Smart contracts or intelligent contracts are the product of the application of Blockchain technology to protect information, generate transparency and resolve contingencies between signatories. This faculty makes them attractive for the insurance offer since they facilitate the relationship between insurers and their policyholders.
Blockchain, as a technology, improves some problems of current information processing and storage architectures. It is an improvement to the historical needs of seeking a decentralized, scalable, secure process with the possibility of sharing information. This technology allows information to be shared safely, safeguard it with a high level of protection and create a new line of business outside of traditional systems, applying smart contracts. The insurance industry is one of the sectors that could benefit the most from this disruptive technology, as explained by the specialist firm in digital transformation Kopernicus Tech.
Three use cases for smart contracts
Improve the customer experience
Smart contracts are written in virtual language and have the power to execute and enforce themselves, autonomously, based on previously programmed parameters. Hand in hand with Blockchain technology, its appeal is that generate security, transparency and trust among the signatoriesavoiding misunderstandings, falsifications or alterations and dispensing with intermediaries.
Specifically in relation to insurance, these technologies can be used to increase the speed of claims claimsone of the most critical processes in the industry and on which the image and costs of said event have a negative impact on a company.
Likewise, these types of tools can help reduce costs and errors associated with manual third-party claims processing, for example, in the payment of a claim it is done automatically through the activation of a rule in one of the smart contracts. It would also be possible to apply these technologies to solve the payment of a repair of an accident, which would be conditioned to the vehicle being repaired in a certain workshop, with a defined cost, among other variables.
“The most complex use cases lead us to imagine the use of electronic devices to manage or capture information in real time about insurable assets. For example, heat, smoke, and operation controllers could be used to monitor high-value machinery. The use of smart contracts could read this data and trigger alerts in a preventive way, benefiting both users and companies”, explained Gastón Ramos, a partner at Kopernicus Tech.
Likewise, smart contracts allow a company to obtain protection that, in the event of non-payment, or in the event of conditions that are not met, it is not executed. Namely, there are benefits for both parties. This can especially apply to claims payments that are simple. An example may be the payment of a glass or the replacement of an appliance.
Premium calculation, risk assessment and fraud prevention
A smart contract could read all the information linked to a person and automatically calculate the premium and perform a risk assessmentdepending on physical health, driving behaviour, etc.
In this scenario, the Blockchain would be used to allow multiple certified intermediaries register information related to a person or an asset. Such intermediaries could be insurance companies seeking, for example, to record past claims; security agencies that want to store criminal acts; medical personnel who can record injuries and treatments of a person, among other cases.
“We are convinced that another application scenario is represented by fraud prevention. In this scenario, a smart contract could analyze the collected data and identify fraud during claims processing. Specifically, data related to the previous experiences and evidence of a person could be crossed”, commented Andres Tauscher, Blockchain specialist consultant at the company.
Payment for use and Microinsurance
Payments based on smart contracts could enable new sources of revenue such as microinsurance and pay-per-use insurance. Although microinsurance has been threatened by costs in the past, the exploitation of this type of contract could allow the subscription of fast and cheap policies. Possibly, in combination with IoT solutions for automatic underwriting, microinsurance on low-cost goods is an opportunity for companies to access new objects that can be insured.
“Consider that GPS data could be used to automatically charge a travel premium only if the customer is abroad, a car premium only when the car is in motion, etc..”, exemplified Ramos, who adds that “pay-per-use mechanisms could be exploited in services such as Uber or Airbnb, where insurance coverage would be activated for the time of a trip or a stay in accommodation. These tailor-made insurance possibilities are possible thanks to smart contracts and the Blockchain”.
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
It may interest you:
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the full amount invested may be lost. The services or products offered are not aimed at or accessible to investors in Spain.