Blockchain could save the insurance industry millions, study says
A recent study looked at how a consortium-based approach to blockchain could support two common P&C events.
The Institutes RiskStream Collaborative has analyzed the benefits that blockchain and distributed ledger technology (DLT) applications could bring the insurance industry.
The collaborative’s analysis looked specifically at how a consortium-based approach to blockchain could support two events common in property and casualty insurance: proof of insurance and first notice of loss following an accident, both in personal auto lines.
“By implementing blockchain applications in the U.S. market, and taking the RiskStream Collaborative’s network growth into account, members could save between $19 million and $68 million in the first year of use, between $60 million and $190 million in year two, and between $99 million and $277 million in year three,” said Pat Schmid, the collaborative’s vice president.
Blockchain’s benefits
In a statement, the collaborative explained that first notice of loss is traditionally a highly manual process coordinated by each involved insurer. Implementing a centrally coordinated blockchain-based process could lead to as much as $14.4 million in savings in claims intake and a $28.8 million savings in data-sharing costs, according to the collaborative. Altogether, applying blockchain to this traditionally slow, manual process could save the industry as much as $43 million per year, it added.
Additionally, according to the collaborative, blockchain-based processes could save claims handlers nearly 1.5 million hours each year, time currently spent on data sharing between carriers and claims-information intake.
“Today’s first notice of loss process is complex, inefficient, slow and expensive for the wide range of parties involved,” said Christopher McDaniel, the collaborative’s president. “With more than eight million personal auto claims filed each year in the U.S., blockchain can remove countless steps in this equation while reducing costs and providing a better customer experience.”
Demonstrating proof of insurance (POI) is another area the collaborative said is ripe for blockchain disruption. Currently, it said, the POI process is cumbersome and fraught with opportunity for information error and fraud. The collaborative’s study found that a blockchain POI application could reduce the industry’s data-storage costs by as much as $2.8 million per year. And by reducing the need for paper insurance cards, the industry could save up to an additional $4.5 million a year in printing costs, the collaborative said.
Complying with the various states’ insurance-verification systems, each of which may have a different style or data standards, presents a significant burden and cost to insurance companies. According to the report, these could be reduced by up to $70 million annually.
Finally, roughly 13% of all motorists in the U.S. are uninsured. The collaborative’s blockchain application may be able to moderately reduce the costs of uninsured driving by up to $12.3 million annually, the collaborative said.
In total, taking into account conservative assumptions on network growth, the analysis found that blockchain applications could save membership $9.5 million in the first year of adoption, $34.1 million in the second year, and $64.4 million in the third.
The analysis also demonstrated that the new applications could lead to substantial improvements in the customer experience, which often lead to operational savings. The findings showed that even a minor improvement in customer experience associated with these applications could lead to $222 million or more in benefits for collaborative members.
“These findings are only scratching the surface in terms of what blockchain applications can bring the insurance industry,” McDaniel continued. “Blockchain can provide insurers with greater trust and auditability, increased automation, lower administrative costs, and the complete elimination of fraud. But in order to realize the full potential of these financial and operational benefits, insurance carriers and brokers must continue to come together under a consortium approach, which the RiskStream Collaborative framework provides.”
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