Smart contracts are just that – smart! Well, the reason why they are considered smart is because they need little in the way of human intervention. If the rules are in place and have been adhered to and the customer has made payment for a service like insurance cover then the smart contract will execute the contract terms automatically when it ‘realises’ that a claim needs to be paid.
This is all made possible through the use of blockchain technology, in particular through Ethereum. Ethereum is an open source, public blockchain-based distributed computing platform and platform and boasts smart contract functionality.
A blockchain can store all types of useful information such as black box information, weather conditions and lifestyle traits. This information can be input into a smart contract.
This is very useful for both parties concerned. Imagine, for example, that a customer has an accident in icy weather conditions. There’s simply no need to verify this or send out an assessor – as the technology ‘knows’ that the weather was bad it can verify the claimant’s information that the nasty climate increased the likelihood of an accident. It will simply then trigger a payout without the rigmarole usually associated with the manual claims process.
Using blockchain to create a smart contract is by no means a new concept. There are already a few companies making use of this technology with success. Axa, for example, introduced fizzy, a smart contract for flight delay insurance.
With fizzy, customers don’t need to report a claim as compensation is automatic and immediate. It currently covers flights between Paris Charles de Gaulle and the United States, but the insurer promises to expand on this internationally with more partnerships.
Propy is another company that has conducted business through the use of blockchain. According to its site, Propy is a global real estate marketplace with decentralized title registry. What it means is that it has basically created a property store and asset transfer platform, which allows buyers, sellers, brokers, agents and notaries to make use of smart contracts so that property transactions can be conducted.
Back home, even the UK Law Commission is reportedly looking into how blockchain based smart contracts could play a role in the legal system so that the UK can become more competitive. It’s also thought that with the introduction of such contracts it will reduce the cost of litigation.
Reducing costs is certainly an advantage that smart contracts could provide to most business and sectors. And whoever has first mover advantage would most certainly gain a lot of traction over and above competitors in the market place.
Smart contracts are a particularly good fit for the insurance industry. The concept has been around for a while – they were first mooted by Nick Szabo in 1996, but back then the technology did not exist to make them a reality. But now it does and these contracts will no doubt revolutionise the way we conduct business. These are truly exciting times.
Want to find out more about how smart contracts could benefit you and be integrated into your business? At SchemeServe we provide provide insurance agency software systems for MGAs, brokers and insurers. Why not start disrupting today?