Insurance on Blockchain? Our current "HumanChain"
Introduction:
I am a twelve year insurance professional on the agency/brokerage side, and this is just my opinion from experience in the industry, and my time in cryptocurrency.
To start the whole point of this post is to show the amount of middle men and overhead involved in the insurance industry, that are technically really not necessary to the process. I want to explain how some of the current environments in the industry are set for disruption. This is going to be as basic and simplistic as possible. In future posts I will talk about some of the different tokens on the blockchain that are already in motion within the insurance industry.
What is Insurance?
Insurance is essentially a pool of money, which is collected via premiums. Premiums are what is charged to you, the consumer, or the insured. We as insureds are generally charged very high premiums based off not only factors/variables based on demographic, age, sex, five year driving history (or "loss runs"), etc. However, your premiums pay for a lot more than your "pool" of money. The current insurance process is quite archaic and consists of a "humanchain" lets say. It goes a little something like this.
The Insurance "HumanChain"
Insureds
You or MeAgencies
Retail Insurance - Sales Agents
Account Managers
Claims DeptBrokerages / Direct Insurance Companies / Wholesale Insurance
Lawyers
Underwriters
Brokers
Claims DeptInsurance Companies / Reinsurance Companies
Claims Adjusters
Lawyers
Actuaries
Underwriters
How Purchasing an Insurance Policy Currently Works:
I am going to use business insurance as an example here, because this is what I am most familiar with. Let's say an insured wanted to cover his commercial building, and had a premium of $100,000. The insured pays his agent $100,000. The agency now takes a 10-20% commission, but lets use a 15% commission in this example. Now the agency(Retail) pays the brokerage(Wholesale) $85,000 for the policy. The brokerage now turns around and scrapes another 8-15% commission off of this policy, lets use 10% though. The brokerage now takes 10% commission ($8,500) and pays the insurance company $76,500 for the policy premium.
$100,000 - 15% ($15,000 Agency Commission)
$85,000 - 10% ($8,500 Brokerage Commission)
$76,500 Paid to Insurance Company
The insurance companies now takes this money, and splits it up in different ways. Some goes to the insurance pool, some goes to investments, some goes to shareholders, etc. Now remember, this is just the buying process of insurance. You can see how there are too many hands touching the pot for something that can be a lot more autonomous via the blockchain.
Lawyer Battles and The Claims Process:
The claims process has a very similar nature with how many people are needed to get involved, and worst of all, its lawyers who end up with the most money in their hands. For workers compensation, there was recently a cap lifted on lawyer fees during settlements in the state of Florida due to the Castellanos v. Next Door Co case.
Previously, lawyers could only make a certain capped max percentage on the total payout of the workers compensation claim. Now with the cap lifted, the premiums have started to go up due to lawyers exploiting this by dragging their their feet in court to prolong processing of claims among other tactics.
This is just the workers compensation claims landscape. There is a huge percentage of your factored premium going to lawyers within the losses factor of your premium "rate".
All in all, on the smart contract, a lot of these processes can be automated, especially the purchasing/claims process. I see a bright future in the insurance industry and blockchain not only for early investors, but for everyone on a global scale to reduce the burden of high premiums and collecting claims.