Due to the complexity of the insurance industry, the adoption 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 the ones related to
The main opportunity comes from the ability to optimize workflows and offer better pricing models by moving business processes on the blockchain and using parametric insurance and smart contracts, as well as automate and improve data governance and data compliance by using Web3 storage.
Smart contracts and NFTs
Smart contracts is 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 may trigger an insurance event, such as the average temperature or rainfall in a certain location over a certain timeframe, a major hurricane, an earthquake, and many others. To achieve business process automation 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 replaced or exchanged for another asset of the same type. NFTs are built on top of blockchain technology, and they are often used to represent unique items, such as collectible items, digital art, and other one-of-a-kind assets. In an enterprise context, they need to be considered as a 'container' file format, which contains an embedded document that can also carry business logic as metadata. Such metadata can contain simple descriptive information or could contain a business process: from a simple sign-off and document verification up to a complex multi-step sequence requiring the input of many parties and triggering automated payments.
The insurance industry could potentially benefit from the use of smart contracts, decentralized storage and NFTs in a number of ways that will allow the sector to reinvent its value chain entirely, while also increasing revenues.
Automated data governance and compliance
The use of
Business process automation
In the context of the insurance industry, the use of NFTs could potentially enable insurance companies to create unique, verifiable digital assets that represent insurance policies and other important documents which have embedded steps of the business process in the documents themselves. This could make it easier for insurance companies to track and manage their policies, process applications and claims, whereby multiple steps of the business process can execute themselves without human intervention.
There are attempts to build an open insurance platform by connecting centralized applications using application programming interfaces, or APIs. While the use of APIs for interconnectivity is a step forward from segregated systems, a truly open platform needs to 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 carrying their own business logic, 'object-oriented business process management.'
Parametric insurance
In such an open system, providers of information, risk takers can cooperate in a truly open environment that creates efficiencies, automates processes, reduces costs, and enables the flourishing of
Conclusion
While Web3 related innovation may threaten existing business models, it offers significant opportunities to leaders with the vision and wisdom to understand that the businesses that have succeeded long term are the ones who grasped the nature of the creative destruction process and the need to embrace proactively the technologies that represent the highest threat to your current business model before your competitors have done so. The use of smart contracts and decentralized data storage are the two areas which may offer the highest scope for efficiency gains and business innovation at the moment.