The world of blockchain and cryptocurrency keeps getting better as new use cases for both technologies are discovered. It is interesting to note that since the inception of the blockchain technology, blockchain developers have sought ways to improve on the system and make it better, and one of the success they have recorded is in the implementation of smart contracts. The advent of smart contracts has brought some form of assurance to transactions on the blockchain network.
What is a Smart Contract?
Blockchain is a decentralized distributed ledger technology with lots of unique features that have the ability to bring some solutions to the problems plaguing the centralized systems. The creation of blockchain paved the way for the actualization of concepts and ideas that needed an underlying technology to propagate their functionalities. One of those ideas that needed a platform to function was the smart contract.
A smart contract development differs from the traditional contract with the way it functions. In the real world, when sealing a contract between two parties, a lot of intermediaries are involved in the whole process, plus there are several legalities attached to it, hence, there is the need for lawyers to get involved, which will attract more costs. There are different middlemen involved in the whole process, and having middlemen to deal with it would attract more costs, more paperwork, which will invariably cause delays in the whole process.
Smart contracts were created to bypass the need for intermediaries via computer algorithms. The aim of smart contracts is to bring support and conclusion to the part of implementation of contracts with the aid of the blockchain technology. Usually, the terms of the contracts are unambiguously interpreted by the system, because the implementation is done by the system.
One thing about the insurance industry is the fact that it has great influence on business security, and the global economy. When a business owner begins a business, it is usually at the risk of their capital, hence, it is imperative that they minimize risks, and that involves reducing the risks as well as managing it. Hence, it is imperative that the right insurance policy is in place. There are different types of insurance that the business owner can pick from in order to have the businesses protected against different types of dangers including interruption, fire, accidents, and also to insure workers’ compensation, product liability, property, professional liability, etc. Furthermore, it is a requirement of the law that businesses that have employees get insured, however, it is dependent on the location of the business, as there are different policies involved in the protection of different types of businesses.
There are no doubts about the importance of insurance for businesses, as the insurance policies function as a form of protection from unforeseen dangers. Even though the insurance companies are doing a good job of insuring businesses, it is important to note that there are still some flaws within the industry, and these flaws border on transparency and the lack of it, and that is one of the things that smart contracts can deal with.
Smart Contracts and Insurance
The rate at which blockchain is being adopted in different industries is indicative of the fact that the technology has some amazing benefits, and the insurance industry is one place where the technology will perform very well. With the aid of smart contracts, the insurance industry can enter into a whole new phase of development, and this is because the blockchain technology has the features needed to bring more efficiency to the industry, as well as solve some inherent problems.
Some of the problems include inefficient sharing of data, manual claim review, ineffective customer interaction, fraud, etc. Fraud is one very vital part of the insurance industry that needs to be looked into, and one reason why the problem has lingered for a while, is due to the fact that records can be accessed, altered, and manipulated to suit the bad actors. The absence of transparency also makes it easy for fraudulent and illicit activities to take place within the industry.
One of the most effective ways to combat the issue of fraud and other irregularities within the insurance industry is via the implementation and facilitation of blockchain smart contracts. Here are seven reasons why businesses need to integrate smart contracts into their operations:
The lack of transparency in the system has made it easy for fraudulent practices to thrive in the insurance industry, and with the integration of blockchain smart contracts, there is immutability and transparency, and thus it makes it impossible for the records to be altered, furthermore, everybody will be able to see what’s happening on the blockchain network.
Policy Documents Protection and Storage
As earlier stated, the integration of blockchain provides immutability, and because the blockchain is cryptographic by default, it has a heightened security system that makes it impossible for anyone to alter or manipulate the policy documents. Furthermore, the documents will get stored on different ledgers to reduce the risks of losing them.
Verification of Claims
With the aid of the blockchain for smart contracts, it becomes easy to create a system that will effectively verify and deal with claims in a timely manner, because every middleman that should be involved is taken off the system, and thus there are no delays in the process.
Centralization has been the problem of different systems in various industries and sectors, as handling the power of the network to a central authority means the decisions about the functionality of the system will be the responsibility of the central authority, regardless of whether the decisions favor the customers. By integrating blockchain smart contracts, administrative barriers of the network get removed.
We cannot overemphasize the importance of data in any industry. Hence, it is important to ensure that the quality of data is topnotch when underwriting, and the blockchain smart contract can help to achieve that.
The fact that there are no intermediaries, is indicative of the fact that integrating smart contracts into the insurance industry is a good way to save some money, because there will be no need to get lawyers that will see to the contract’s execution.
With the smart contract’s automation, it handles the problem of human errors, and thus reduces the errors within the process.
Insurance is important, and getting it right is the best for both the client, the insurance company and the insurance industry as a whole.