Experts believe that blockchain technology is the sign of the fourth industrial revolution. Its ability to increase data security and offer cost-effective business solutions has created headlines in every industry. The insurance sector has particularly benefited because of blockchain development services, especially after the advent of “smart contracts”.
Importance of blockchain in the insurance sector
From electronic cash to physical assets, blockchain can record anything. This is one reason why the blockchain technology is prospering in the insurance sector. In addition to enabling the recording of electronic cash, it also allows disruptive and innovative changes to this business model. Some of the reasons why the insurance sector will benefit from blockchain technology are:
- Minimizes the chances of fraud.
- The system helps streamline complicated claims allowing the insurance companies to provide a quick turnaround time to the clients.
- Reduces the need for paperwork.
- Improves efficiency of the insurance value chain by creating systems where claims are automatically paid.
- Improves data quality when underwriting is used.
Benefits of using smart contracts in insurance
An insurance company must go through multiple processes including an insurance contract to secure a claim. Some of these processes also involve investigating a fraudulent claim, deciding a premium on a valid claim, and rating a client. But with the introduction of blockchain technology, experts think that the entire system will be streamlined, and insurers will be able to deal with clients better. This will alter business operations and insurer value propositions completely.
The insurance industry is reliant on client data. With blockchain in action, it will allow insurers to collect transaction-related data through a smart contract. This smart contract will execute, facilitate, and enforce the performance and negotiation of an agreement or the contract using blockchain. Since this will be an automated process, it will not only save time but also act as an alternative to legal contracts.
Another reason why the smart contract will benefit the insurance sector is that its digital efficiency will allow insurance companies to confirm information before completing any transaction.
Insurance contracts are often tough and complicated to understand. The legal terminologies are too challenging for the common man to decipher. In such a situation, consumer-friendly regulations are imminent and smart contracts may achieve that feat by managing claims in a transparent yet responsive way. For example, the claims and insurance policy contracts can be recorded on a dedicated blockchain of the company and later approved by the validating party. This ensures that the company pays for only valid claims as the invalid ones are automatically rejected.
The American International Group recently implemented the smart contract concept to manage its complex international coverage. For now, it has worked wonders. Even Everledger, one of the best companies involved in tracking and protecting diamonds is using blockchain to provide the traders, financiers, insurance companies, claimants, law enforcers, and consumers the history of a diamond’s authenticity, ownership, and existence.
This pattern will soon spread across other industries, but it is satisfying to see how the insurance sector has embraced the technology and made the most of this opportunity to digitalize their contracts.