger that maintains a growing list of data, secured from tampering or unsolicited change, blockchain ensures that financial transactions remain secure and somewhat anonymous. The key here is secure and semi-anonymous data, something the insurance industry desperately needs.
What are some of the possibilities for blockchain adoption by the insurance industry?
Minimizing identity theft: With fraud detection, the biggest problem is that it takes time to validate each applicant. Blockchain can solve this, by effectively serving as a cross-industry, distributed registry with external and internal customer data. Once the data is digitally in, the platform would automatically validate authenticity of documents (medical reports, address proof, Aadhaar), check for police reports/verification and detect patterns of any fraudulent behaviour related to specific identities. This would speed up processes and minimize human intervention, thereby cutting down corruption and dissuading future criminals.
Limiting cyber liability: As the data is decentralized and immutable, false billings and tampered documents are less likely to be overlooked. Insurers will be able to lower their loss-adjustment expenses and mitigate not just identity theft but cyber liability losses too.
Decentralized data repository leading to enhanced security: A primary concern with online entries is that an individual’s data might get compromised by third parties storing that information. Currently, data is stored at a central location with necessary software protection. But with blockchain, the data will be stored on multiple locations, requiring multiple permissions to be changed. Also, it’s encrypted at the transaction level to preserve anonymity, guarded against any breaches. Lastly, it is verified data that can be trusted. This makes it one of the most secure options at present.
Data management foundation: Blockchain at its core is a data store—with correct, accurate and trusted data. It needs a robust infrastructure and data-management backbone. Data centres around the world need to develop innovative approaches that can manage a decentralized repository. They require data integration technology that can connect and transform data between different blockchains plus internal network systems. The process must be backed up with investment and coherent strategies.
Cost-saving opportunity: According to a PwC report, due to the potential for more efficient data processing and reductions in fraud, blockchain could remove 15-25% of expenses accrued during insurance processes, delivering an industry-wide saving of $5-10 billion.
Blockchain technology has many benefits that can help the insurance industry but it’s not a magic wand that can solve everything at a go. It needs participation and collaboration between insurers, partners, customers and other parties (government, law enforcement and others). Only then can it be scaled up to build a profitable, cost-saving and secure ecosystem.
The insurance industry has by and large been quite conservative when it comes to emerging technologies. But, as the number of fraud cases coupled with low insurance penetration (3.49% only in India in fiscal year 20117) show, the time has come to evaluate existing paradigms and hunt for new ones.
Blockchain can help not only save claims costs but also open up new avenues of marketing in a timely manner.