At Inmediate we have made considerable progress over the past months in developing and testing “smart insurance” and continue to be enthusiastic about the fantastic possibilities that blockchain offers to the insurance industry.
Blockchain will not only open up new types of coverage and revenues, but also has the potential to significantly reduce costs, increase speed, reduce fraud and make insurance accessible for a much bigger part of the population.
In our pursuits a question that keeps coming up is why we need blockchain rather than using existing technology and centralised databases. To answer this question we would have collected our thoughts and provide a few pointers why blockchain is in our view the only way to go.
An insurance policy is essentially a contract. Often a somewhat vague one which leads to uncertainty, disputes and costs. Blockchain brings us a new functionality; web based smart, self-executing, self-enforcing contracts. Once deployed on the internet they are governed by the explicit terms and conditions laid out within them and can facilitate many types of transactions including insurance; coded contracts. The need for accuracy in detailing the contract results in everything in the contract being explicit. Contrary to traditional contracts there can be no room for miscommunication or misinterpretation.
The self-executing nature of these contracts provides a tremendous opportunity for use with insurance policies that rely on data to trigger pay-outs and possess many advantages over traditional arrangements which are only likely to increase further as the technology and availability of reliable data improves.
Smart contracts by design record all terms and conditions in explicit detail. This is an implicit requirement because an omission could result in transaction errors and will prevent the contract from being deployed. As a result, automated contracts avoid the pitfalls of manual contracts. The terms and conditions of these contracts are fully visible and accessible to all relevant parties. There is no way to dispute them once the contract is established. This facilitates total transparency of the transaction to all concerned parties.
Smart contracts run on software code and live on the blockchain. As a result, they can execute transactions directly and without the need for manual inputs, validations, clearing or other delaying factors (and remove the need for vast reams of paper, lawyers, witnesses, banks and other intermediaries).
Smart contracts use the highest level of data encryption currently available, which is the same standard that modern crypto-currencies use. This level of protection puts them amongst the most secure items on the internet. Blockchain records essential details in each transaction. Therefore, anytime details are used in a contract, they are permanently stored for future records. In the event of data loss, these attributes are easily retrievable.
By using a self-executing contract, parties commit themselves to bind by the rules and determinations of the underlying code. Contracts can be complex and may need many variables. Smart contracts allow the composer to set/code as many different rules on a transactional level as required and those rules can be different in every contract. This allows for tailor made contracts for every transaction, something that is currently difficult to achieve.
Smart contracts generate absolute confidence in their execution. The transparent, autonomous, and secure nature of the agreement removes any possibility of manipulation, bias, or error. Once completed, the contract is executed automatically by the network. Insurance stands to benefit hugely from adopting this technology since this industry requires a system of clear rules, algorithms, and quantifiable terms of engagement.
In years to come anything of any value is going to be on blockchain. Because blockchain is secure, decentralised, encrypted, cost efficient, private and trusted, any asset, any record, any movement, any event, you mention it, will all be on the blockchain. This means that it will be easy for insurance smart contracts to interact with them. Every item on the blockchain can securely communicate with a smart contract and hence be insured or a supporting part of the smart insurance contract.
While the application of technology to improve business processes is nothing new, previous generations of technology were predominantly about the faster and more secure exchange of information; that is, they were aimed at delivering the same objectives faster. Blockchain, meanwhile, is about the exchange of value; it is intended to enable individuals to exchange currency and other assets with one another without relying on a third party to manage the transactions. It also implies the dramatic redefinition of the business processes associated within and between companies.
The transparency of blockchain is a welcome bonus. It means that anyone in real time can see what the status of transactions, liabilities, assets and contracts is. Including the regulator, who in the case of insurance is obliged to monitor many parameters of which capital adequacy is an important one. Regulators can be given their own regulatory nodes on a smart insurance eco system like “Inmediate” and monitor real time or even set boundaries for insurers to operate within.
At Inmediate we are building an eco system that facilitates blockchain based smart insurance contracts. We provide insurers the tech toolkit to build and deploy smart contract insurance and operate the eco system that allows the contracts to be deployed, sold, monitored and executed.
The combination of smart contracts and the expectation that the availability of blockchain based data will explode make a fantastic business case for smart insurance. Yes, many issues are still to be addressed and resolved, but the fundamentals are clear and the rest is in our view just a matter of time.