Insurance fraud costs the industry about US$80 billion (CA$101 billion) a year – and that’s on the conservative side of the loss estimates.
With such staggering opposition, it has become clear that technological innovation is needed to limit the devastating financial impact of fraudsters and to protect the unsuspecting policyholder, according to Stephan Karpischek, CEO of blockchain-based insurtech start-up Etherisc. Blockchain’s integral feature of capturing time-stamped transactions coupled with transparent audit trails make it easier to catch duplicate claims, double financing, fake replacements, and false claims, he said.
“Blockchain technology is, by nature, a very public platform. All transactions are truly transparent. Everyone can see what’s going on and everyone can check it,” Karpischek told Insurance Business. “This transparency helps to combat fraud. It gives users a strong incentive to stay honest because people can watch what you’re doing.”
The blockchain is a decentralized platform for digital assets. The challenge, according to Karpischek, is working out how to incentivize participants (insurers and consumers) in such a decentralized network to stay honest and work together in total transparency.
Etherisc’s premise is to use blockchain technology to help prevent insurance fraud and ensure policyholders are reasonably compensated should an accident occur. Its blockchain-based policies use smart contracts and parametric triggers to “provide transparent and provably fair payouts to consumers every time.”
“Blockchain is an interesting technology because it combines cryptography, computer science and game-theory. How it can be used to combat fraud is still an area of research, but it’s something we’re working hard at,” Karpischek commented.
The technology works particularly well for parametric insurance or anything where claims can be decided via an algorithm, he added. Things like flight delay insurance or weather-related claims are easy to assess, adjust and pay out using an algorithm in the blockchain because the data these claims are based on is easily obtained and verified.
It would be very tricky for a fraudster to force a dodgy transaction for a blockchain-enabled parametric insurance claim because of the total transparency of the platform.