Would the insurance benefit from Web3, Blockchain

Due to the complexity of the insurance industry, the introduction of new technologies has been slow. This is a paradox, since insurance is one of the business application areas where the introduction of new technologies, especially those related to Web3, offers great potential.

The main opportunity comes from the ability to optimize workflows and offer better pricing models by moving business processes onto the blockchain and using parametric assurance and smart contracts, as well as automating and improving data management and data compliance using Web3 storage.

Smart contracts and NFTs

Smart contracts are a term used to describe programs stored on a blockchain that run when predetermined conditions are met. Such conditions in the context of the insurance industry can cover anything that can trigger an insurance event, such as the average temperature or rainfall in a particular location over a certain time frame, a major hurricane, an earthquake and many others. To achieve automation of business processes, such contracts can be attached to documents using non-fungible tokens, or NFTs.

NFTs are a type of digital asset that is unique and cannot be substituted or exchanged for another asset of the same type. Built on top of blockchain technology, NFTs are often used to represent unique items, such as collectibles, digital art, and other unique assets. In an enterprise context, they must be considered a “container” file format, containing an embedded document that may also carry business logic as metadata. Such metadata can contain simple descriptive information or can contain a business process: from a simple sign-off and document verification up to a complex multi-step sequence that requires input from many parties and triggers automated payments.

The insurance industry can potentially benefit from the use of smart contracts, decentralized storage and NFTs in a number of ways that will allow the sector to completely reinvent its value chain while increasing revenue.

Automated data management and compliance

Using decentralized storage can potentially make it easier for insurers to securely store and manage large amounts of customer data, such as policy information, claims data and other important documents. This can help improve the overall efficiency and reliability of the industry, as it will make it easier for insurance companies to track and manage their policies, as well as make it easier for customers to access and verify their own insurance information. In addition, the use of NFTs can help increase the overall security and reliability of the insurance industry, as it will make it more difficult for insurance information and other important data to be lost or tampered with.

Data management and compliance are essential to ensure that sensitive data is handled and stored securely and in accordance with relevant laws and regulations. Smart contracts can automatically enforce the rules and guidelines that govern the use and storage of data – for example, automatically granting access only to authorized users, or automatically deleting data after a certain period of time. Access control mechanisms, such as end-to-end encryption in combination with decentralized encryption key management systems (DKMS), can also be used to ensure that only authorized users have access to the data.

Automation of business processes

In the context of the insurance industry, the use of NFT could potentially enable insurance companies to create unique, verifiable digital assets that represent policies and other important documents that have integrated business process steps into the documents themselves. This can make it easier for insurance companies to track and manage their policies, process applications and claims, so that several steps in the business process can be carried out even without human intervention.

There are efforts to build an open insurance platform by connecting centralized applications using application programming interfaces, or APIs. While the use of APIs for interconnection is a step forward from segregated systems, a truly open platform must be decentralized, and can only be achieved by using blockchain technology. We call a future, where complex decentralized business processes are assembled from building blocks represented by documents that carry their own business logic, “object-oriented business process management.”

Parametric insurance

In such an open system, providers of information, risk takers can collaborate in a truly open environment that creates efficiency, automates processes, reduces costs and enables the flourishing of parametric insurance. The basic concept of parametric solutions is quite simple: it covers the probability of a pre-defined event occurring (eg a major hurricane or earthquake) and pays out automatically according to a pre-defined scheme instead of a lengthy claims adjustment process. External data providers for such triggers (for example data on flight delays, floods and many others) already exist and are called in the context of Web3 ‘data oracles’.

Conclusion

Although Web3-related innovation may threaten existing business models, it presents significant opportunities for leaders with the vision and wisdom to understand that the companies that have succeeded in the long term are those that have understood the nature of the creative destruction process and the need to proactively embrace technologies that represents the biggest threat to your current business model before your competitors have. The use of smart contracts and decentralized data storage are the two areas that may offer the greatest opportunity for efficiency gains and business innovation at the moment.