How Blockchain And Smart Contracts Are Transforming The Insurance Industry? Table of Contents
How Blockchain And Smart Contracts Are Transforming The Insurance Industry?
Blockchain was introduced to the public with the release of Bitcoin in 2009.
Today everyone has heard of the technology, however, most people don’t clearly understand its ramifications.
For example, people know they are using it when they buy bitcoin with credit card, but this technology has many other applications.
Blockchain has evolved throughout the years, and the addition of smart contracts was a turning point that allowed it to disrupt a wide array of industries, from finance to healthcare.
One of the industries that blockchain is transforming today is the insurance industry.
Insurance is a major player in the global economy because businesses, ordinary citizens, healthcare organizations, and even government institutions all need varieties of insurance.
But despite the substantial size of the market, the current insurance system is static, prone to error and fraud, and lacks the flexibility in communication between parties.
In this article, we will see how blockchain and smart contracts can help streamline and help evolve an industry that has been around since the 18th century.
What is blockchain?
Blockchain is a record-keeping technology, based on a decentralized, distributed, and public ledger, containing data records called blocks.
These blocks are interconnected with each other through the means of cryptography.
One block cannot be altered retroactively without modification of all subsequent blocks.
This, by design, makes the blockchain resistant to modification of its data.
Here’s what the three pillar on which blockchain stands really mean:
- because there’s no central authority governing the network.
- multiple computers n the network hold exact copies of the same ledger.
- anyone can access the records on the ledger, and all transactions on it are transparent.
While it was originally created to store records of financial transactions, blockchain can be used to store data about other types of transactions in many ways.
For example, it can store data about property exchanges, supply chain information, and insurance policies.
What are smart contracts?
Smart contracts are an evolution of blockchain technology.
They are different from traditional ones because they are self-executing.
In practice, a computer program sets the terms of an agreement, and a smart contract automatically enforces the agreement when pre-defined rules are met.
Smart contracts allow trusted transactions and agreements to be carried out among parties without the need for a central authority, legal system, or external enforcement mechanism.
In the insurance business, one thing policyholders and insurance companies have in common is a high level of mistrust in each other.
Customers believe that the insurer’s goal is to pay as little as possible.
At the same time, insurees often cheat and submit false claims.
With the aforementioned characteristics of blockchain and smart contracts, we can slowly start understanding how the industry can be improved.
Implementation of blockchain in insurance
Blockchain, by design, can make trust a non-issue.
All records are public and both insurance companies and customers can have continuous access to them.
With the addition of smart contracts, it can also reduce the possibility of manipulation on either side and automate the execution of contract terms.
Below are some of the few practical applications.
This particular advantage can be credited to the public and irreversible nature of the blockchain.
As no one owns the records, all insurance claims are public, and any modification or attempt of fraud will be registered immediately on the blockchain.
Furthermore, procedures and claims can be reviewed transparently by both parties, and in a more convenient way.
Automated policy execution
Smart contracts execute as soon as a number of predetermined conditions are met.
The first benefit of this feature is the time saving through faster claim processing and customer payouts.
Additionally, the automation allows for the elimination of any human input that is often prone to error.
It also removes the need for intermediaries and mediators, reducing the risk of third-party manipulation.
Blockchain smart contracts can be programmed to apply risk assessment models by cross-checking relevant data like ID, age, health issues, etc.
A smart contract reads all the information related to an individual and automatically assesses risks, saving time, and effort on data collection and verification.
Finally, thanks to the cryptographic nature of the blockchain, all of this data can be kept completely private.
Smart contracts might still be in their infancy as a technology, however, their use suits the insurance business like a glove.
Thanks to the increased transparency and the immutable nature of the blockchain, the trust issue between parties in the industry could soon become history.
Additionally, by automating tasks and reducing human interaction, the entire process can be sped up and fraud will become non-existent.
It is clear that blockchain can improve insurance claims in terms of accuracy, efficiency, and privacy.
Hopefully, companies will start adopting blockchain technology and begin to transform the industry as we know it.