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Emerging Tech’s Role in Insurance Industry Reform

Insurance industry could transform with the help of emerging technologies.

The insurance industry has seen a meteoric rise for quite some time now. The growth of the multi-trillion industry is expected to surpass the growth of the global economy in 2018-19. While Bruce Springsteen’s vocal chords hold an insurance of USD 6 million, Julia Roberts’ killer smile is insured for a whopping USD 30 million which just goes to show that pretty much anything can have an insurance.

Even as global premium volume is increasing by leaps and bounds, like most other industries, the insurance industry has continued to grapple with several challenges all these years. As an attempt to revolutionize the space, disruptive technologies such as blockchain, artificial intelligence (AI) and internet of things (IOT) are being implemented and studied by several industry giants and startups to offer faster payouts, gain trust, prevent frauds, minimize mismanagement and obtain a competitive edge in the market.

Why blockchain?

Insurance policies, as we know, are used to mitigate the repercussions of unforeseen tragedies. However, the traditional methods are prone to human errors and carry a risk of botching information. This instills a lack of trust in the clients which is so far the biggest challenge faced by the industry. Most individuals avoid purchasing insurance policies due to the risk factors.

The State Insurance Commissioner of Georgia was accused of a fraud of USD 2 million

In recent times, the underlying technology of cryptocurrencies has gone mainstream with its widespread applications in financial as well as non-financial ecosystems. Distributed ledger technology (DLT) is being advocated to reform supply chains by instituting transparency and precision.

Given the complexity surrounding insurances, DLT can be used to dumb down the procedure by instituting coordination between the issuers, brokers, re-insurers and consumers. The model ensures a streamlined information flow in the value chain. As transactions occur, the information can be updated on the ledger. The information recorded on the ledger is immutable which ensures authenticity of the records and mitigates fraud risks. Moreover, the security provided by the technology cuts down on the countless checks and data verification. Consequently, payouts are settled quickly and this improves the overall efficiency and enhances accountability and customer satisfaction.

Smart contracts give a real-time outlook of policy data like insurance coverage and payout details to the network participants post claims. Needless to say, this saves a lot of time for the company as well as the customers while procuring error-free data.

Real-life use cases in various insurance sectors

Several insurance giants are leveraging blockchain solutions due to the low operational costs and increased automation of processes. In Zimbabwe, officials from Insurance and Pensions Commission (IPEC) endorsed blockchain solutions to tackle the hurdles of the industry.

Earlier this month, as reported by BitcoinNews.com, a Sri Lankan firm embraced blockchain to provide agricultural insurance policies for smallholder paddy field farmers in Sri Lanka.

Last year, the effectiveness of blockchain technology was tested in the marine ecosystem for cargo insurances. With the goal of issuing faster payouts, the project was deemed successful by the two collaborating partners which extended the prospects of establishing a full-fledged version of the platform in the future.

Life insurance

Life insurance claims are perhaps the most difficult to file with the mundane task taking on the emotional toll. In such a scenario, a blockchain-based model certainly comes as a blessing with boosted efficiency and authentic insurance products.

In June 2019, leading global insurer, MetLife (Metropolitan Life Insurance Company), announced the adoption of Ethereum blockchain to revolutionize the life insurance industry. The smart contract platform dubbed “Lifechain” will serve the customers by providing the family with reliable data of the insurance along with automated claim procedure. Zia Zaman, CIO of MetLife Asia, said that the primary reason behind implementing the technology is to exploit the security benefits offered by it along with the freedom to incorporate multiparty participation. He also stated:

“If you try technology that has been around for twenty years you’re not going to learn as much as if you try it with a decentralized system like DLT, and that’s advantageous because we are realizing that there is a lower cost of implementation for this system versus the other way.”

On demise, Lifechain will encrypt the corresponding National Registration Identity Card (NRIC) number on the ledger following which a search will be initiated to determine if the deceased is insured. The platform will then notify the family promptly while initiating a claim.

The concept simplifies the excruciating process of filing a claim with an attempt to deliver quick services and foster better relationships with the customers.

