Although it’s been over a decade since we started discussing blockchain technology in mainstream media, it is still one of the hot topics in the business world. As it is with all new technologies that appear, people are confused about the meaning of certain terms and the potential such a technology can offer to the world. The easiest way to explain blockchain is to think of it as a data structure enabling the creation of a digital ledger of transactions and the capacity to share across a distributed computer network.
The ultimate benefit of blockchain is building trust between parties sharing information. These parties can be business entities, but it can also be two individuals signing a smart contract for real estate purposes. The information that is shared through blockchain technology is encrypted. The information that is on the blockchain cannot be erased, ensuring that parties feel comfortable and protected when using this technology for their objectives.
How Blockchain Works in Insurance
Once the information is recorded, neither party can alter it without altering all records. That makes blockchain a suitable solution for secure transactions between the parties. There are many blockchain insurance use cases that are enhancing operations and even products, bringing customers closer to insurers. After all, each information provided in any insurance process needs to be secured and locked, and blockchain has all necessary means to provide that.
In the insurance sector, there has been a noticeable gap between the insurance companies and their clients. Companies have been looking for solutions that might bring them closer to their clients, while also adding more value to their conventional services. When blockchain was introduced to the wider audience, it was only a matter of time before insurance companies became aware of its immense potential.
Smart Contracts
Without hyperledger smart contracts, businesses outside the IT sector would see little value from blockchain technology. Smart contracts are what make blockchain technology work well in the insurance sector, among others. A smart contract is a digitally signed agreement between two or more parties. The innovative aspect of it is that it completely eliminates the need for an intermediary as the software itself can execute and enforce the majority of the agreement terms.
Smart contracts allow the execution and sharing of any type of information in a completely secure manner. It works on the ‘if/then’ principle, meaning that if something happens, the contract will activate a clause related to it. In insurance, this allows payment contracts to be completed without someone interacting because the information is secure and automated. Due to the automation of smart contracts, blockchain technology is enhancing the way insurance organizations work and interact with their audience.
Blockchain Usage
All insurance organizations have a large number of stored records that require movement and sharing. Blockchain technology facilitates this entire process and saves time and money these companies would typically spend on data management. However, it’s important to be aware of two different types of blockchain initiatives that are benefiting businesses in different ways.
An open or public blockchain is mostly used with governments and non-profit organizations, whereas a closed or private blockchain is accessible through an invite-only option. The latter type is where insurance companies can see plenty of benefits because of information usage and sharing about insurance policies.
Blockchain & Bitcoin
It’s almost impossible to talk about the potential of blockchain technology without mentioning cryptocurrencies. As the first cryptocurrency which appeared, Bitcoin presents a form of electronic money and it was the reason why blockchain technology was invented in the first place. Each cryptocurrency is digital and is using encryption techniques to manage the creation of the monetary unit in order to verify the transfer.
In many ways, Bitcoin simplified online transactions, mainly because it eliminated the third-party intermediary, which allowed those blockchain-supported transactions to function without the interference of a bank that would usually charge fees for each transaction.
In Final Words
The major benefit blockchain provides to the insurance sector is cost savings. All claims, administration, and product development can be significantly enhanced with the usage of blockchain technology. One of the initial areas where insurance companies have started using blockchain solutions is to build automation in paying claims.
Undoubtedly, there will be many usages of this potent technology which has already started revolutionizing the insurance sector. That’s why those companies that wish to be ahead of their competitors should already start looking for a trusted blockchain solutions company that will help them implement it in a way that suits the company’s needs the best. In the end, it’s only a matter of time until everyone in the insurance sector starts applying the technical principles.
