Data lies at the foundation of any strong ‘know your customer’ (KYC) and anti-fraud function. As more insurance prospecting and on-boarding processes are either outsourced to third-party entities or tackled entirely with digital tools, how confident are you in the accuracy, reliability and verifiability of the data your customers are providing?
Blockchain technology provides brokers and carriers with a “really effective” way to perform KYC checks, according to Bundeep Singh Rangar, CEO of financial software firm PremFina. The sheer transparency and immutability of the blockchain makes it very difficult for people to attempt fraudulent transactions.
“The blockchain lends itself really well to insurance KYC checks,” Rangar said. “If a customer’s ID is recorded in the blockchain, it’s very easy to verify. Likewise, if their digital wallet (used to accept and process payments via the blockchain) is linked to that account, again that confirms the customer is who they say they are.
“The KYC element, the payment element and to some degree the anti-money laundering (AML) element are all much more transparent on the blockchain, and can therefore add value and reduce costs for insurance firms. It will definitely cut down the costs of carrying out KYC and AML checks because people can’t pretend to be who they’re not.”
Roughly 10% of losses to the insurance industry derive from fraud or fraudulent claims. Rangar predicts that figure can be halved if insurers and brokers start using a blockchain infrastructure to verify people and events. He also described significant opportunities to reduce administrative costs by using immutable blockchain data to cut out bureaucratic processes, especially in claims processing and payment authorization.
For example, in the parametric insurance space - coverage like flight delay insurance, which revolves around a metric or index that’s easy to determine - claims verification and payment processing can be automatic and almost immediate. The blockchain can identify that the claimant has the right insurance policy and that the correct trigger (for example, a three-hour flight delay) has taken place, after which it will effectively turn into a Smart Contract and can process an automatic payment.
“There are huge efficiency gains to be made using a blockchain infrastructure,” Rangar told Insurance Business. “Not only can it improve the KYC and AML processes, but it also enables certain kinds of settlement that are made much more efficient and actionable using Smart Contracts triggers by verifiable and undisputable events recorded on the blockchain. The difference between complete automation using technology versus using blockchain is that the blockchain is transparent, verifiable and immutable.”