The Evolution Of Insurance: Smart Contracts And Blockchain Technology Adoption
If we are about to go back to the olden times, we can trace that insurance companies have been in existence since the 1600s, with the first concept of modern insurance emerging within the property market, triggered mainly through fires which had destroyed thousands of houses — yet various compliance challenges within the insurance industries are still largely felt till this day.
Claim and settlement processes is probably one of the main challenges, with claims filed by insurers required to go through an arduous form-filling process — the purchase of insurance policies also entails a similar procedure, most of which will be processed on paper format which means that policy purchases and policy claims and settlements are prone to human error.
This, in turn, requires human supervision to ensure the elimination of errors, all well and good unless time and money was not incremented to these services, at the expense of the customer.
Now in the modern age, enters blockchain technology, a means for recording all the required information in a cryptographically secured, shared record-keeping database, which allows non-trusted intermediaries, with a potential conflict of interest to collaborate together and agree on the validity of a transaction without the need of having parties involved to oversee the process.
The potential solution which blockchain may offer is in the elimination of having the insured party place trust in the insurance company in paying out claims. Customers often find themselves in a weaker position as they may not always be fully knowledgeable on the policies at hand and often feel frustrated with the payout process.
One of the ways in which blockchain technology can be used to disrupt the insurance industry is through the implementation of immutable smart contracts used to automatically settle claims and effect payments and/or refunds to the insured party upon the happening of certain events. Smart contracts are essentially ones which are translated into code, which code self-enforces the contract agreed upon between the parties, and once embedded is irrevocable.
A practical example which can be applied to smart contracts is within the travel insurance sector. Flight delays or flight cancellation are unfortunately a reality which burden passengers with loss of time and costs — the process to initiate a claim for payment or compensation for flight delays or cancellation can at times take months to settle. More so if a number of intermediaries or airline operators are involved in the process, booking flights through one agency and having a connecting flight booked with another airline creates an even more complicated process for settlement of claims. The efficiency associated with smart contracts is that there is the potential to eliminate such delays in the process for requesting a claim with an insurance company and having that claim vetted and settlement finally paid. Also, the benefit being improved in speed and decrease in administrative costs through a self-executing smart contract is also there.
In conclusion, the potential for blockchain technology to disrupt the way the insurance industry operates mainly through the enforcement of smart contracts which provides transparency and efficiency within the administration and settlement of claims, including also the manner in which data is processed, is quite intriguing for some. But for the industry to experience adoption and implementation of blockchain technology, investment in research and development, trust, and human resources are all necessary. And understanding whether there are conditions under which blockchain may provide a beneficial solution to a business model is crucial.