Discover how Smart Insurance Contracts will revolutionise claims
Smart contracts are a blockchain-based technology that will revolutionise insurance payouts. Instead of traditional payouts whereby the customer makes an insurance claim, and the insurer manually verifies and approves the request – which can be resource intensive process: smart contracts payout automatically removing the need for insurer verification. The use of blockchain technology guarantees a reliable, tamper-proof method that can be trusted by both the insurer and the insured.
What are smart contracts and how to they work
A smart contract is an agreement between two people in the form of computer code. They run on the blockchain, so they are stored on public databases and cannot be changed without agreement from two or more parties. The transactions that happen in a smart contract are processed by the blockchain, which means they can be sent automatically without a third party such as the insurance firm.
What do smart contracts mean for insurers?
The effect will be felt most in the claims department, as much of the workload around insurance claim processing will be automated. This can bring considerable cost savings and makes the insurance process more scalable. You can learn more about insurance process automation here.
The use of blockchain makes the insurance process more transparent, secure, and self-executing, which improve the trust and reputation of the insurer.
Clearly smart contracts can only work where their is a trusted third party database that can be accessed through by the insurer to verify the claim.
Trains and planes
Ergo and AXA both launched smart contracts that compensate airline passengers automatically for flight delays of more than two hours.
The traveller can buys flight delay insurance, adding their flight and ticket number, consenting the insurer to verify their booking. All data are stored in a tamper-proof blockchain network. The insurance contract contained in the blockchain network is equally tamper-proof and operates as a smart contract.
The platform is connected to global air traffic databases. A flight delay of over 2 hours automatically triggers the compensation agreed in the contract and payment is made immediately to the insured’s bank account.
Meteorological events and natural disasters
Meteorological office data such as the Uk Met office data API, can be used to verify flooding at a particular address, hailstone damage to cars, wind speed, earthquake or volcanic eruptions.
This can be used to verify claims on insurance policies with a clause that is triggered by the parameters of a meteorological event or natural disaster parameters – where the connection of the loss to an event, rather than the actual loss of the policyholder, triggers the smart contract.
Personal health records could be coded and stored on the blockchain with a private key that grants access to the insurance provider. Receipts for surgery, treatment and pharmaceutical products could be stored on blockchain and automatically sent to the insurer as proof.
The future of smart contracts
The potential for contract automation in insurance is clear. They have a substantial impact on underwriting, claims processing and payouts. They offer a real opportunity to move towards a 100% automated insurance contract.