The Value Of Blockchain And Smart Contracts In The Insurance Industry
Blockchain technology is heralded as the biggest symbol of the fourth industrial revolution and the next big disruptor for many industries, including insurance. While still in its infancy, this ‘business unusual’ technology can streamline paperwork, increase data security and save businesses costs by cutting out time-consuming claims processes. We look at all the ways in which blockchain technology will benefit you — especially so-called ‘smart contracts’.
What really is a blockchain?
Think of a blockchain as a sales ledger — a comprehensive, always up-to-date accounting record of who holds what or who transferred what to whom. This sales ledger is a secure decentralized database that’s publicly available. Blockchain can record anything, from physical assets to electronic cash.
When a digital transaction is carried out, it is grouped together in a cryptographically protected block with other transactions that have occurred and sent out to an entire network. Based on their role, members in the network are able to verify the transaction.
After their verification, the validated block of transactions is then time-stamped and added to the chain in a linear, chronological order. New blocks of validated transactions are linked to older blocks, making a chain of blocks that show every transaction made in the history of that blockchain. The entire chain is continually updated so that every database in the network is the same, giving each member the ability to establish securely who has changed what at any given time.
How blockchain will benefit the insurance industry
Just like blockchain has enabled the recording of electronic cash (in the case of Bitcoin), it can also enable innovative and disruptive changes to the insurance business model. A few things that blockchain technology can influence include:
- Alleviating paperwork
- Developing a system where some claims can be verified and handled very quickly
- Minimizing fraud
- Improving the quality of data used during the underwriting
- Generally improve efficiency across the insurance value chain, e.g. creating processes where claims can be paid out automatically.
Understanding the so-called ‘smart contract’
On a daily basis, a typical insurance business deals with a number of processes involving an insurance contract. This can be anything from rating a client and deciding on a premium to paying a valid claim and investigating a fraudulent one. Industry insiders have speculated that the blockchain technology will change the way insurers deal with clients, thereby altering insurer value propositions and business operations completely.
So much of the insurance industry’s transformation is going to rely on data, and blockchain may well end up enabling all or most data-related transactions for an insurer through the so-called smart contract. A smart contract can facilitate, execute, and enforce the negotiation or performance of an agreement (i.e. insurance contract) using a blockchain. This process is automated and can act as a complement or substitute for legal contracts.
Since the contract is digitally enabled, it can enable efficiency in the insurance value chain wherever time, effort or money is spent to confirm information before processing transactions. Insurance contracts are typically complex and difficult to understand because of the legal language used. In an industry facing consumer-friendly regulations such as Treating Customers Fairly, smart contracts may well lead to the management of claims in a highly transparent and responsive way. For example, insurance contracts (policies) and claims could be recorded onto a blockchain and validated by an approved party, ensuring that only valid claims are paid.
The Inmediate example
The ‘smart contract’ concept has been introduced by many companies and startups already, and this includes us here at Inmediate. Using blockchain, We will provide the Insurance industry with that ecosystem where Smart Contract Insurance can be transacted at lightning speed, full clarity, and at much lower costs than ever imagined.