The blockchain revolution is all set to disrupt several industries that rely on intermediaries because of the trust blockchains create between network participants. The trillion-dollar insurance industry which is one of the oldest industries in the world could benefit greatly from this new invention since a lot of the insurance business takes place via paper forms and is therefore prone to errors. The process of getting insured involves human supervision and is therefore slow and inefficient. Blockchains can greatly automate the process and help manage the risk in the insurance business using smart contracts. Another area where brokers account for significant overhead charges is real estate. Brokers charge a huge commission for connecting buyers with sellers with commissions as high as tens of thousands of dollars. Blockchains can help make the real estate more accessible and transparent for buyers eliminating the need for intermediaries. Therefore it is no surprise that the effects of blockchains are going to be most evident in the banking and finance sectors. Here’s a look at how blockchains will affect the various kind of commissions that brokers make.
How Blockchains Are Affecting the Real Estate Industry?
Homeowners are already familiar with the enormous amount of paperwork required to buy a house. After they finalize a house, buyers have to hire a broker who has to clear the land titles for the property. This process is largely done offline, on paper and can cost anywhere from a few hundred dollars to even thousands of dollars. It can take several weeks to find the land deeds and make sure that the title is cleared. Several cities like Visakhapatnam in the state of Andhra Pradesh have employed blockchains to digitize the land registration data to fix the problem of clearing land titles. The entire process takes less than 10 minutes and does not cost a penny! In fact, the state has partnered with Covalent Fund to create Velugu Core, a blockchain stack which would make government data freely and digitally available through open APIs (Application Programming Interfaces), which could then be used by developers to build apps. That means buyers would be able to access all of the land registration information from an app on their phones. Not only does this make the information accessible, but it also makes it more secure as the information is stored on an untamperable public ledger.
How Blockchains Can Disrupt the Insurance Industry?
An insurance broker is a specialist in insurance and risk management. Brokers act on behalf of their clients and provide advice in the interests of their clients. A broker will help his clients identify their risks to help them decide what to insure, and how to manage those risks in other ways. Brokers are aware of the terms and conditions, benefits and exclusions and costs of a wide range of competing for insurance policies, so they can help pick out the most appropriate cover for their clients. Since getting insured is a fairly complex procedure, most people choose to employ insurance brokers to negotiate on their behalf. Since the general insurance industry offers so many options, it can be quite difficult to choose the right policy. According to Canadian Underwriter, brokers earn as much as 20-25% in commission from their clients to do negotiate the best deal and get all of the paperwork ready.
Until recently, the insurance procedure had remained elusive due to the host of options offered and the legal red tape required to carry out the terms properly. But now, because of smart contracts, a lot of the heavy lifting in insurance could be automated.
That means that because of blockchain technology, brokers are going to see less friction in their work and therefore will have a difficult time justifying such high commissions. Instead, their commissions would have to rely more on data and analytics which is still going to be very valuable. By switching to the blockchain model, companies save not only on the broker’s commissions but also gain several valuable securities like:
Fraud detection and risk prevention: The total cost of insurance fraud (not counting health insurance) in the US is estimated at $40B a year. This isn’t just a problem for the insurance companies losing money — insurance fraud costs the average US family anywhere between $400 and $700 in the form of increased premiums. This is because that handling of insurance is a complex procedure that involves several steps that can be exploited by criminals. Blockchain technology can enable better coordination between insurers to combat fraud.
Healthcare: Healthcare is one of the most complex and expensive subdivisions of the insurance industry because it involves a plethora of insurers, providers, and patients. Typically a patient sees several different doctors throughout their insurance which involves maintaining and transmitting sensitive healthcare information that results in increased costs for the insurers. Blockchains can be very beneficial here as they can cut down the maintenance costs for these systems.