The insurance industry is as old as the time when shipping from Europe to the new world was the furnace that kept the European economy churning. Merchants and their staff of underwriters would draft manuscripts that contained premiums and policies that detail the risks, the manifest and the principle understanding of the terms involved in braving the Atlantic journey. In understanding value compared to the weight of the endeavors, the earliest actuaries would set the modern principle of insurance rates.
Fast forward in modern times, the insurance industry is a global industry that safeguards value to the risks across not only trade but also health, finance and ownership. What changed from the voyager age and compared to today’s insurance underwriting practice are the platforms that enable modernity of the process of insurance. This includes information systems, digital records and new ways to claim insurance.
The insurance of the voyager age had deeds signed and sealed by merchants over an authority that presides over such matters. Claims and deliberations over its authenticity were subject to long months of hearings as information then would travel by courier involving cross-continent travels. Today, electronic processing aid by computers is what sets apart modern insurance times compared to the contemporary age of the industry.
While computers and insurance information systems make all the difference, insurance today is still ingrained with deep paperwork, deep knowledge harness and a steep curve consisting of stages where claims are filed, processed, evaluated and enacted with the absolution of knowledge that the claims are indeed authentic. It is a process that deeply scrutinizes each claim over the preservation of the mutual fund’s integrity. It is a matter of necessity as insurance fraud is also as old as the industry that it victimizes.
The Process: From Counter to Desk
Basically, you can summarize the three essential phases of basic insurance:
From enrollment, to underwriting the terms and the eventuality of the claim, there are micro-processes involved to ensure that each client is quoted, eligible, covered and actuation points are set in order to stage claims as per coverage. Often that simple process is stated under life insurance policies and as we have detailed the three essential phases, there is a network of information processing, verification and validation that must be completed over initial paperwork, documentation, knowledge provisions, technical analysis and treasury certification for each policy holder. These micro-processes are in a linear belt with knowledge checks in between information progression in order to verify the requirements in each stages. The enactment of storage, encoding, processing and verification requires resources both from human work and information system cycles. The linear process for each claim are parallel as hundreds if not thousands of similar, near similar and unique cases are also subject to the due process of insurance.
Looking over the desk of brokers, deep knowledge teams, treasury and information officers, the demand for human energy and information systems are paramount for each enrollment, harness and claims are filed.
The process mentioned barely scratches the surface of simple processes like life insurance, but when it comes to more complex and more demanding types of insurance such as reinsurance — where asset, value, governance, guarantees, equities and multiple participants are involved across departments such as management, information, rating agencies, banks, relations and administration are involved – the micro-process becomes a macro chain of micro-processes with linear, conditional and value driven dependencies to formulate rates that translate to monetary yields.
Go Beyond the Desk and Process
Instituting change in a deeply entrenched process is paramount to the dissonance of subtle movement without seismic shifts being felt across the chain. Any blatant movements or radical changes that shakes or rattles the enterprise core process are threatening the very foundation of continuous operations. This is why instituting change within the system is supremely difficult due to the process being very much attuned to its programmed movement. When people are deeply fine-tuned under a well-defined system and with clear decision paths to take, changes are bounced off and vetoed.
Blockchain is a foundational technology and a highly disruptive force that is reshaping industries from the ground up. The insurance industry and its more complex sectors are without exemption. You may have heard of insurance consortiums such as B3i and RiskBlock Alliance that are working on bringing the industry under an institutionalized Blockchain standard of operations. Innovation is the driving force that will reshape the industry with Blockchain — by streamlining cumbersome, tedious and time-consuming processes – that will allow insurance corporations, giants and smaller industry players alike to improve their profit margins.
Picture this, each successful insurance enrollment and each successful insurance claim are all completed with their due processes. Each due process comes with a cost fixated on administration costs, material costs, the people behind the process and financial market values. With each enrollment or claim comes with a cost to the insurance firm. But there are even invisible costs that are even unaccounted for by the industry: the time and the time in between in completing each micro-process. While it is impossible to put in a figure, imagine that there are millions of insurance processes that are executed daily. Now imagine the time and the time in between those insurance processes accrued. Insurers know that this is the invisible cost and it could be perhaps costing them billions annually.
Blockchain was built to streamline insurance processes both linear and parallel. The dependency on human actors and decision makers on logical information checks will be automated under Blockchain’s self-harnessing information chain. The invisible costs on time waiting spent on either decision making such as verification over extended collaborators, will see itself to be free-flowing under Blockchain’s self-executing information cycles. Now, insurance companies are taking back the losses over the value chain based on the invisible costs on time, distance and time wastage. This is a new benchmark for optimal operations for insurance companies.
The benefits of Blockchain extends to more than savings realized by elimination of time wastage in between processes. Its realistic values extend to improvements over the client experience from enrollment to claim, better auditing functions across Blockchain and making life easier for the staff working under insurance firm.
While Blockchain will reshape the insurance industry by the next decade, fundamental changes won’t happen overnight. Look to the consortiums and their Blockchain use cases for insurance and it is within the sample market use case based on early prototype deployment. The development of these insurance enabled Blockchain prototype took years from lab conception to lab use cases and sample market integration. In fact, most consortiums were formed earlier in the decade and it has taken a significant number of years for these Blockchain prototypes to be tested within the market. The next phase will soon be about consolidating these results to better scale with real world business use cases – in order to take Blockchain into the mainstream, to meet modern challenges.
In the lifecycle of tech adoption, it is usually the big businesses who are the first to take up nascent technology. As tech platforms prove themselves, the tech adoption rate trickles down into the SME market — in this case, the smaller insurance players will take up Blockchain later. The Blockchain Insurance consortium – a working group of the world’s biggest insurance providers and financial entities will drive Blockchain to the smaller insurance player market through volume, setting up the conditions for almost universal adoption. This will enable the insurance industry as a whole to push the Blockchain maturity rate by enforcing compliance through regulations set on operating procedures governing insurance information.
You and Blockchain
If you’re in the insurance industry, chances are you’ve heard about Blockchain and how the bigger entities are pioneering its use, or you may have heard of it in a casual conversation with your peers. While it may seem that Blockchain is years away from your insurance market, rest assured that it has arrived and will only increase its adoption as insurance firms take action against the invisible costs that are hindering them — to realize better profits over a streamlined process. Like what we said earlier, changes do not happen overnight, as change — its subtlety starts from the simplest form: from awareness or the small initiatives pushed. As an insurance professional working within the cycles of the industry, change is happening and even if you feel that you are falling behind the movement, you are in the position to start that change to keep pace. In this case, foundational knowledge of Blockchain and how it is changing your industry is essentially setting you and your organization to the path of Blockchain. You know your organization well and you know its core embedded processes right through its extension. That harmony of being in the master of it all is the right state of mind in embracing the disruption brought by Blockchain.
About the Author
Randy Knutson is the President / CEO of DynaQuest Technology Services Inc. He is a former CIO and CTO executive, with over 35 years of experience, in looking for technology innovative solutions for business.
Most recently he has started several Philippine specialized BPO companies, with a focus on Blockchain and Cryptocurrency in the Fintech and Healthcare service sectors.