45% of C level within the Insurance Industry is expecting a major paradigm shift. In this blog we will see some significant concept of technology i.e Internet of Things(IoT) and Blockchain Technology in Insurance Industry. Insurance sector which accounts for 6% of global GDP yet antique technically.

Below is the renewal rate graph from 2012 till 2016 which implies the degrading nature of Insurance

In the age of enormous data availability, the insurers need to gather, process and apply analytics to the staggering amount of data coming with IoT. IoT data can be obtained from wearables, sensors on objects, geographical information system providing geophysical, topological and climatological data etc. Insurers proactively need to shield people and their property leading to more customer satisfaction.

Coming to non-life insurance – Global non-life insurance premiums have dropped 2.4% in 2016 from 3% in 2015. Also in advanced economies the premium growth deaccelerated to 1.7 from 2.5% . And in emerging markets the premium growth was 5.3% in 2016, up slightly from 2015, but slower than the 8% annual average growth between 2000 and 2014

Life Insurance- Global life insurance premium has risen 5.4% (inflation adjusted) in 2016 compared to 5% in 2015. In advanced economies it was 2% and 3.4% in 2016 and 2015 respectively. According to Swiss Re, emerging markets, in particular emerging Asia, were the main drivers of growth for the global life sector. Emerging market premiums for the full-year 2016 are projected to have grown by 20.1%, up from a 13.2% increase in 2015

Usage-based insurance (UBI) – also known as “pay-as-you-live”,business model is growing rapidly. Approximately there is 5 million active UBI policies in 35 different countries. As per estimation by EY the UBI penetration will be 15% by 2020 in Europe, Asia and America.

IoT in Home Insurance – Sensors are continuously capturing data in our home regarding water usage, temperature, energy consumption and more.The sensors can also help to prevent major accidents by detecting water leak, electricity malfunction etc. This will help the insurers to avoid claims as well.

IoT in Life Insurance

For life insurance companies, this typically involves gathering data from wearable devices, such as FitBit and Nike+ FuelBand, to more accurately assess the health of the client. Now the company can adjust the pricing of its life insurance policies as necessary.

IoT in Auto Insurance

Connected cars are being used to track driver’s habits in real time. As per Nielsen Survey in 2015 this UBI is used by 20% US drivers compared to 13% in 2014. And as per BI it is expected to reach 35% by 2021

IoT in Health Insurance

Now health insurance companies are rewarding its clients for healthy lifestyle (burning calories, sleeping well, etc.) and its all possible with the help of wearables and keeping track of this data. It is expected that in future blood analysis, proactive alerts for heart attacks and proactive interventions for substance abusers will be also covered.

The implications for Insurance will be profound

IoT will help to make the UBI and pay-as-you-go business model more reliable and predictable. Therefore, insurers must overcome the industry’s traditional reluctance to change and commit to fully developed and risk informed strategies across all lines of business and within multiple operational areas.

Below data shows the 2015 life and non-life insurance premium payout across ten countries

Source: Insurance Information Institute

BLOCKCHAIN IMPACT ON INSURANCE

Back to the square; as the Blockchain technology has introduced the concept of centralization to decentralization the organizations have initiated the impact and analysis of it across the sectors. Moreover, the perspective of transparency, multiple system update and high security are the vital promising factors.

Few significant add-ons blockchain can provide is trusted relationship across the participants and consistent and automatic contract execution which are stored in shared ledger thus helping to reduce the administrative work. These improvements help insurers to provide various types of services to customers such as for certain customers they can provide a centralized and for other customers a decentralized solution for claim and premium processing. Also customers can choose a processing structure of their portfolio, cash management preferences and regulatory restrictions.

While debate is there on the merits and prospects of public (or open) and private (or permissioned) blockchains, the flexibility of blockchain technology to serve different purposes is one of its most powerful qualities.

Block chain is further classified as Platform and Software

The new business model conceptualized by insurer is to provide a platform to the customers to post their requirements and then insurance company will apply their calculation and risk factor to come up with the plans. After which the customer can select the best suited plan.

Another model of business where the insured products/property with all characteristic details can be kept in a secured and transparent manner on blockchain. This can help to avoid human error and the better premium calculation.

How Blockchain could be applied in the insurance industry

A diligent case study/use case creation with the engagement of customer will help the insurers to come up with better model. Also partnerships and involving in industry activities will be required to avoid the early threats and pitfalls of blockchain as a new model.

Blockchain Applicable Areas

Claims management

 Blockchain enables a more effective and efficient process, alongwith:

• Customer control e.g. of managing relationship with service supplier

 • Increased transparency and reduction in fraud

 • Better service and flexibility

Subrogation

 Blockchain could provide a shared mechanism for insurers to manage the subrogation process and handle intercompany claims including:

• Increased efficiency and reduced costs using shared, distributed processing

• Improved speed of settlement

Policy placement

Using blockchain to automate the placement of wholesale markets business has a number of benefits:

• Reduced duplication of data entry

• Accurate information availability

 • Automation of workflow

 • Permanent audit history and record of agreement and acceptance

Advantages

·        Pool of data available for real time access

·        No private maintenance of data hence saving cost

·        Secured and accurate information availability

·        Better designing of insurance plans/rates 

·        Automated premium and claim generation and settlement 

·        Operational efficiency and time saving

Conditions and limitations in applying Blockchain

Having mentioned most of the improved business scenarios it is also important to focus under what circumstances Blockchain technology will be economically viable and helpful. A few checks but not limited to are where multiple parties are involved, where the process is long and susceptible to malpractice. In the absence of these scenarios blockchain efficiency cannot be enjoyed

Conclusion

Evolution of technology is continues so it’s imperative for the Insurance sector as well to be in race. The processes that underpin their success will stand the test of time and by putting a quality assurance framework at its heart, the Insurance industry will be ready and well placed to take advantage of the next big change to come its way.