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25.10.2018

Blockchain and the future of the insurance industry

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Summary

Blockchain has the potential of breaking barriers within various industries, including that of insurance. With the current industry subject to fraud and paper-based investments, it has been argued that Blockchain will be able to provide the security needed to minimise fraud and cyber liability. By combining Blockchain and the future of the insurance industry, the conservative system currently in place would be replaced with a sound, transparent system.

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The Insurance Industry and Blockchain

As with banking, the insurance industry worldwide has been conservative when it comes to adopting cutting-edge technologies. These old industries are not only highly regulated but also traditionally paper-based, with significant investment in manual work and human resources. However, as fraud cases increase and market penetration decreases, insurers are looking at new ways of operating and doing business, with the aim of increasing profit margins.


With its potential to solve major industry challenges like efficiency, transparency and security, blockchain, or shared ledger technology, is generating much interest in the financial services industry. Its promise of accountability and immutability on a secure eco-system resolves many of the current difficulties faced by the financial and insurance sectors. Together with the possibility of significant profit increase, the technology makes a compelling case as the insurance industry’s new operational framework.

This said, blockchain is not a magic wand that can solve all of the industry’s issues at one go. For the platform to work, it needs the collaboration of all key stakeholders – insurers, partners, regulatory authorities and customers.  


What Insurer Challenges Can Blockchain Meet?

As traditional as the insurance industry is, this doesn’t mean it hasn’t kept up with the times. Personal information is digital, claim forms can be downloaded from insurer websites, and policy renewals and payment transactions can be done online. Despite the developments, risk and compliance issues still exist and automated red flags for instances of fraud mostly happen when the damage has already been done.


Enhanced Security

One major concern with online information is that an individual’s data might get compromised at the centralised locations where third parties store information. Blockchain is a database with correct, accurate and trusted data. But since the infrastructure stores data in multiple locations with multiple permissions, the incidence of compromise is eliminated, making the platform one of the most secure options when compared to current systems.


Minimising Fraud and Cyber Liability

It takes time to validate applicants and detect fraud. Blockchain can solve this, by serving as a cross-industry, distributed registry with external and internal customer data. The platform would automatically validate the authenticity of documents, for example like medical reports and proof of address, check police reports, eliminate duplicate transactions and detect patterns of fraudulent behaviour. 


Since data is decentralised and immutable, false billings and manipulated documents are less likely to slip away unnoticed. And access to Big Data could make risk assessments more timely and accurate. Cumulatively, this significantly speeds up processes and minimises human intervention. Insurers will be able to lower their loss-adjustment costs and mitigate not just identity theft but cyber liability losses too. As higher levels of trust are established between insurers and the insured, claims management can be handled faster and more efficiently. 

Data centres around the world need to develop innovative approaches that can manage a decentralised repository on a strong infrastructure. They require data integration technology that can connect and transform data between different blockchains and internal network systems. The process must be backed up with investment and coherent strategies.


Malta Next to Implement Blockchain Technology

The Maltese government’s vision is to be a leader in blockchain technology and a pioneer of ‘the new economy’. With a solid strategy in place, the setting up of blockchain labs and regulatory authorities working to legalise the industry, the country is gearing up to become the ‘Silicon Valley of Europe’. 

In April, Malta’s Parliament approved a cryptocurrency and digital ledger technology bill, providing legal security for businesses and entrepreneurs wishing to do business in this area.  The legislation will ensure technology service providers are registered and DLT platforms certified. It will also ensure investor protection, market integrity and financial soundness of cryptocurrency activity.

This development has attracted a very positive response from some of the biggest companies worldwide since it ensures legal security for businesses and entrepreneurs wishing to do business in this area. 

It is also very good news for all local industries, who can now get excited at these future possibilities and start exploring their potential, knowing that a sound legal framework for future innovative operations exists.

Maltese insurance companies should be part of this growing innovation. Through blockchain technology, insurers can revolutionise their way of doing business, making it more secure, more customer friendly and more profitable.

 

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Our Fintech Practice 

Our lawyers and financial services specialists at Chetcuti Cauchi Advocates provide bespoke solutions to clients by combining the traditional legal fabric with new technologies. Led by Mr Steve Muscat Azzopardi Senior Manager of Corporate and Fintech, our Fintech practice strives to assist clients in this burgeoning and evolving sector of law, which is set to reshape the financial services sector as we know it. 
 

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