Smart Contracts and Crypto: Navigating Blockchain’s Transformative Impact on Underwriting
The reinsurance industry has made great strides over the decades to provide protection and peace of mind to customers. Though processes are still heavily reliant on traditional paperwork, human underwriting, and manual claims, they have served insurers and policyholders well so far.
As technology continues to evolve, emerging innovations like blockchain and cryptocurrencies have the potential to build on the insurance industry’s accomplishments to date. Let’s explore how these new tools can carry the torch forward.
Enhancing Trust with Blockchain Transparency
A blockchain is a decentralized, distributed digital ledger that records transactions in a verifiable and permanent way. It is made up of “blocks” of data linked together securely using cryptography (advanced math). As new transactions occur, new blocks are added to the chain in a linear, chronological order.
The ledger is distributed across a network of computers, so many parties can verify transactions. This makes tampering virtually impossible without detection. Blockchains enable transparency, security, and immutability.
Insurance companies have worked hard to build trust with customers, despite the “black box” nature of back-end processes. Blockchain ledgers offer an opportunity to further demystify the inner workings of insurance.
Customers could transparently trace their premiums as they flow into pooled funds, follow claims step-by-step as they are verified and paid out, and confirm policies are backed by adequate reserves. Regulators could also independently audit insurer solvency.
Rather than disrupting insurance, blockchain allows trust to be enhanced between insurers and policyholders by revealing information previously obscured.
Optimizing Processes with Smart Contract Automation
Insurers have honed workflows around tasks like premium collection, claims adjustment, and contract administration over many years. Smart contracts can optimize these processes further with automation, transparency, and immutability.
For instance, a smart contract could instantly collect monthly premiums in cryptocurrency based on predetermined rules. Triggers like flight delays and medical events could automatically execute payouts per policy terms. Contracts become active on-chain programs rather than static paperwork.
Building on insurers’ process excellence, smart contracts allow for cost savings and an improved customer experience.
Introducing New Crypto-Enabled Offerings
Cryptocurrencies are digital forms of money secured using cryptography. Bitcoin is the most well-known example. The balances and transactions of a cryptocurrency are recorded on a blockchain.
Unlike fiat money like the US dollar, cryptocurrencies are decentralized — no single institution or government controls them. Owners use digital wallets and cryptographic keys to send and receive cryptocurrency payments.
While improving existing products is important, entirely new crypto-based insurance models like peer-to-peer coverage, parametric policies, and digital asset protection are also emerging.
These demonstrate how crypto-networks enable insurance alternatives to be created from the ground up. However, new offerings would be complementary rather than in competition with incumbent insurers’ products.
The Future of Insurance is Collaborative
In summary, blockchain and crypto have vast potential to move the insurance industry forward in collaboration with rather than in disruption of traditional players. Customer trust, operational efficiency, and product innovation can all be elevated.
By embracing change, insurers can build on their proudest achievements to date and ensure they continue to protect customers for decades to come. The future is bright for incumbent and emerging insurers alike.