Health insurance

Slowly but surely, the healthcare industry has recognized the unprecedented benefits of blockchain to provide a trusted infrastructure. Nevertheless, the paradigm shift from traditional methods to blockchain-based solutions requires ample time and groundwork, but the health insurance sector has left no stones unturned to experiment the technology.

In January 2019, health insurance giant Aetna collaborated with IBM to devise a network based on IBM’s blockchain platform. Per the release, the primary reason for introducing blockchain was to achieve a smooth and secure information exchange to reinforce efficient claims and payment processes.

Soroush Abbaspour, IBM’s program director of blockchain for HCLS, stated that smart contracts will be the driving force to garner efficiency as they will permit cheaper claims and payment processes along with transparency in the network. He stated:

“Smart contracts on blockchains can be used to implement contract terms and business rules in a trusted execution environment. The benefit of blockchain is to dramatically reduce administration costs by eliminating duplicate processing, reducing disputes, and allowing for more effective risk management through real-time visibility and provenance leading to broader adoption of value programs by providers.”

Title insurance

Title insurance primarily insures an individual from the financial losses endured due to the defects in the title to a property. The title insurance industry is implementing blockchain for efficient title registries. Although refashioning the model will affect the process of title search requests, certifications and the issuance of  insurance policies, the industry is eyeing the transition to exploit the benefits that it brings along while continuing to perform other key functions in real estate.

UBITQUITY is one such platform with uses Blockchain-as-a-Service (BaaS) to provide title companies and municipalities benefit from a “clean record of ownership, thereby reducing future title search time, and increasing confidence/transparency”.

Even in the crypto insurance industry, leading insurers such as Marsh & McLennan and Aon are extending blockchain startup services to cater to the specific requirements of crypto protection. With the increase in demand for crypto premiums, insurers are being driven towards low-cost services.

In the coming years, the need to switch to better business models cannot be overlooked by the industry to achieve a robust and frictionless ecosystem. With real-time visibility and settlement of contracts, the program will attract more customers with effective risk management.

With endless possibilities, it is only up to the market players to explore the vast potential of the emerging technologies and incorporate what takes them to the forefront of the realm. The brisk DLT-based models already hold evidence to provide a sophisticated and advanced insurance program compared to the traditional counterparts.

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Sri Lanka Gets Blockchain for Agricultural Insurance

Insurance brokers embrace Blockchain for providing agricultural insurance policies in Sri Lanka

Aon plc, the leading global professional services firm, in collaboration with Etherisc, Oxfam and InsurTech, unveiled a blockchain-based platform for the provision of agricultural insurance policies for smallholder paddy field farmers in Sri Lanka.

With the involvement of about 200 farmers in the same, the new solution comes as a blessing to deliver micro-insurances to sustain the risk of losing crops due to the prevalence of extreme weather, as per the report.

Hugo Wegbrans, the Chief Broking Officer of Europe, Middle East & Africa for Aon, said:

“Strong collaboration, such as this initiative with Oxfam and Etherisc, allows us to broaden the potential positive impact we can have on people, families and small businesses around the globe. At the heart of our work is a mission to empower economic and human possibility – and that is exactly what we are doing here.”

Farmers previously faced a lack of cost-effective and authentic insurance products, insufficient knowledge about the mechanism and ignorance of the claiming procedures. Blockchain technology will be used to address these issues through automated insurance products. Per the report, the automation will dumb down the complex claim procedure to facilitate the elimination of the need for the farmer to submit the claim and for the insurer to send a claims adjuster to the field. This will cut down on administration costs, paving the way for an increase in the percentage of premiums for claim payments as well as assured quick pay-outs.

Etherisc provides a decentralized insurance protocol to increase transparency and facilitate access to reinsurance investments. Michiel Berende, Chief Inclusive Officer at Etherisc, said:

“Farmers represent a third of the workforce and account for almost 20 percent of the economy, yet very few have insurance. This made Sri Lanka a perfect candidate to feel the benefits of decentralized, collaborative and automated insurance. This alliance is really a cooperation between all and showcases blockchain for social good.”

