It appears that blockchain technology – which is essentially a database or general ledger distributed across the internet – is edging closer to the insurance industry. The application most likely to be appealing is blockchain’s enablement of: smart contracts,” transparently and digitally storing and maintaining agreements – essentially a single system of record in cyberspace.
In a recent MIT Sloan Management Review article, Sam Ransbotham elaborated on blockchain’s potential to be the global repository of smart contracts. “Considerable time in organizations is spent verifying, monitoring, and enforcing agreements,” he explains. “Did the buyer pay on time? Did the seller ship on time? Monitoring this is a loss of societal welfare — a form of overhead that each side must pay, but one that often adds little value to either side. Both sides would prefer not to incur these costs, but both must in order to protect themselves.”
Smart contracts, Ransbotham continues, “embed contracts in protocols, such as blockchain, that can make contract execution more efficient and automated. This will be increasingly important as we connect small devices that may could be tied to contracts via the Internet of Things.” In a recent discussion, Deloitte cites an example of why insurers will benefit from smart contracts maintained via blockchain, noting that “smart contracts powered by blockchain could provide customers and insurers with the means to manage claims in a transparent, responsive and irrefutable manner.”
Ransbotham argues that existing registries may become redundant as blockchain catches on. “Currently many other registries still exist — real estate ownership, for example,” he states. “Why do we need institutions to enable trust in ledgers of information if an alternative method of enabling trust exists? If your organization creates value by legitimizing trust in a registry or exchange, blockchain may herald changes to your business model.”
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