Article Synopsis :
As blockchain principles enable Bitcoin to eliminate payments fraud they also enable Smart Contracts–self-executing contractual arrangements which nobody controls and therefore everyone can trust.
The IIF paper “Getting Smart Contracts on Blockchain”, examines the promise of Smart Contract technologies as well as the challenges and risks associated with their implementation in financial services.
Smart Contracts have the potential to transform commercial and financial agreements, facilitating faster securities settlements, enabling new insurance products and better compliance solutions all with more transparency. However, for Smart Contracts to reach the mainstream issues regarding legal legitimacy, regulation, technical viability, and the standardization and broad-based implementation of distributed ledger technologies must all be resolved.
Key use cases for Smart Contracts in insurance include:
- Smart Contracts can help eliminate delays in claims processing as they remove human intervention. This in turn reduces operating costs and enables potential savings to customers.
- Smart-Contracts enable innovative Peer-to-Peer (P2P) insurance arrangements. Smart Contracts on the blockchain could disintermediate traditional insurance firms by allowing policyholders to pool their funds and, in the event of a claim, support one another financially with total transparency.
- Smart Contracts enable product customisation by linking coded contracts with online devices. Similarly, a smart insurance contract could be embedded into vehicles collecting premiums based on the owner’s driving habits. The programmability of Smart Contracts may help mitigate the chances of insurance fraud.
- The programmability of Smart Contracts may also have a positive impact on regulatory and compliance costs.
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Digital Insurer's CommentsThe technological characteristics of Smart Contracts—namely the ability to securely receive, store and send both information and value based on predetermined rules and conditions mutually agreed to by contract counterparties—could revolutionize insurance as we know it.
But there are several issues to resolve and they’re not small, including: legal legitimacy, regulation, technical viability, and the standardization of blockchain (i.e., distributed ledger) technologies.
Many of our readers are keenly interested in the potential of blockchain, though scarce few are implementing it. Stay tuned. For those new to blockchain (and Smart Contracts) this paper serves as an excellent primer on the subject.
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