By now you’ve likely heard or read about the blockchain and cryptocurrencies such as Bitcoin or Monero. You may think this technology is tied to exchanging digital currencies only, but there's more to the story.
What Is Blockchain Technology, Anyway?
The blockchain — through a series of complex computer verification steps — exists to validate the transfer of value or information, making transactions more secure and faster than traditional methods of credit card payments, check-writing or wire transfers.
Consider the beginnings of the modern-day mobile phone, which weighed about two pounds and was toted in a small bag, and you will get an idea of where this technology now sits along the evolutionary spectrum. The blockchain has many miles to travel before it pervades your daily life, and a simple example might indicate the future value it holds for policyholders requesting a car insurance quote and carriers paying claims.
Imagine you own a small business and a thief breaks into your office, stealing all your banking and customer files — private information that includes account, credit card and social security numbers, just to name a few. The incident could occur on the physical premises or happen electronically if a hacker infiltrates your computer systems. Now imagine you’ve stored none of that sensitive information on-site or on a server with vulnerable security.
In the blockchain realm, sensitive data and transactions are stored in “blocks” that get individually added to an enormous string of other transactions known as the “chain.” Subsequently, millions of trusted computers verify and assign a unique identifier — called a hash — to each block. Hackers have an infinitely more difficult but not entirely impossible route to theft because they must change every hash recorded in the chain to corrupt or alter one transaction or data point. Thus, you see how the blockchain holds tremendous potential for individuals and businesses alike.
Will Blockchain Be the Solution to Auto Insurers' Problems?
Unfortunately, for crooks and fraudsters, where there's a will there's a way. But the blockchain makes hacking more tedious and expensive. Auto insurance companies can look to the new technology for help in many ways, and improving customer satisfaction and combating fraud in the Toronto car insurance market stand out as two top priorities.
The traditional approval process for a collision claim involving adjusters and inspections may bog down policyholder reimbursements or have a car tied up in a repair facility for longer than necessary. The blockchain can safely and securely speed payments to body shops or insureds, and improved operational efficiencies make for happy customers. Peer-to-peer transactions take place instantaneously. Financial intermediaries, which add time and expense to the process, take a back seat and an enhanced customer experience ensues.
A study by McKinsey and Company revealed that 5 to 10% of all insurance claims are fraudulent. Efforts to expose false claims and corresponding payments cut into an insurer's bottom line. At the foot of the hill stands the consumer who must often pay higher premiums passed down as a result of deceitful claims filings. Under the blockchain process of claims validation, the system would be much more difficult to game, and insurance companies can limit lost dollars and ultimately spare policyholders from paying higher premiums.
The Final Say
Advanced technologies such as the blockchain are one-way insurers have begun to bolster internal security and protect the integrity of first-time car insurance customers. Wide-scale use of the process will undoubtedly take time, yet even minor advances signal progress for everyone, including car insurance carriers and their policyholders. Follow the Rates.ca blog for all the latest news and developments on emerging technologies and more in the auto insurance industry.