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How can blockchain’s smart contract improve the insurance industry?

Image by Steve Buissinne from Pixabay

Mon, 16 Mar 2020, 05:48 am UTC

Blockchain can make a significant change in the insurance industry.

Decentralized oracle service Chainlink shared how blockchain can revolutionize the way insurance is handled today. Based on its research study, the combination of distributed ledgers, smart contracts, and decentralized oracles offers an upgrade to the traditional insurance that both benefit the insurance companies and policyholders.

The new form of digital insurance products will provide new risk transfer products to currently uninsured populations and unlock the participation of less sophisticated users in the mass adoption of crypto native products and services.

The study predicted that autonomous and semi-autonomous insurance will be available by 2022. By 2025, there will be at least five decentralized autonomous organization (DAO)-style insurance cooperatives and/or non-custodial risk pools (Open Finance aka DeFi). By 3030, there will be re-platforming of existing insurance products with digital agreements in use.

Traditional insurance will be upgraded and will use digital-first insurance contracts that offer unprecedented privacy, transparency, and verification. It will also replace the centrally automated digital insurance contracts which eliminates single points of failures and reduces direct and indirect compliance and regulation costs. This will also result in lower insurance premiums, which make it more affordable for those who have no insurance plans yet.

Insurance companies constantly encounter fraudulent claims. The insurance industry spends a considerable amount to fight fraud that’s why policy premiums are often expensive because it has to cover what’s spent for administrative cost, underwriting procedures, claims processing and dispute resolution.

Blockchain’s smart contracts can bridge the trust gap between policyholders and insurance companies.

“Smart contracts are digital contracts that run on decentralized infrastructure with automated execution based on if/then parameters, such as ‘If x happens, execute y.’ They replace the claims processing portion of traditional insurance agreements with high-trust, transparent, and tamperproof data-driven policy arbitration that neither side can exploit or manipulate,” the article read.

It also offers connectivity and confidentiality. Smart contracts can be used to develop revolutionary new insurance products like micro-insurance, peer-to-peer insurance, and decentralized autonomous insurance pools and more.

Meanwhile, blockchain can also help the transportation industry. It can help verify an automobile’s history, supply chain tracking, increase automation and improve ride-sharing. It can also drive more opportunities and decrease the individual costs for mobility.

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