How Blockchain Technology Transforms Insurance Fraud Prevention

Insurance CIO Outlook | Friday, June 12, 2020

Insurance companies can score a win against fraud by leveraging blockchain technology to create secure information sharing networks.

FREMONT, CA: Insurance companies have taken to advances in technology and transformed many operational aspects. Blockchain technology’s potential in the context of the insurance industry has created quite a buzz. One of the key areas of application for blockchain technology in insurance is that of fraud prevention. Frauds have long been a spot of bother for insurance providers. In order to fend off frauds, the insurance sector has tried and tested numerous tactics and technologies. The latest approach of insurance firms towards tackling the menace of fraud involves the use of distributed ledgers.

Standard methods of fraud prevention in the insurance industry cost a significant amount today. According to the FBI, insurance fraud in the US cost $40B a year, excluding health insurance. The slow, paperwork-laden processes wherein claims are shuffled from department to department make fraud detection highly complicated. There exist loopholes in the fraud detection systems through which multiple cases of duplications escape, resulting in losses. Blockchain technology, on the other hand, enhances the scopes of safeguarding the interests of insurers by simplifying fraud prevention in a cost-effective manner.    

The permanent digital ledgers that store transaction and claim details ensure a heightened amount of data security. As the ledgers can be shared between stakeholders, collaborations and communications also become transparent, as well as convenient. Apart from that, blockchain allows secure sharing of sensitive information between different organizations. In the absence of blockchain, such sharing of data between organizations is quite limited owing to the security concerns. But now, blockchain allows insurance firms to pool and share information about previous instances of fraud. This data can be used by every member of the industry to identify fraud patterns and develop a holistic barrier against future scams. 

Thus, insurance firms are now replacing standard fraud-mitigation measures with blockchain-enabled ones. As a result, multiple claims from the same accidents are becoming impossible, and counterfeits are getting eliminated. In the long run, insurance companies can benefit immensely through counter-fraud blockchain deployment.

See Also: Top Banking Technology Companies

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