It’s no secret that insurance is essentially a financial instrument, an essential cog in the modern economic machine. The idea behind insurance was to pool funds to protect up-front, somewhat risky investments in trans-Atlantic shipping from the new world. If a ship were to go down in a storm, the pool or syndicate would compensate the owner for the value of the loss.
But how did one establish the value of the loss?
This is where the importance of original-state documentation comes in. The shipping manifest would document the contents of the ship upon departure – so much of this and so much of that. The manifest would require attestation by an independent third party, thereby providing the necessary documentation for assessing the reimbursement amount.
Growing Challenges in the Insurance Space
The challenges in the insurance world are much the same and transactions are still dependent on the honesty of the parties involved. Unfortunately, insurance fraud is rampant. The total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year according to the FBI. Insurance fraud is treated in the courts as, essentially, theft which could include felony charges and jail time. It’s the responsibility of the insurance company to pursue legal actions. Insurance companies need to fend off insurance fraud while being as efficient as possible in their business practices… not a small task.
Automation in Insurance
Modern technology has resulted in the rise of automation in essential processes like underwriting on the front end and claims on the back end. Underwriting technology facilitates taking on more risk with fewer people with the desire of increasing both revenue and profit. New underwriting software comes with associated tech-related challenges like the ability to falsify original-state documentation or images. This has become an epidemic in the underwriting space…more so as we enter this third decade of the third millennium. As mentioned elsewhere, deep-fake software has made fraud detection even more difficult.
New technology solutions
Blockchain and DLT (distributed ledger technology) can now provide the immutability of data. DLT is a codified combination of cryptography and consensus, notably encoding the data to include timestamps, plus hashes of the current and previous assets in the sequence. This data architecture is virtually impossible to tamper with, and thus provides the immutability so critically vital to fraud, and therefore, risk management.
How does tamper-proof, immutable, original-state documentation reduce future fraud?
- Insurance companies use tools that clearly don’t leave room for fraud, for example, a company-specific app that records photos and videos, with corresponding blockchain-based timestamping.
- The underwriting process effectively informs the policyholder of the technical process in such a way that the policyholder understands that future changes to the documentation will be detected.
- The asset ownership, manufacturing source, and other related data are confirmed via trusted third-party sources such as Oracles, registries, etc.
As always, communication sets the expectation. Technology can then reinforce the expectation. As we enter the 2020s, processes such as these can now effectively reduce a tremendous amount of insurance fraud. Attestiv is a vital part of the solution. Find out how we are doing it.