Oxfam in Sri Lanka (OiSL) is an organization that provides long-lasting solutions for economic development with a cross-cutting theme of peacebuilding and conflict transformation. Bojan Kolundzija, the Country Director of Oxfam in Sri Lanka, said that the launch of the blockchain platform marks an important milestone in establishing an affordable, minimal risk mechanism for the greater benefit of a large portion of the Sri Lankan economy.

As reported earlier, the crypto insurance industry has been expanding with the leading insurers such as Marsh & McLennan and Aon extending blockchain startup services to cater to the specific requirements of crypto protection. With the increase in demand for crypto premiums, insurers are perhaps driven towards low-cost services compared to the traditional counterparts.

 

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What is the Insurance Protocol for a Decentralized Exchange?

As experts predict, the next Bitcoin bull run will be prompted by an influx of institutional investors. Blockchain companies are fighting to create the best custodial solutions that will entice these investors into this new asset class. One thing is certain, what they are looking for is insurance to cover their assets, just like what is obtainable in mainstream finance.

The cryptocurrency insurance industry is quickly growing, yet there is a substantial lack of transparency over who is insured, to what extent, and by whom. Estimates put the total amount of available cryptocurrency insurance at USD 6 billion; not a lot when considering that the top three exchanges handle over USD 1 billion in trades a day, let alone the total market cap of around USD 140 billion.

Bitcoin News spoke with Derek Jones, co-founder of new decentralized cryptocurrency exchange UnitedCoin. Like every insurance policyholder it seems, there was a lot of information that non-disclosure agreements kept him from sharing. He could not for one, share who his insurance provider is or whether they had previously paid out claims for cryptocurrency exchanges.

Jones was able to explain how exactly UnitedCoin’s insurance policy works, which is particularly valuable information in understanding how peer-to-peer transactions can be covered by insurance policies.

“We insure all the investments that are in hot wallets. The way the exchange works is that 98% of funds are actually in cold storage and the 2% of funds that are actually in hot wallets are completely insured,” Jones explained to Bitcoin News. The hot wallets are insured up to USD 100 million, but they are looking to increase this amount. With the current insurance policy model and its limitations, cold storage is the only way that they can right now guarantee security for investors.

While Jones admittedly did not know of any insurance policies that have been paid out to any cryptocurrency exchange after a hack, apparently, the majority of companies that suffered security breaches did not have cold storage practices in place, which he says is one of the larger issues that jeopardizes security.

As a victim of the Cryptsy exchange hack, Jones’ view is that nobody should invest in a cryptocurrency exchange that does not have insurance.  ”To be honest, I don’t know why you would use an exchange that is not insured unless you are very comfortable with the fact that you could lose all your money.”

UnitedCoin also has FDIC insurance in the US which covers fiat currency, and insured accounts in Europe. The cryptocurrency is stored in cold storage and whenever there are transactions taking place on the platform, the money that is being sent back and forth is in a token form. That tokenization is what represents all of the actual transactions. However, when someone wants to withdraw funds, it is taken from the cold storage.

Jones’ father’s former bank holds the record in the US for a newly formed bank reaching USD one billion in assets the fastest. The record when he started was five years, and they achieved it in 18 months.

Influenced by some of his policies that did not only insure profits but also reduced fees for users, Jones was inspired to create a new revenue model for his exchange. ”With crypto, I saw that there was something else we can do. Because transactions create a lot of revenue for you as a company, people who are supporting the network should benefit from that revenue. We take 20% of those net revenues each month and divide it amongst members.”

He noted that this is similar to the actions of American Express.

The platform’s native token UNIT launches with the IMO, an initial members launch. Potential members are required to go through a know-your-customer (KYC) process to register.

 

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Zimbabwe Official Urges Failing Insurance Companies to Adopt Blockchain

A senior official at the Insurance and Pensions Commission (IPEC) in Zimbabwe has told local insurance companies that blockchain solutions should be employed as an answer to the industry’s problems.

