Efficiency and Security Among Blockchain Benefits to Insurance Industry
A report released by Long Finance has outlined the possible impact of blockchain technology on insurance. The report claims that blockchain technology applications, many of which are already in development, could have a major impact on identity, globalization, time, mutuality and other insurance industry transactions, by reducing the time and improving the security involved in completing them.
The Automation of Insurance
The first possible application of blockchain technology mentioned in the report is the near-complete automation of the insurance process. This automation would be implemented through prediction markets powered by blockchain-based smart contracts. Bitcoin Hivemind is one decentralized prediction market currently in development that could be used for such an application.
The report used crop insurance as an example to explain this possible blockchain use case:
“Crop insurance is often quoted as an example of [a] hedging mechanism against adverse consequences of bad weather on a farmer’s harvest, which could be automated through a smart contract hosted on a blockchain protocol and using an oracle, in this case a trusted weather data feed.”
Because the terms of the crop insurance smart contract would take the form of computer protocols embedded in a blockchain, the contract could be executed automatically at a designated time in the insurance process without the sometimes lengthy delays and long- distance human interactions now required. The smart contract would be programmed in advance to draw on data provided by a prediction market such as Hivemind.
Long Finance’s report also discusses insurance powered by prediction markets as the basis for a peer-to-peer insurance platform. These decentralized autonomous organizations (DAOs) could essentially operate as mutual insurance companies where any profits earned are returned to policyholders as dividends.
Although it may not be possible to apply this concept to every form of insurance on the market, there are some types of insurance that could be completely automated. Some form of human input would still be required in most cases, but the burden of executing the transactions shifts to the blockchain.
Identity on the Blockchain
The Bitcoin blockchain has long been touted as a system that can store much more than just bitcoin. According to Long Finance’s report, the idea of placing identities on a blockchain is applicable to a wide array of industries, but some of the information stored may be especially relevant to insurance.
An instantly verifiable blockchain ID would eliminate the multiple steps now involved in verification of state-backed identification cards.
According to the report:
“An ID scheme relying on a decentralised blockchain combining a public ledger of records with an adequate level of privacy could rival state-backed identity systems (which require checking against other databases, use biometric data and are backed by law), by providing security through decentralisation and cryptography.”
It has been argued that a blockchain-based system may create problems by providing people with the ability to create many identities. With a government-controlled system, there can theoretically be only one ID per person. However, identity fraud is still widespread in the traditional system; a cryptographic blockchain solution would make fraud much more difficult. Furthermore, the ledgers found in some nations around the world are known to be unreliable. A blockchain use-case application would virtually resolve this problem.
The report also notes patients could be given complete control over their medical records if the data were attached to their blockchain-based identities.
New Forms of Insurance
Long Finance’s report also covers the possibility that blockchains could create new opportunities for insurance providers.
In fact, Bitcoin has already enabled the creation of new business opportunities for some insurance companies. Bitcoin storage providers, such as Elliptic and Xapo, use blockchain applications to insure their deposits against theft and loss.
While there are many benefits of blockchain technology, there are also new issues that will undoubtedly be created by this system. For example, what happens if someone loses the private key to their blockchain-based identity or smart-contract-controlled car?
Although scalability, regulation and education are noted as possible challenges for blockchain technology, the end of the report is hopeful.
“We expect to see a proliferation of blockchain applications in financial services, including insurance. We hold some hope that these applications have the potential to make insurance work better for consumers and society.”