Blockchain technology is transforming the finance, trading, and supply chain industries, and now it finds its usage in insurance. Using blockchain in the insurance industry may have multiple benefits for both insurers and policyholders. This April, the Hong Kong Federation of Insurers (HKFI) announced that they are developing a blockchain powered e-platform for the city's motor insurance. The blockchain powered e-platform would have the ability to record and track motor insurance-related data, enhancing business efficiency in the sector. But what do these changes mean for car owners, really?
What is blockchain technology?
The blockchain is a type of distributed ledger technology that maintains records of digital transactions on decentralized servers. Because it is decentralized, it removes the need for an administrator, allowing consumers, suppliers, and other organizations or even things to connect directly and with lower fees.
Blockchain quickly found application in the finance industry due to its potential for data sharing and security. Once a data record is uploaded to the blockchain, it can never be removed or tampered with, making it basically hacker-proof. The stored data is visible only to people with access to the blockchain, meaning the data is secure.
Blockchain tech can be applied in multiple ways through smart contracts, KYC (know your customer), and IoT(internet of things), among others applications. The smart contract is a protocol with the terms of the agreement between a buyer and seller that is directly written into the lines of code. And, when one of the conditions is met, it self-executes the terms. KYC is an application that allows secure users/clients identification on the blockchain. It will allow faster and easier creation and execution of the smart contracts. IoT is a network of connected objects that share information with each other and other systems.
How might Blockchain affect the motor insurance industry?
Insurers will get valuable insights of customers' data and their needs thanks to the unbiased and trustworthy big data stored on the blockchain. There are a couple of potential uses of blockchain technology in the insurance industry in general, and here are some motor insurance specific predictions:
More efficient claims processing
Documents once accepted on the blockchain stay there forever, and since blockchain can take inputs from a variety of sources without tampering any information, your account, claims history and other relevant information to the claim will be quickly and easily found for processing.
Lower insurance premiums:
Telematics: Telematics has been utilized to establish car insurance premiums for quite some time now, but with the evolution of IoT, this could be a new standard. The goal of telematics is to help insurance companies set premiums based on actual driver behavior, rather than driving history. It’s a better indicator for insurers to set premiums based on the driver’s behavior, rather than usual factors such as the driver’s age, car engine power, or vehicle mileage.
Precise pricing: When insurers have a better understanding of the risks they're insuring, they are able to more accurately price their plans. Geared with trustworthy client and vehicle data, calculations can be made automatically rather than manually by underwriters.
Internet of Things (IoT) insurance cover
Your car’s dash camera - if connected to the insurance and police blockchain - can send damage reports in the event of a break-in, even before you find out about it. Thanks to smart contracts, reimbursements could be sent to the policyholder based on damage readings from the car’s equipment. This process would streamline and automate the whole claims process.
For this type of insurance, your premiums will be based on how much you drive. This kind of motor insurance could be based on smart contracts: your car’s engine would send mileage reports directly to the insurer on a regular basis, and if necessary you can top up your premiums based on your mileage.
A truly transparent view of policyholder and vehicle data
All vehicle information, such as the production year, type of engine, and past repairs would be stored on the blockchain, giving you - the buyer - a clear and trustworthy overview of what you are paying for. Such information would be also valuable to insurance underwriters, as in theory it makes their jobs faster and more accurate.
This may sound like a science-fiction scenario, but these solutions may become widely-utilized sooner than we think. All procedures will be clear, and there will be no place for fraud, complications, and missing data in this new, blockchain world.
Blockchain and motor insurance in Hong Kong: How will it affect you?
With Hong Kong’s Federation of Insurers pro-actively looking into the blockchain and safe data sharing solutions, we can expect that one or more of the above solutions will come into force in the near future in Hong Kong. Smart cars, smart objects, and smart contracts could become a new normal in the motor insurance scene in Hong Kong, and will likely have a positive impact on the insurance industry, and among Hong Kong drivers (safe drivers, to be exact).
The blockchain-powered motor insurance e-platform is still undergoing its testing phase, but if you’d like to learn more about motor insurance premiums, contact one of our insurance advisors at Kwiksure for a chat and free insurance quotation, or read our recent article on how to lock in the lowest car insurance rates!