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<\/div>\n\t\t\tWhat are smart contracts, and does the business world really need them?<\/h2>\n
Smart contracts, powered by blockchain technology, have significantly influenced the business landscape. These self-executing computer programs automatically enforce predefined agreement terms when specific conditions are met.<\/p>\n
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According to SkyQuest report, the global smart contract market value is projected to experience an 82% compound annual growth rate (CAGR) by 2030, from USD 0.69 billion in 2022 to USD 83.07 billion.<\/p>\n
To grasp what smart contracts are, we must first understand the notion of blockchain. People are used to thinking about Bitcoin when they hear blockchain<\/a>. Actually, there are other ways to use the technology.<\/p>\n Thanks to blockchain technology, organizations can store data distributedly. As a result, transactions can be executed through the code automatically, excluding any third-party intruding into the agreement.<\/p>\n Blockchain enhances security and reliability by ensuring the immutability of transactions through automatic chain linking. Today, Ethereum is the preferred platform for creating and executing smart contracts.<\/p>\n According to data from the recent Smart Contracts Market Research Report<\/a> from Market Research Future, the global smart contracts market will reach approximately $9.2 billion by the end of 2032, with a 21.40% CAGR during the forecasted period from 2023 to 2032. Companies in the banking, government, automotive, healthcare, real estate, and insurance sectors are interested in making this technology work for them. Let\u2019s explore the advantages of smart contracts in insurance and why this domain needs this technological advancement more than others.<\/p>\n Learn about the prevailing software development trends in the FinTech banking domain<\/p>\n First and foremost, blockchain smart contracts in insurance can remedy the industry\u2019s challenges. Overloaded with uncertainties and hesitations, what is lacking in the insurance industry is people\u2019s trust. According to a Harris Poll survey<\/a> in the United States, there is a notable lack of trust in insurance companies. The survey found that satisfaction levels with insurance providers are relatively low: 42% among Gen Z (those under 26), 43% among Millennials (aged 27-42), and 46% among Gen X (aged 43-58) participants.<\/p>\n Even though customers tend to think that the ultimate goal of an insurer is to pay as little as possible, insurance companies also have their own pains. Policyholders too often cheat and make false claims to receive payouts. So, the lack of trust is really a mutual issue. Smart contracts insurance can re-establish trust and make intermediaries obsolete.<\/p>\n Software algorithms within code can eliminate administrative barriers, predict insurance payout scenarios, and automatically execute the agreement terms, leaving no space for manipulation on either side.<\/p>\n Find out how Artificial Intelligence predicts financial markets and helps financial service providers make data-driven decisions<\/p>\n Technological disruption is prompting every insurance company to take action and find out how to get the most out of smart contracts. The benefits of using this technology in the insurance industry are substantial.<\/p>\n This particular advantage of smart contracts in insurance is possible because of the blockchain’s decentralization and openness. As there is no owner, anyone can see any transaction logged in a blockchain database. All parties will see any change so that no inconsistencies will be missed.<\/p>\n Thanks to the blockchain, all smart contract-related procedures are automated and can be securely rendered. The key benefit here is the absence of human input. This reduces the risk of manipulation. Moreover, blockchain allows companies to perform their processes more transparently and conveniently.<\/p>\n Blockchain smart contracts in insurance completely substitute for verifying claims manually. There are no documents needed, just fixed rules to settle claims. Faster processes, better efficiency, and decreased costs \u2014 nothing but benefits for insurers.<\/p>\n Insurers can store documents on numerous ledgers, so it is virtually impossible to lose them. Thanks to their technical characteristics, it is possible to prevent data loss and damage.<\/p>\n Blockchain technology allows insurance companies to integrate advanced risk assessment models into their transactions. This capability relies on a blockchain-based identification system, where IDs undergo instant verification and receive real-time updates with new data. This streamlines the typically time-consuming identity verification process. Smart agreements access comprehensive individual information and evaluate risks, simplifying data collection and verification efforts.<\/p>\n Security in Digital Payments 101: learn about advanced methods to secure payment environments<\/p>\n Building a smart contract is somewhat intimidating for the majority of insurance organizations. And for good reason. However, if insurance providers are planning to create advanced customer-centric products, it\u2019s best they know what to expect from the development process. Without exploring complex technical matters, the following development stages will give you an overview of the process.<\/p>\n The Ethereum network allows users to develop their own tokens to perform specific functions. The trick here is to decide what functions to execute and what business logic to include.<\/p>\n Ethereum provides a virtual environment called the Ethereum Virtual Machine. The Solidity programming language is used to build Ethereum smart contracts. It is an object contract-oriented, high-level language created particularly for implementing smart contracts.<\/p>\n Deploying smart contracts on a blockchain network is a crucial step, but it can introduce testing complexities. Fortunately, autotests offer a robust solution. These automated tests ensure that a contract performs according to its intended design by simulating real-world scenarios.<\/p>\n Even without verification standards for smart contracts, there are particular environments where developers can verify their code and logic. A proper acceptance and review process has to cover cost-effectiveness, including many reviewers and ensuring result visibility.