Cryptocurrency made blockchain popular stated Bahaa Abdul Hussein. Today businesses have realized the benefits of blockchain for smart contracts. As a result, the technology is being used in different industries, including insurance. It is an innovation that benefits all stakeholders in the process.
What are Smart Contracts?
Smart contracts are contracts that are powered by blockchain technology. It ensures payout happens when certain pre-defined conditions are met. These smart contracts are available in a decentralized space. They are driven by data, transparent, secure, and cannot be tampered. A key benefit is that they are cheaper than the traditional processes insurance companies follow. As a result, costs are reduced, and it can lead to reduced premiums.
How blockchain-based smart contracts can be used in insurance?
The many benefits of blockchain-based smart contracts make it a great option to use in insurance. A few of these benefits are listed below:
- It helps to reduce costs for the insurer and it can translate to reduced premiums.
- The overall customer experience can be improved.
- Payout to customers can happen faster as compared to traditional methods.
- The administrative costs associated with payouts can be reduced.
- Most importantly, the risks of fraud can be almost eliminated.
XYZ is an Insurtech company that offers risk cover for flood damage. Let’s see how smart contracts help in this. At the time of creating the contract, a parameter is defined for flood levels. When a flood occurs, the flood level is recorded. If it breaches the parameter set, then the condition is met. Payout then happens automatically, and there is no need to make a claim or go through underwriting.
Another key application is in the field of fighting cybercrime. Data stored online can be breached by hackers and this can lead to serious consequences for companies. It can lead to lawsuits that can be extremely expensive. Using blockchain smart contracts ensures the highest level of security. It cannot be manipulated and is encrypted. It is the best system to prevent security breaches.
ABC is a well-known Insurtech firm that is using smart contracts. Rental cover and homeowner insurance are provided through blockchain. The adoption of this technology has significantly helped in reducing costs. The result is that customers are able to get insurance policies at prices of $5 to $25 per month. It is a significant benefit for customers and helps the company sell more products while reducing its risks.
The above examples outline the importance of smart contracts. Thank you for your interest in Bahaa Abdul Hussein blogs. For more information please visit www.bahaaabdulhussein.com