There has been plenty of cases documenting the applications of blockchain in the health sector, but few reports on the increasing role of the disruptive technology in the insurance industry.

In the United States alone, the health insurance industry was valued at more than $600 billion in 2017. However, some $375 billion is lost every year by American insurance companies through administrative paperwork thought to be unavoidable in a multi-payer health care system. For the blockchain sector, this means there’s room in the insurance industry, not just for a piece of the pie, but to make the pie bigger by slashing administrative expenses.

Several policy providers had already been exploring ways to digitize health insurance before the advent of distributed ledgers. But through blockchain, insurance companies could streamline claims processes for greater transparency as well as break down the barriers to interoperability. Blockchain is increasingly seen by startups and established corporations alike as the industry’s new frontier.

IBM allies with major insurance firms

Any concerns that blockchain technology was not being taken seriously in the insurance industry were probably dispelled in January, when Aetna, Anthem and Health Care Service Corporation (HCSC) announced a partnership with IBM to build a digital health care ecosystem based on the IBM Blockchain Platform. According to the press release, IBM’s blockchain would be used to overcome a number of industry challenges, from processing claims and payments more efficiently to enabling the “secure and frictionless” exchange of information among policy providers and hospitals.

According to CTO of Aetna, Claus Jensen, “We are committed to improving the healthcare consumer experience and making our healthcare system work more effectively.” He added, “Through the application of blockchain technology, we’ll work to improve data accuracy for providers, regulators, and other stakeholders, and give our members more control over their own data.”

IBM’s program director for blockchain for HCLS, Soroush Abbaspour, said that smart contracts hold the key to greater efficiency, by permitting automated processes for claims and payment, as well as transparency in policy handling.

In a Cointelegraph report, Abbaspour explained, “In today’s claim processing system, especially in the case of value-based contracts, most of the process for reconciliation of the claims is manual.” This can lead to a lack of transparency and visibility between the healthcare stakeholders who are involved in the contract associated with the patient.

However, the trustless nature of blockchain can be leveraged for contract execution and management, providing a secure, transparent system of record. According to Abbaspour, a blockchain system can also “bring automatic and near real-time settlement for contracts and episode-level financial positions.”

Aetna and Anthem will therefore be using IBM’s distributed ledger technology to capture and validate all incoming claims’ data, as well as the quality measures taken to ensure the compliance of claims.

Blockchain interest spreads in the industry

IBM has not yet made public these use cases, but the apparent advantages of the technology has attracted other industry players. In December 2018, another alliance formed by Humana, Multiplan, and Optum announced the addition of two new members, Ascension and Aetna. The alliance was to pilot blockchain solutions to a variety of problems common to the health insurance industry.

Directory data, which provides insurers with information on medical providers, must maintain a high degree of accuracy in order to process claims correctly. Modern Healthcare reported that insurers and health care providers spend around $2.1 billion a year on updating directory data, while the Centers for Medicare & Medicaid Services reported last year more than half, or 52 percent, of all provider locations listed in 64 online directories had at least one error in them.

Distributed ledgers would allow providers to quickly and cheaply share updated location and other information, improving processing time and reducing costs. Humana expressed the belief that this use case would provide the best possible entry point for the introduction of blockchain in other segments of the industry.

In an interview with Cointelegraph, Kyle Culver, the lead enterprise architect at Humana, said, “In thinking about the opportunities with blockchain, it’s important to know that its value proposition is driven by network effect, meaning that the value of a blockchain-powered solution increases as the number of participants using the solution increases.” Culver disclosed that Humana is focusing first on the directory use case.

Blockchain insurance in Asia

Interest in blockchain health insurance has not been confined to the United States. In China, the People’s Insurance Company of China announced a collaboration with VeChain and global assurance company DNV GL to digitally transform its operations. The VeChainThor enterprise platform and its smart contract capability would be leveraged to bring greater efficiency to data collection, processing and auditing.

In June 2018, Alibaba-associated tech firm ZhongAn announced that the development of a blockchain-powered insurance platform and over 100 Chinese hospitals had entered into data-sharing agreements for automated claims and record validation.

In August the same year, Singapore-based MetLife subsidiary LumenLab began testing what was being touted as “the world’s first, automated insurance solution using blockchain technology,” for automated payouts to pregnant women in Singapore affected by gestational diabetes

Challenges on the horizon

While blockchain-based health insurance systems appear to be gaining momentum, there are a number of factors that need to be addressed before such platforms become widespread. There is concern over data privacy, given that the health care industry loses around $6 billion a year to data breaches. In July 2018, a joint ProPublica and NPR report also discovered that insurers have been secretly gathering personal data on their customers from a range of public and private sources for policy calculations.

Another issue is the need to raise awareness among the general public as well as insurance firms of the benefits of blockchain technology, which can only be achieved through pilot platforms. Abbaspour compared the current blockchain environment to the internet in 1997 and suggested that it take time and effort to create the necessary degree of public awareness.

Moreover, there remains the problem of governance. Appropriate regulations must be in place for insurance-focused blockchains, as well as standards for interoperability, which would enable various systems to communicate with each other as well as with legacy systems.