Blockchain is lauded as possessing capabilities that could revolutionize the finance industry. Having a range of applications, this technology may be slated to penetrate the insurance industry in 2023. Marlene Dailey, a senior financial analyst, states that blockchain is capable of creating a trusting environment for insurers to provide a controlled access network and a means to share critical information safely.
Blockchain technology can be a transformative revolution for the industry, but insurers are rather apprehensive to adopt the technology. Dailey extrapolates that the most important blockchain technology aspect lies in the parametric triggers; she notes that “if you have an emergency, and meet all the requirements, a policy would be activated through a smart contract devoid of any human participation.” You could then be paid instantly through the blockchain.
Self-executing smart contracts are stored in a blockchain that activates when prerequisites are met, making smart contracts extremely valuable as products for parametric insurance.
Some benefits blockchain would introduce into the industry include the following:
Transparency
The decentralization and open nature of blockchain technology provides the ability to see transactions in real time on the data base. After claims are shifted to a blockchain ledger and shared among peers in a given network, they cannot be easily manipulated. Insurers within a given network can access claims information fast and accurately.
Accurate rating of risks
Sharing access to a blockchain ledger with related data about premiums, policies and loss history is a plus for insurers and reinsurers because it is easy to underwrite the policies.
Automated tasks
Smart contract processes are automated and submitted safely via blockchain, hence no need for human interactions in a claim. This saves costs, resulting in the potential for lower premiums.
The technology could also encounter possible challenges in the insurance industry, including the following:
Blockchain does provide some level of security, but it is not completely safe. Closed blockchain networks enjoy some security though hackers have been able to phish through emails and obtain sensitive data to access accounts. Cybersecurity, therefore, could remain a significant challenge.
Data cleansing
Unclean data is practically useless. For those implementing blockchain, data cleansing is a must, and it isn’t yet clear how this can be done without running afoul of regulatory safeguards.
Regulatory uncertainty
Insurers are averse to uncertainty. Grasping how regulation would impact the industry’s smart contract is an area that needs clarity, and blockchain is barely regulated at the moment.
As entities such as Bit Digital Inc. (NASDAQ: BTBT) come up with solutions to the problems they face in their blockchain-based operations, a time may come when the issues that the insurance industry faces in adopting blockchain technology become a thing of the past.
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