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Blockchain Smart Contracts in Insurance | Advantages and Applications

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oodles blockchain

The insurance industry is one of the key influencers within the global economy. Various entities like businesses, citizens, healthcare organizations, and governments require a variety of insurance services. However, the current insurance system is complex due to the substantial size of the market and the involvement of multiple intermediaries. It lacks coordination and interoperability of data between parties and stakeholders. Here, smart contract development can prove more convenient and efficient than drafting inconvenient paper agreements.

Blockchain-powered Smart Contracts

A smart contract refers to a self-executing digital business contract that envelops terms of the agreement between a buyer and a seller. It is directly written into lines of code on a blockchain platform like Ethereum. The code and the agreements of a smart contract exist across a shared, decentralized blockchain network, either permissioned or private. The smart contract code manages the execution of transactions while blockchain makes them trackable and irreversible.

Smart contracts validate and execute transactions and agreements among disparate, anonymous parties without a central authority, legal system, or external enforcement mechanism.

Workings of a Smart Contract

For instance, we have Alice who wishes to sell her car to ‘Bob’ in exchange for payment in cash. They code a smart contract on Ethereum blockchain, stating –“WHEN Bob pays $20,000 to Alice, THEN she will automatically receive the ownership of the car”.

As the smart contract agreement exists in a blockchain environment, nobody can change it. significantly, Bob need not worry that Alice might suddenly demand more money. Besides, she need not pay any additional charges to third-party companies like banks, a lawyer, or a car broker to prove that Bob has received the payment. Essentially, when the two or more transacting parties fulfill the mentioned contract terms, a smart contract executes automatically to enable and settle a transaction.

Now, let us take a look at a few advantages that a smart contract for the insurance industry can provide.

Blockchain Smart Contracts in Insurance | Advantages

Smart contracts possess multiple advantages over traditional contract arrangements. Due to the rapid development of technology, the mentioned number can likely increase in the future.

Accuracy

As its primary requirement, a smart contract requires recording of all terms and conditions in explicit detail. It is a key requirement because an omission may lead to errors in transactions. Hence, automated contracts enable insurance companies to avoid the pitfalls of manual filling of policy contracts.

Transparency

As the terms and conditions of an insurance contract are coded on a blockchain platform, they become completely visible and accessible to all relevant parties. The parties in a contract cannot dispute them once established, thus facilitating complete transparency of transactions and contract terms across all concerned parties.

Efficient communication

Accurate mention of the contract and policy terms results in everything being explicit. It leaves no room for miscommunication or misinterpretation. Therefore, smart contracts drastically reduce efficiency lost to gaps in communication, despite parties’ physical locations.

Time-saving

These contracts run on the blockchain and essentially exist on the internet. Consequently, they can carry out transactions with significant speed. The speed leads to saving hours spent in many traditional insurance processes. It eliminates the need to process documents manually.

Security

Automated contracts leverage the use of the highest level of data encryption and blockchain’s feature-rich security characteristics. The advanced level of protection makes them secure and efficient for business use cases requiring efficiency with strengthened security.

Dispute free

In each transaction, these contracts record essential details. So, whenever insurance details are used in a contract, they are stored permanently for future records. Those attributes are easily retrievable in the event of data loss or dispute of a claim.

Outcome-based

Another appealing aspect of such arrangements may be the ability to greatly minimize or even remove the need for lawsuits and court hearings.

By using a contract of self-execution, parties undertake to bind by the rules and determinations of the underlying code.

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