Many industries are adopting this new technology, including insurance companies and firms that provide them with services. One of the most important ways blockchain may enhance insurance is through smart contracts. Historically, handling claims involves a lot of paperwork, time-consuming activities, and expensive workouts, often leading to amplified risks of fraudulence and human errors. However, with blockchain and smart contracts, activities can be more transparent, efficient, and trustworthy.
Understanding Smart Contracts in Insurance
These contracts apply when conditions are met and do not require further manual intervention. Regarding insurance, these smart contracts may be programmed to enable the immediate processing of claims, whereby a claim will be automatically verified and approved.
For example, if there were a smart contract for Travel Insurance, it could pay an upcoming claim each time a flight is delayed by a certain number of hours. The smart contract could verify the delay from the database, such as the airline, and proceed to pay the policyholder. This process would be significantly less time-consuming than the usual claim process.
Improving Transparency and Trust
This attribute shows that all contracts and transactions on the chain are protected and will be retained in the distributed database, which will be viewable by all parties involved. From the perspective of insurers and policyholders, this entails a level of transparency and trustworthiness that was hardly possible. All the claims and payouts are recorded under the encrypted blockchain system, so there is no question mark about the transparency of the record.
Smart contracts minimize fraud by ensuring that the programs are only triggered by the fulfillment of certain conditions, and then the checks are made to determine authenticity. This means that fraudulent cases do not get through to be paid, thus serving the insurer's interest and maintaining the credibility of the claim department.
Improving Efficiency and Reducing Costs
The most crucial benefit of adopting smart contracts in claims processing is reducing time wastage. Manual claims processing involves linked checks, data entry, and associated back-and-forth communications. With smart contracts, the execution of that process becomes automated, saving much time for handling a claim. It replaces days or even weeks of waiting for the approval of the claims, and policyholders can get their pay out within minutes or hours if the conditions of the contract are fulfilled.
Also, since smart contracts rely on fewer human interactions, expenses, and errors are minimized. Claims costs are reduced, which allows insurance firms to devote more cash to bonuses and premiums. Lower administrative expenses are good for policyholders because insurance companies can then offer better rates through lower prices or better coverage.
Real-World Applications of Blockchain in Insurance
Today, many insurance companies are trying to pilot the use of blockchain smart contracts. For instance, in crop insurance, smart contacts can be linked to weather data providers. If certain requirements like drought or excessive rain, which are important to farmers, are realized, the contract automatically computes the amount required to be paid to the farmers. Likewise, in health insurance, smart contracts can securely authenticate medical procedures with healthcare service providers and fund them without delay, appreciably affecting patients and insurers.