<\/p>\n In this phase, we take the critical step of deploying the contract to the Ethereum blockchain, ensuring universal accessibility. Engineers often employ specialized tools for efficient deployment. The usual procedure involves submitting the code to the blockchain, where it awaits processing through the mining process. Once successfully mined, the agreement is officially considered deployed.<\/p>\n An insurance provider that operates blockchain technology should have their own or outsourced capacities to maintain the infrastructure of their smart contracts.<\/p>\n Irrespective of the industry, there are four main phases of a smart contract\u2019s lifecycle:<\/p>\n The parties agree on the agreement\u2019s contents and objectives. Next, it is coded via the development phases as described above.<\/p>\n After a smart contract appears on the blockchain, it becomes public and accessible via the public ledger. At this stage, the two contractors have to meet all the agreement requirements, pay a fee, or send an asset to further execute the blockchain. Moreover, transfers to the wallet address defined in the document are frozen until all conditions are met.<\/p>\n When the agreement executes, new transactions are once again stored in the distributed ledger. Transactions are validated by the consensus protocol.<\/p>\n A smart contract is considered finalized after assets have been unfrozen and all transactions have been confirmed.<\/p>\n According to Capgemini World Property and Casualty Insurance Report 2023<\/a>, the auto insurance industry will rise from $0.65 trillion in 2023 to $1.38 trillion in 2030. The introduction of new technologies that allow process automation and reduced overhead in claims handling, like smart contracts, is one of the reasons for such progress.<\/p>\n Intellias has helped a blockchain startup<\/a> develop a smart contract solution for one of the leading European insurance companies. The primary goal of this project was to create a web app to enable online vehicle insurance policy purchases. As a result, the insurance company got a suite of highly scalable smart contract products that included a language for defining agreement specifications and an operating system for managing and storing insurance smart contracts.<\/p>\n The delivered prototype can insure vehicles electronically, manage auto insurance history, and automatically submit auto insurance claims. This is just one example to prove that insurance industry players are ready to learn how to turn smart contracts into their main competitive advantage.<\/p>\n Learn how Intellias helped an insurance company build a blockchain-driven solution and further transform the traditional insurance industry model<\/p>\n Although blockchain technology itself is not new, it’s broader application in various industries, including insurance, has taken time to develop and mature. The same goes for implementing smart contracts as a reliable universal business solution. Let’s explore the concerns limiting the adoption of this technology.<\/p>\n The most significant constraint that can limit the benefits of using smart contracts in insurance is the necessity to cover every eventuality in a code. Processes that can be done relatively easily on paper can be difficult to translate into code. Especially because most companies start building them with the simplest models, using the pattern: If X occurs, then Y will happen.<\/p>\n Building a sophisticated blockchain smart contract in insurance requires a particular level of programming knowledge. Only specialists well-versed in Ethereum can create a well-run product. Naturally, it\u2019s quite a challenging task since the technology is quite complicated and involves an in-depth understanding of software development.<\/p>\n Smart contracts might be tricky. Since they\u2019re executed sequentially, if at least one vital piece is missing, the document won\u2019t run. Even though eliminating human input is among the top advantages of this technology, it still requires human engagement at the development stage. And don\u2019t forget that to err is human.<\/p>\n It\u2019s no secret that the insurance industry is among the most regulated. But despite the keen interest in blockchain technology shown by government institutions, smart contracts are still, by and large, unregulated. How to use them properly and in a legally sound way remains unclear.<\/p>\n Smart contracts aren\u2019t a mature technology, but it\u2019s clear that the broader use of the blockchain is already changing the custom insurance software<\/a>. Insurers can automate their policies and services, decrease administrative and claims processing costs, increase transparency, and prevent fraud. Intellias supports innovative endeavors and is ready to help implement blockchain technology and smart contracts in particular.<\/p>\nHow smart contracts work in blockchain<\/h3>\n
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<\/div>\n\t\t\tThe global smart contracts market in USD billions<\/h3>\n
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<\/p>\nSmart contracts for insurance are a turn for the better<\/h2>\n
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<\/p>\nTop benefits of blockchain smart contracts for insurance companies<\/h2>\n
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<\/p>\nLess fraud through transparency<\/h3>\n
Task automation<\/h3>\n
Save time on verifying claims<\/h3>\n
Protect policy documents<\/h3>\n
Risk assessment<\/h3>\n
Development phases of a smart contract explained for insurance companies<\/h2>\n
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<\/p>\nDesigning a token<\/h3>\n
Implementing the smart contract<\/h3>\n
Testing<\/h3>\n
Acceptance and review<\/h3>\n
Deployment<\/h3>\n
Support<\/h3>\n
Smart contract lifecycle phases<\/h2>\n
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Example of a smart contract solution for vehicle insurance<\/h2>\n
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<\/p>\nConstraints of blockchain smart contracts in insurance<\/h2>\n
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<\/p>\nLimited contract scope<\/h3>\n
Technological complexity<\/h3>\n
Possible bugs in code<\/h3>\n
Uncertainty of legal regulations<\/h3>\n
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