Blockchain already revolutionized the way several organizations handle their logistics, identification, and data sharing. Even whole industries now value the benefits it brings to their processes.

The health industry, using blockchain, made it possible for a system wherein patients have control over their records in terms of privacy. Also, several countries used blockchain technology to provide proper identification to each of its citizens.

Blockchain has many uses, and integrating it into the insurance industry will create a significant impact for the better, especially in tackling the industry’s everyday problems.

What are the Insurance Industry’s Problems?

A common enemy of the insurance industry is fraud. According to the Coalition Against Insurance Fraud, fraud steals an estimated $80 billion a year. At the same time, the Federal Bureau of Investigation says fraud costs the average family living in the United States between $400 and $700 per year because of increased premiums.

On top of those statistics, information asymmetry also plays a huge role in the industry’s problems. Since one of the two parties involved in the purchase of the policy knows more than the other, the other party is left out in the dark. These situations often lead to one participant gaining more or taking advantage of the other. It is a fact that there are certain transactions that one person within the deal has a hidden agenda or ulterior motive.

How Blockchain can Help

Chainlink, a decentralized oracle service, released a study that predicts how blockchain can disrupt the insurance industry and how people handle insurance.

Here are the predictions:

1. By 2022, there will be new autonomous and semi-autonomous insurance products that consumers can get.
2. By 2025, there will be at least five decentralized autonomous organization (DAO)-style insurance cooperatives and/or non-custodial risk pools (Open Finance, aka DeFi). These will allow users to share risks with others as well as transfer the risk to capital markets.
3. By 2030, existing insurance products will include digital agreements, shifting from traditional to digital-first insurance contracts that promote security, transparency, privacy, and verification.

In insurance, there are two parties involved ⁠— the insurer and policyholder. One can be the perpetrator, and the other the victim. By using traditional contracts, certain loopholes lead to fraud and other crimes. But by integrating blockchain, a decentralized system, and smart contracts, security is enhanced, and tracking and faster verification are activated.

The advantages of Smart Contracts

1. Minimized cost; removes the need for intermediaries
2. Faster fraud detection
3. Activates automatic payments when certain conditions are met, such as when an accident happens
4. Gather detailed customer data in an instant
5. Accurate pricing

There is automatic execution with the presence of a smart contract, which is a digital contract powered by blockchain’s decentralized nature. In other words, a smart contract activates when certain conditions are met, making both parties benefit from the insurance transaction. Also, it protects both the policyholder and insurer of fraud, which, as said earlier, takes millions of dollars from people.