In this post, you will learn about how Blockchain and Smart Contracts could benefit Insurance Claims Payout processes resulting in faster and smoother payouts. Blockchain is already having a positive impact on insurers and reinsurers by removing frictional costs by reducing the need for manual data inputting and multiple checks and data accounting between parties.
One of the painful aspects of insurance claims is delayed payouts. There are several reasons including some of the following which results in delayed claim processing and hence, delayed payouts:
The following are some of the examples which represent the complexity associated with claim processing and the resulting duration of payouts vis-a-vis above reasons:
With Blockchain and smart contracts, the payouts could be faster than traditional payout processes. Smart contracts are computer programs which get deployed on the Blockchain.
The blockchain is based on the distributed ledger technology (DLT). It brings greater trust, transparency, and traceability in the execution of one or more business processes. Simply speaking, Blockchain is a chain of multiple blocks of transactions. It is maintained as a shared distributed ledger on different nodes in the Blockchain network. The transaction could be the exchange of a unit of value of any kind such as money, contract, appreciation etc between two entities which could be physical entities or physical entity and smart contract or just, smart contracts.
Smart contracts are self-executing contracts whose terms of agreements (rules and penalties around the agreement) between two parties are represented as computer code based rules. These smart contracts get stored and replicated on the system and supervised by the network of computers that run the blockchain. The execution of the smart contract results in the execution of these rules which could result in an event such as payout, or message/action notification to be sent to the physical entity or another smart contract. Ethereum was first to come up with the concept of the smart contract. Here is another great article on smart contract.
The following represents a scenario related to how Insurance payouts could be made faster as result of execution of smart contracts.
An example of insurance policy which makes use of Blockchain and Smart Contracts is HurricaneGuard, an insurance policy that releases automatic claims if wind speeds are recorded within 30 miles of the insured’s home or business. This is currently implemented in Puerto Rico and saw an encouraging response so far. Here is the detailed news coverage on Hurricane.
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