In part 1 of this series, we looked at how the insurance blockchain aims at improving the on-boarding activities of insurers and how the burden on customers to share Know-Your-Customer and medical details/records with various insurers will ease.
Here we will look at the nature of insurance claims management, the functions of the blockchain and probable uses.
Why Blockchain and what will it solve?
There are multiple use-cases for insurance operations to be deployed onto a blockchain. Some notable examples are fraud detection, risk protection, automation and capturing real-time data, smart contracts for fulfilling ‘Know-Your-Customer’ and anti-money laundering (AML) norms and data standardisation, besides the 'Internet of Things' evolution.
Rajiv Kumar, managing director and chief executive officer (CEO) at Universal Sompo General Insurance Company, said significant problems in the claim management system include unstructured and inconsistent data, claims turnaround time, inflexible legacy systems, inefficient data sharing, fragmented data sources, and the manual review process that is key to why frauds happen
“As the data is distributed and immutable (in the blockchain), false billings and tampered documents are less likely to be overlooked. Insurers will be able to lower their loss-adjustment expenses and mitigate not only identity theft but also cyber liability losses,” he told Business Standard.
According to insurance executives, most claim teams across the industry now share information via electronic mail, and on a case-to-case basis, which is inefficient.
“Blockchain will give us the advantage of anonymity while enabling us to share information; it will help prevent frauds known to the industry,” said V V Balaji, chief of technology and operations at ICICI Prudential Life Insurance Company.
“If one company has already done the investigation of a claim, other insurance carriers can always check in the consortium blockchain about the outcome of the investigation, and thereby take a call on the processing of the claim,” said Mohit Rochlani, director of IT and operations, IndiaFirst Life Insurance Company.
The first use-case for the blockchain proposed by insurers pertains to on-boarding activities, while the second use-case is related to preventing frauds and alerting other insurers to fraudulent behaviour or customers.
For example, if a fraudster is linked to the system, insurers can know beforehand whether he/she plans to file a (fraudulent) claim.
How will it work?
First, a common platform or ledger will be built by the information technology service provider, in this case, IBM ISA, and each of the 15 insurers will set-up a node at a specific location. Then, each company will upload data of fraud records and medical records, in addition to KYC/AML documents.
This data will be pre-installed and distributed across all the nodes of the blockchain, and the granular details of a customer will be inaccessible without a decryption key and the customer's consent.
After the data is uploaded, each company will be issued a ‘crypto-token’ (an official term has not yet been decided) depending on the number of uploads they make.
There will be checks and balances during the time of upload to keep a track of duplicate data or data in a wrong format. The querying will be done based on a few parameters like mobile number, date of birth, and permanent account number. Personal details of customers will remain secret and encrypted, say insurers.
Each insurer will have a member identification number on the blockchain. If HDFC Life requests medical records of a customer from ICICI Prudential Life, the latter would not know who is the requesting entity.
Experts said companies do not need to invest a lot when it comes to building a blockchain, “We have to make a light model so that all companies can participate. We have gone to a service provider who can provide the software so that there be no need for a large upfront investment by various insurers. The cost details are being evaluated and in all probabilities, it will be a pay per use model,” said Balaji.
He said if an insurer saves two claims of Rs 1 million each in a year, the cost of maintaining and subscribing to the blockchain network would not matter as it is miniscule compared to the probable rewards.
“Due to the potential for more efficient data processing and reductions in fraud, blockchain could remove 15-25 per cent of expenses accrued during insurance processes, delivering an industry-wide saving of $5-10 billion,” said Kumar.
At this point in time, the proofs of concept (PoCs) for both on-boarding and claims management functions of the blockchain have been completed. Rochlani said the insurers are actively engaging with the Insurance Regulatory and Development Authority of India (IRDAI) to approve of the project.
One fundamental rule is that a blockchain can be made stronger, more secure, and transparent, only if there are more nodes attached to the network, with different industries and different industry regulators also participating.
Mohua Sengupta, executive vice-president and head of services at 3i Infotech, said, “Today the regulators across industries -- banking, insurance, motor-vehicles and others -- do not feel the need to talk to each other. But in a blockchain scenario, it’s a prerequisite.”
“If the insurance companies are on a different blockchain from the banks and the two are not integrated, then we will not be able to use the potential of blockchain technology to its fullest,” she said, noting that “the regulators (like Reserve Bank of India and IRDAI) need to be active and come around the table to agree on processes and protocols".
For example: if a person buys a car, and if the automaker, banks, insurer and other third-parties were connected to each other in a common blockchain, as opposed to a separate and isolated industry blockchain, then the process for buying a car, getting the insurance, and banks offering tailor-made loans could be done in a minutes, compared to a three-day process that currently exists.
“The logical extension is to include hospital networks, but at this stage, the PoCs only are only in the on-boarding and claims management stages,” she said.
Insurance executives also said that they will be ironing out all the compliance, data methodology and reporting, and governance issues together with the regulators over the next few months. They are unsure of when the blockchain will be deployed, but hope to see at least one function (on-boarding or claims management) fully functional by the end of this calendar year.