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Smart Contract Applications in the Insurance Industry

The insurance market is a top influencer within the whole global economy. Businesses, ordinary citizens, healthcare firms, and even government institutions all need varieties of insurance. But despite the substantial size of the market, the current insurance structure is bulky and lacks rapport between parties and stakeholders. Building smart contracts for insurance instead of drafting inconvenient paper agreements can change this situation.

Blockchain smart contracts in insurance can significantly reduce fraud

Technological disruption is prompting every insurance company to take action and find out how to make smart contracts work for them. The benefits of using smart contracts in the insurance industry are substantial.

Less fraud through transparency. This particular advantage of smart contracts in insurance is possible because of the decentralized and open nature of blockchains. With no owner, anyone can see any transaction logged in a blockchain database. If any changes to insurance smart contracts are made, all parties will see it and no inconsistencies will be missed.

Task automation. With the blockchain, all smart contract-related processes are automated and rendered securely. Eliminating the need for mediators and human input is the key benefit of using smart contract insurance. This lessens the risk of manipulation by third-party participants. Moreover, applied for smart contracts insurance, blockchain allows companies to review their procedures and processes in a more transparent and convenient way.

Save time on verifying claims. Blockchain smart contracts in insurance completely replace the claims process. No other documents are needed: only predefined rules to settle claims. Faster processes, increased efficiency, and lower costs — nothing but benefits for insurers.

Protect policy documents. Insurers can store policy documents on numerous ledgers, making it virtually impossible to lose them. Thanks to their technical characteristics, smart contracts prevent data loss and damage.

Risk assessment. Blockchains let insurance companies include state-of-the-art risk assessment models into their smart contracts. This logic relies on a blockchain-based ID system. IDs are instantly verified and supplemented with new data, eliminating the time-consuming stages of traditional identity verification. A smart contract reads all information related to an individual and automatically assesses risks, saving time and effort on data collection and verification.

Development phases of a smart contract explained for insurance companies

How to Make a Smart Contract Work for the Insurance Industry

Building a smart contract is a bit intimidating for the majority of insurance organizations. And for good reason. But if insurers are planning to create advanced customer-centric products, they should know what to expect from smart contract development. Without diving into complex technical matters, the following development phases will help you get a general overview of how to make a smart contract.

Designing a token. For creating smart contracts, the Ethereum network allows users to develop their own tokens to execute specific functions. The trick here is to properly determine what functions to execute and what business logic to include.

Implementing the smart contract. Ethereum provides a virtual environment called the Ethereum Virtual Machine. Ethereum smart contracts are built using the Solidity programming language, an object contract-oriented, high-level language specially designed for implementing smart contracts.

Testing. Smart contracts should be deployed to the blockchain network to run. But this may cause certain difficulties with testing. Autotests are a good solution. By emulating a real environment, autotests verify that a smart contract works as expected.

Acceptance and review. Even though there are no actual verification standards for smart contracts, there are special environments for developers to verify their smart insurance code and logic. An honest review and acceptance process should cover cost-effectiveness, including many reviewers and providing visibility of results.

Deployment. Now it’s time to deploy the smart contract to the Ethereum blockchain so that everyone can use it. There are specific tools to speed up deployment, but in general, engineers have to submit contract code to the blockchain where the transaction will wait to be mined. After it’s mined, the contract is considered deployed.

Support. An insurance company that operates blockchain technology should have their own or outsourced resources to maintain the infrastructure of their smart contracts.

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