Game-Changing Potential of Blockchain in Insurance (Claims Processing Use Case)

Published by : Mudit | Jan-25-2020

blockchain insurance claims processing

  • In this blog, we will analyze how blockchain and smart contracts revolutionize insurance claims processing.

    In the last few years, blockchain technology has gained significant traction across various industries as the most exciting technological developments. It is making our everyday activities more convenient and secure, like tracking medical supplies, removing banking bottlenecks, and by streamlining every business, governance, and non-profit activity.

    Blockchain technology

    Blockchain is a type of distributed ledger technology-based digital database, similar to an Excel spreadsheet. The database encompasses a network consisting of numerous computers (nodes) and remains completely public. Thus, acting as a single source of truth. Every time there is an update on the network database, its information gets automatically updated and shared across every computer on the network. Further, cryptographic techniques make the database secure and near impossible for hackers to make changes to it. The only way to make changes is to hack more than half of the nodes in the blockchain. In addition, the use of smart contracts on the blockchain ensures complex business contracts remain protected from deletion, tampering, or revision.

    Understanding smart contracts

    Smart contracts are standardized, fully-automated, and autonomous financial instruments that facilitate, verify and enforce attributes of a contract according to predetermined scenarios with blockchain.

    How blockchain technology works

    Applications of Blockchain In Insurance | Benefits

    Blockchain can streamline, modernize, and enhance the siloed infrastructure of the Insurance sector using a shared ledger of common information.

    Simplified Operations: Reduces human intervention required to perform reconciliation and fix disputes.

    Enhanced Regulatory Efficiency: Enables real-time tracking of the financial activity of regulated entities by regulators.

    Reduced Counterparty Risk: Eliminates the need to rely on counterparties to achieve obligations through Smart Contracts.

    Reduced Clearing and Settlement time: No need for third parties for verification/validation. Thus, expediting settlements.

    Minimized Frauds: Enables complete transaction history and asset provenance maintenance within a single source of truth.

    Applications of Blockchain In Insurance | Challenges

    Blockchain-based insurance services can enhance simplicity and efficiency by establishing new financial infrastructure and processes. The processes and business powered with blockchain can address multiple pain points prevalent across the insurance value chain.

    Here are a few current pain points in different insurance processes like claims processing and settlements, client onboarding, underwriting, and more which blockchain and smart contracts can address.

    • Inefficient systems for information exchange
    • Fraud-prone
    • Manual and laborious claims processing
    • Intermediaries
    • Fragmented data sources
    • Limited underwriting accuracy
    • Complex Liability Assessment for Syndicates/Reinsurance

    The above-mentioned challenges result in inefficiencies and increased difficulties in insurance claims processing. They impact insurers, policyholders, and all parties involved in a claim.

    So, for instance, we will analyze how blockchain can boost efficiency, reduce fraud, and improve customer experience in claims processing.

    Securing and Automating Insurance Claims Processing with Blockchain and Smart Contracts

    We will use blockchain and smart contracts for insurance claims processing.

    All parties associated with an insurance claim will access the distributed insurance ledger to view policy details. Policyholders will add information such as proof of insurance, claim forms, and evidence to support claims to the distributed ledger while making a claim. They will interact directly with claims processors. All of this interaction will happen on the blockchain and smart contracts will drive the workflow for a claim. For policyholders, blockchain will also have the active policy and smart contracts with pre-determined claims conditions stored on it. Then, the claim amount will be processed without requiring human intervention and decrease the likelihood of human processing errors.

    We will divide the process into the following phases.

    Also Read: Blockchain in Insurance: Enhancing Existing Complex Processes

    Registration of authorized insurance providers on a blockchain platform

    The process will begin by onboarding stakeholders involved in the first phase of the process on the blockchain platform.

    Insurance providers: Authorized insurance providers are those who form insurance policies and offer them to consumers. They will add relevant insurance policy details on the blockchain. For instance, a motor insurance provider while adding the plans will save details like term length, date of validation and expiry, coverage amount, no claim bonus, co-pay percentage, centers covered under the policy, types of coverage available in a specific plan, and terms and conditions on the blockchain.