Reports coming from local media sources say that the issues within the insurance industry amount to a lack of universal access to both insurance policies and pensions, resulting in financial exclusion throughout the country.

The chairman of IPEC, Lynn Mukonoweshuro, argued that blockchain could provide a much-needed modern update to the antiquated methods of insurance delivery that relies completely on brokers and agents; she cites this old system as one of the main failures of the industry.

With a blockchain strategy, Mukonoweshuro claimed, insurance companies would be able to service “the digital customer”, a trending target in the country for businesses. She called for the industry to ”embrace” blockchain, and use it to provide insurance to the wider population of Zimbabwe. ”These technologies provide new ways to measure, control, and price risk, engage with customers, reduce cost, and expand insurability,” she added.

Blockchain is already being applied on a global scale by insurance companies, which have praised the improvements it brings in areas of risk management, transparency, and accountability. The technology is being commended for its potential to bring an entirely new level of trust and security to insurance.

One insurance company in Zimbabwe, Marsh, already uses blockchain for proof of insurance purposes. Marsh agrees with Mukonoweshuro’s arguments in favor of rolling out the technology across the sector and believes that the process of issuing and storing insurance certificates can be completely transformed into a ”streamlined and transparent” practice with the help of blockchain.

Modernizing insurance in the African nation will be enabled by IPEC funding that will target updating technology and pursuing financial inclusion in particular.

 

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South Korean Insurance Firm Offers Insurance Against Hacking for Crypto Exchanges

Cryptocurrency exchange operators in South Korea can now be insured against hacks through an insurance firm that offers cyber-insurance to cover cryptocurrency losses.

Crypto-Insured

A typical cyber-insurance product compensates for the loss of personal information. However, a South Korean firm is taking the concept a step further by offering an insurance policy for money lost by cryptocurrency exchanges.

The ‘hack’ cover is from a local insurance firm known as ‘Hanwha Insurance’, and it will provide domestic exchanges with an added layer of protection.

A representative from Hanwha Insurance said: “We plan to start negotiations with individual exchanges for insurance starting next month.” He further added that “It is not a product that has to be compulsory, but it can be outlined if we discuss how much demand there will be. Even if the exchange wants to join, it will require as much coordination as the insurance and reinsurance companies need to meet in order to get insurance.”

A report from Asia Time further notes that some of the most prominent exchanges in South Korea and the world have been insured, including Bithumb for USD $5.3 million, Upbit for USD $4.5 million, Coinone and Korbit for USD $2.7 million.

The cryptocurrency industry is no stranger to theft. The hacking of exchanges and wallets has become an area of concern for governments, industries, and consumers. This has invariably led to several innovations in crypto-storage and security, as well as turning the space into a ‘high-risk’ area.

Reluctance

In 2018 alone, losses due to crypto-theft have surpassed USD $1.73 billion, more than half of the total recorded losses since 2011.

On the 20th of June 2018, Bithumb, the sixth largest exchange in the world and South Korea’s largest exchange, announced that it suffered a costly USD $31 billion hack. At that time the exchange ceased all cryptocurrency and fiat withdrawals, customers were also told not to deposit any cryptocurrencies due to Bithumb moving all its assets into cold storage.

A week later, with the help of other crypto-exchanges Bithumb had managed to recover just over a third (USD $14 million) of its losses. However, deposit and withdrawal services were reopened on August 4th, 2018.

Earlier in the same month that Bithumb was hacked, a lesser-known South Korean exchange CoinRail (90th in the world), also fell victim to a cyber attack which saw 30% of its traded coins stolen.

After the Bithumb hack, insurers were skeptical of cryptocurrency exchanges. One insurance industry official told Business Korea on June 25th, “The Korea Blockchain Association emphasized a stronger internal control system and security at the earlier sessions. But we cannot trust it as even the largest cryptocurrency exchange in South Korea was exposed to cyber attacks.”

The Korea Blockchain Association had begun discussions in June 2018 with another insurance firm as well as Hanwha to see how exchanges could take out a crypto policy. According to the association it has been in negotiating with insurers since April 2018.

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