Smart contracts or blockchain-based insurance contracts are disrupting the insurance industry. Smart contracts are grabbing attention these days as a safer, faster, and less expensive method to provide cover compared to conventional systems.
Smart contracts are data-driven and transparent and are comparable to parametric insurance.
Tech giants and insurtech newcomers have started leveraging smart contract solutions to produce new services and products.
Smart contracts offer several advantages; they are tamper-proof, safe, and transparent. Smart contracts can also be part of the blockchain or settled on the blockchain. The payouts will only be occurring once some pre-agreed parameters are met.
Besides, smart contracts are less expensive than conventional ones, and the hassles of the third party are not involved. Consequently, administrative costs are less compared to traditional methods.
It is also possible to track insurance claims, and both parties are held responsible. It is the safest method to store critical data and other information.
Smart contracts are not completely free from security breaches. Yet, they are the most secure option available currently to store data.
Besides, smart contracts are the best when it comes to
- Streamlining the exchange of information and payments between reinsurers and insurers
- Make the process of client onboarding more straightforward, and
- Bring in automation to the claims-handling process
Yet, the smart contracts are to go beyond the ‘newcomer’ phase. Adoption is still in its nascent stages.
The insurance industry has always been comparatively slower when it comes to adapting to new technologies.
“Right now, very few products are available, and smart contracts remain fairly limited in the types of events and contingencies they can address. With sizeable challenges ahead (particularly around data protection, regulation, privacy, and legacy infrastructure), there’s much work to be done for smart contracts to truly scale,” says Sibylle Fischer, director of Strategic Venturing, Baloise Group, a Basel-headquartered insurance group.