    Brokers: They act as advisors rating the insurance policies provided by insurance providers.

    Their involvement in the process will not be as an intermediary but as an advisor. They will access the details saved by insurance providers on the blockchain. They will provide their ratings to the insurance policies added by providers. It will help insurance companies and consumers to make informed decisions.

    Policy portal admin: They offer insurance quotes to customers. Their role will be to fetch insurance plans from the blockchain platform and add them to their portal. It will reduce the time they spend to contact insurance providers manually.

    blockchain insurance claims processing

    Consumers search and buy policies

    Stakeholders involved in the second phase of the process will be consumers and insurance companies.

    Consumers: They search for the right insurance policy to buy it. On the platform, they will search for specific insurance policies using their mobile app. For example, if a consumer wants to buy a policy for health insurance, he would search for it. With smart contracts, he will get search results related to health insurance quickly.

    While buying a policy, the consumer will upload necessary documents like address proof, age proof, passport size photos, identity documents, and income proof in the distributed database, IPFS having addresses hashed and stored on the private blockchain.

    Insurance companies: As soon as the consumer buys the insurance plan, the insurance company will get a notification. The insurance company will start validating details submitted by the consumer and add him to their private blockchain system upon completion of identity verification. A receipt of acknowledgment is sent by insurance providers to the consumers to inform that the plan has been activated. Because the records of transactions will be stored on the blockchain, they will be immutable and traceable. Thus, there will be no chances of insurance fraud.

    blockchain insurance claims processing

    Consumers request for the claim amount 

    Stakeholders involved in the third phase of the blockchain insurance process will be consumers, auditor, and the insurance company.

    Consumers: A consumer requests the claim amount from the insurance provider.

    If a healthcare policyholder meets with an accident and wants to claim an amount from the insurance company, he will follow the claim request procedure for its approval.

    They may need to share documents supporting evidence, photographs, and other claim-related details on the private blockchain. The documents will their respective transaction IDs will be saved on the private blockchain. They will be visible to all stakeholders permissioned to access the system.

    Auditor: They verify if a policyholder is liable to get the amount of claim or not.

    When a policyholder makes a claim request and submits supporting evidence documents on the platform, auditors/loss adjusters get notified to start the verification process. They perform an in-depth verification and validate if the documents submitted by the consumer are genuine. If they find the evidence accurate, they approve the claim request and add details on the blockchain.

    Insurance company: Provides the claim to the consumers.

    Once the loss adjuster/auditor has approved the request, the insurance company forwards the breakdown of the claim account to the consumer. Finally, the claim money gets automatically transferred to the policyholder with the help of smart contracts.

    That is how blockchain with smart contracts reduces the turnaround time by simplifying the entire claim processing and settlement process.

    blockchain insurance claims processing

    Also Read:  Blockchain in Insurance: Enabling New Opportunities

    An Imaginary Use case | Simplifying Travel Insurance Claims Processing with Blockchain and Smart Contracts

    An imaginary solution designed keeping in mind the pain points of the travel insurance industry will minimize paperwork by enabling the insured to upload the documents via their smartphones.

    The solution will have a smart contract of the insurance agreement made between the insurer and the insured. The smart contract will execute autonomously if the involved parties meet the specified condition(s). In the case of a claim, the conditions will be the occurrence of predefined events and automated verification of the claim. The solution will store all detail securely and enable stakeholders to access it anytime in the future.

    For instance, the solution will drastically reduce claim settlement time for frequent travelers related to flight delay claims. Also, it will enable them to get insurance policies seamlessly through smartphones without requiring to submit long proposal forms.

    The solution will use smart contracts for automated claim settlement, flight data from third-party providers to trigger smart contracts, and a mobile app with OCR – ICR ability to capture data from an image automatically.

    Also Read: Blockchain Integration for Operational Excellence in the Reinsurance Industry


    In the future, we can expect more POCs and use case development across the insurance industry. Blockchain integration will be one part of the larger move toward a digital-first operating model. For insurers trying to address challenges like privacy and data security risks, poor customer experience, and costly manual administrative processes, blockchain will certainly be part of the solution.

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