Decentralized Ledger Technology is starting to affect the trillion dollar industry of insurance. There are new premiums being created, niche markets being served and the technology is underpricing risk.
Moreover, premiums can be lowered thanks to digital trust, high risk disaster prone regions can be well served and sit within a profitable business model and special case insurance becomes more manageable.
Another example of the power of the blockchain within the insurance market is peer-to-peer insurance. It means that individual policyholders have a stake in the insurance business and together enable premiums to be lowered because large stakeholders do not have to payout to individual private wealth managers that need to profit from and for large insurance companies.
Let's dive in a bit more on the currently available insurance options for end users and investors:
Peer-to-peer insurance
Because the blockchain enables securely connected platforms and shared data without the risk of duplication, and because these features massively simplify the processes involved, policyholders are able to get a larger portion of premiums that would traditionally go to private wealth managers which exist in order to produce financial returns to insurance companies.
Smart contracts
The blockchain has the ability to revolutionize the insurance industry by centralizing all of its contracts in a publicly available smart contracts blockchain. This means that claims handling would be orders of magnitude more efficient (and improved user experience) and common scams such as multiple policies being held for one asset be left to history.
This is a particularly large issue around the world with billions of dollars being lost by insurance companies. For example, with “crash for cash” scams, fraudsters try to claim payouts from multiple insurance companies with one accident.
Streamlining payments
In insurance, there are conditions that when met, enable faster payout. However, these require manual validation and checks which cost money and take time. With the blockchain, these conditions such as fraud attempt checks and historical data could be automated and made public enabling payout automation.
Microinsurance
The future of microinsurance looks brights thanks to blockchain tech because the higher security and the virtual nature of transactions mean that geographic limitations and government bureaucracy are made irrelevant.