At the Uniglobal Insurance Claims Management Conference, I heard a lot of doom and gloom about the future of claim handling—and the future of the insurance industry in general. New business models are poised to enter the market and disrupt—an ongoing theme. And the plethora of data available—in conjunction with predictive analytics—could greatly reduce the role of the claim handler worldwide. While these are legitimate concerns, now is the time for customer focus and a keen eye on how to get in front of it.
And it all came together with blockchain and smart contracts, especially in conjunction with the Internet of Things (IoT) discussion taking place in the industry.
There’s certainly a movement afoot around connected homes and automobiles when it comes to claim reporting, handling, and payment. Connected devices could identify a loss event and report it to the insurer on a parametric basis. The value of the loss is baked into the policy. For example, if the sprinklers in a home are activated, the loss is assumed to be of a certain magnitude. The insurer issues a check. While there’s the risk of overpayment, it’s outweighed by an understanding of the positive impact of sprinkler activation on contents, drastically reduced claim-handling costs, and a likely surge in customer satisfaction.
Parametric policies are an increasing topic of conversation, especially for property lines. The parallel to life insurance is often cited. People buy life insurance on a parametric event (a death) and don’t necessarily tie the death benefit to economic loss. The basis risk for the customer is palpable but accepted. The loss for the insurer is finite. It seems the appetite for this sort of structure in property/casualty insurance (particularly property) is on the rise. And the timing—given IoT—seems about right.
In general, parametric property claim policies stand to benefit insurers in a number of ways. Such policies can remove the obligation of the claimant to report, with salient customer service benefits. And they stand to reduce cycle time significantly, since there’s no need to send an adjuster to inspect the property—which also reduces loss adjustment expense (LAE). Even if used as part of a claim fast-tracking infrastructure, this approach could possibly lower LAE and combined ratios significantly.
So, how would it work?
A recent article on blockchain and smart contracts caught my attention. The case study mentioned scanning available data to alert a customer that there was a claim. In the IoT context, the concept is portable. The blockchain structure would scan IoT data to ascertain when a triggering event occurs. Then, based on the policy (and potentially other factors), it would intake the claim, evaluate it through predictive models, and cut a check. With liability claims, it may inform a case rather than settle it, but the reduction in cycle time—and the decreased reliance on human judgment—would nonetheless be significant.
As insurers seek to automate the claim-handling process, the confluence of IoT and blockchain can’t be ignored. There’s an opportunity to cut even more layers of expense, with benefits to the combined ratio and shareholder value.