For a wider overview of blockchain technology see Rick on InsurTech here
Few technologies stir such feverish debate among insurance executives as blockchain. In China, the government has identified blockchain as a key technology in combating fraud and ensuring regulatory compliance across financial services. This is despite the fact that the case for distributed ledger technologies (and by extension blockchain) within insurance remains quite unclear. What is clear however is that insurers and startups are taking the emergence of blockchain very seriously, and several use cases are appearing on the horizon, including:
1. Electronic Health Records
China’s health insurance market is characterized by an inherent paradox; nearly universal public health insurance coverage, yet widespread dissatisfaction with the discrepancy in care standards across public hospitals. Today, patients that are transferred between hospitals have no guarantee of data integrity between hospitals. Chinese healthcare entities are currently manually reconciling this medical data across clinics, pharmacies and insurance companies. However, the notion that an open-source, community-wide trusted ledger can store health records – so that changes to a medical record is auditable across multiple organizations in the health system – is rapidly gaining support, and several blockchain startups are working on bringing this into reality. These include;
Viewfin is a Shanghai based blockchain startup working on smart contracts enabled by blockchain. Although the current focus of Viewfin is on property ownership (such as gold and art pieces), its blockchain platform is being readied to allow insurers to also validate the time of policy issuance and expiration as it relates to micro or usage based policies.
Zhongtuobang is less a health insurance platform and more mutual aid WeChat account enabled by blockchain. Specifically, Zhongtuobang provides critical illness policies that rely on smart contracts to authenticate the identity of policy holders. Although Zhongtuobang is operating in a regulatory grey area and therefore not allowed to market itself as providing insurance, its 2 million subscribers think otherwise and contribute ¥100rmb in return for ¥300k in critical illness coverage.
Factom is a Shanghai based startup and this month’s insurtech of the month here. Factom’s core product, Factom Harmony, converts documents such as property deeds, property ownership rights and electronic health records into ‘smart contracts’ stored on the blockchain. The underlying innovation at Factom is it’s smart contract which acts as self-executing agreement stored on a blockchain, eliminating the risk of lost documents/records, minimizes audit time and prevents costly disputes about policy terms and issuance.
2. Claim settlements and fraud detection:
The second major use case for blockchain is enabling the more accurate detection of fraudulent claims. The fact that an estimated 5 – 10% of China’s health insurance claims are fraudulent only bolsters the case to deploy blockchain to verify the authenticity of claims. Specifically, blockchain’s ability to store and trace information regarding identify, property titles and event validation makes it difficult to falisify identity, property ownership or even a death certificate. Such a use case would also allow participating insurers to avoid multiple payments of claims which still persists in China. However, it’s important to note that the use of blockchain does not mitigate the risk associated with the majority of first-party and third-party frauds and should be viewed as an additional layer within fraud prevention. In this vein, several Chinese insurance startups are using blockchain to elevate their existing offerings, including;
Hangzhou based iBox Technologies is working on a blockchain based policy management WeChat account that at first seems like an incremental improvement in the user experience, but is in fact a vital first step in the eventual adoption of blockchain as a claims submittal standard.
Elsewhere, Tianjin based Sunshine Insurance Group is offering flight delay cover that will trigger settlements when cancellations or delays are validated on the blockchain by verified flight data sources. These ‘data sources’ include China’s national aviation authority which acts as a so called ‘oracle’ within the blockchain that make external sources usable for smart contracts, or these ‘smart policy’ equivalents from Sunshine.
3. Usage based insurance
Although the debate about blockchain continues, usage based insurance policies (those that are only valid for a few days or hours) have already established themselves as a winner on digital platforms. The success of UBI products is based on the accessibility of location data and IoT devices that rely heavily on the time of policy initiation and expiry when assessing the validity of claims. As blockchain can immutably record the date and time of policy issuance, the ability to transform policies into ‘smart contracts’, or programs that run when certain conditions are met, can be used in tandem with the protocol for increased security, automation and efficiency.
Usage based insurance can also be delivered without the use of blockchain, a blockchain-based policy has a degree of transparency and certainty that is otherwise difficult for an insurer to deliver consistently as usage based insurance is largely distributed on third party digital platforms (such as flight aggregators and hobbiest apps) and insurers don’t have access to the sever logs to authenticate the exact time of policy issuance.
Ultimately, Chinese insurers are proceeding with caution in terms of blockchain deployments, several startups have chosen more ambitious projects to pursue and although these blockchain projects are in their infancy, the ability to make electronic health records more accessible and auditable, authenticate claims and improve settlement times are powerful propositions, and ones that will bring cost and operating efficiencies to insurers in China and beyond.
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