By now, you’ve probably heard about the blockchain. Few technologies have experienced more buzz over the last few years than the underlying mechanism of bitcoin and other digital currencies. Essentially, the blockchain breaks up data into discrete packets (or blocks) which are connected (or chained) and universally distributed, making them much more difficult to tamper with from outside.
The technology has the potential to dramatically impact a whole range of industries beyond virtual currency, and is already finding strong purchase in the world of banking. Insurance markets show every sign of being next up to bat. The major impacts will be felt in three broad categories. Insurance contracts will get increasingly automated, access to plans will generally tend to improve across the board, and innovation will accelerate, resulting in new kinds of products. With all of these changes occurring nearly simultaneously, the industry is in for a significant disruption in the coming years.
Automation
Blockchain will allow for the creation of smart contracts which can essentially become self-executing operations featuring automatic validations of identity and other factors. This can help significantly reduce the incidence of fraud, reduce human error and duplication of data and decrease delays in processing. The full digitization of these markets also makes them safer from malicious interference.
The digital contracts blockchain enables can potentially make a huge impact on the ease with which insurance is bought and sold, allowing multi-party transactions that can be securely executed in a manner that renders them far more transparent than today. This in turn will increase the trust between companies and consumers. Automatic fulfillment or assignment of contracts will reduce the workload on all participants, ensuring consistency.
Access
The increased efficiency and decreased fraud of blockchain insurance will make it more affordable across the board. Digitization will enable automatic data sharing for pricing and analytics, making it easier than ever for consumers to complete an operation like an auto insurance quotes comparison. Individualized pricing can be assigned in real time according to an increasingly wide variety of factors and for a growing segment of products and services. The blockchain will dramatically reduce the challenge of providing micro insurance for small items or brief activities.
The increasing degree to which distributed databases can be automatically constructed will lead directly to more appealing price points by continuing to simplify and streamline the processes of retaining and making use of insurance.
Innovation
The decentralization of carrier consortiums will enable whole new types of insurance. Peer to peer options might emerge, further developing the shared economy of plans. On the spot insurance might pop up in various locations for activities that today fall beneath the radar of larger, less nimble companies. Hybrid and crossover plans might tend to increase, as consumers have more options to pick and choose the kind of coverage that they want.
As big data continues to explode, it will affect insurance more and more by providing better information about what kinds of coverage will be needed in various situations, and claims will become far more predictable, both for the seller and the buyer. The internet of things also offers options for innovation, providing growing numbers of sensors from which insurance companies can collect information. Chief among these might be health trackers, which will allow companies to monitor the health of their clients in real time, potentially offering benefits in pricing for good behavior like staying generally active, or higher charges for sitting on the couch watching Netflix all day.
Greater transparency will help consumers understand the products they are purchasing far better, perhaps making them more appealing to pick up. And social media will continue its trend of becoming a crowdsourced oracle for consumers and companies to get better information about insurance needs and access.
The blockchain is already restructuring insurance markets dramatically, and we should expect that to trend to continue its acceleration in the coming years.
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