Smart Contracts

Blockchain technology facilitates the development of smart contracts: fully automated contracts that come into force under certain conditions. What started off as a feature of Bitcoin cryptocurrency has also become relevant within the insurance market. This technology has also prompted the emergence of entirely new concepts, especially where commercial and industrial insurance are concerned.

New policies and new apps

The blockchain procedure is transparent and verifiable, which opens up the possibility of creating individual policies via new apps. Using framework conditions defined by the user, a program then creates tailor-made insurance, especially temporary contracts for specialist insurance requirements. App decisions are based on defined, verifiable and reliable information, stored and delivered via the blockchain. All premiums and benefit payouts are also fully automated, thanks to the new digital options.

Watertight security, thanks to the blockchain

Blockchain technology is tamper-proof – which is why it is of particular interest to an insurance industry that relies on sound and secure data. Smart contracts can retrieve this information, compare it with the agreed terms of each policy, and then initiate certain actions – for example, in the event of a claim. Error-prone human actions are replaced by substantiated, verifiable information from the blockchain. Even documents and goods can be checked for authenticity, thus all contracts are legally secure, without the need to consult the legal profession.

Policyholders benefit

Smart contracts incorporate many benefits for policyholders, because all data remains within the blockchain indefinitely and can be checked at any time. Thus, customers will be able to benefit immediately in circumstances that are linked to certain conditions noted in the insurance history. Cumbersome proof requiring the completion of forms will thus become superfluous: thanks to the blockchain, the policyholder will no longer lose the ability to access important data and evidence. Payments can also made within seconds – from and to anywhere in the world, and with absolute transparency. The cost savings that insurance companies will accrue with the resultant decrease in personnel expenditure can then be passed on to policyholders.

New opportunities for start-ups

The new blockchain technology also poses some new challenges, especially for traditional insurers. And because blockchain provides robust security against criminal dishonesty and makes data instantly available, it also makes it easier for start-ups to enter the insurance industry. Growing competition in the insurance market is expected to significantly reduce the cost of individual contracts. The financial power and decades of experience acquired by the established insurance companies is becoming increasingly redundant in the face of dynamic market growth. Confidence in the blockchain also increases confidence in new companies that rely on blockchain technology.

Conclusion: networking for legal certainty

However, this assurance requires a comprehensive guarantee of legal certainty. Blockchain technology knows no national boundaries and is still very new. By contrast, the relevant law that applies is still largely subject to national variation and often dates back to the 20th century, or even earlier. A legal basis for these new instruments will only emerge once technology developers, insurers and state authorities are comprehensively networking together. How this networking could be effected under current data protection regulations is still in many respects unclear.

This article was first published on LinkedIn.

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