How Blockchain Can Foster Trust in the Insurer/Customer Relationship

What better way to establish trust with customers—and consequently retain their business—than for insurers to pay promptly, efficiently, no questions asked?

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Customers trust their insurer to keep its promise to pay out when they suffer a loss. Insurers in turn, trust customers to make honest claims. The problem is that, in reality, the multi-trillion dollar industry suffers from fundamental conflicts of interest that only serve to erode trust. Insurers can make higher profits when they avoid payouts and customers can earn easy money when a false claim is processed. Plus, the solutions designed to address this misalignment are generally unsatisfactory. While strict regulations or stringent damage assessments counter the mutual distrust, they, unfortunately, also add cost burdens into operations.

There is a potential solution that can raise trust, lower costs and help deliver bespoke policies that customers really need. The nascent technology blockchain holds the promise to create transparency around data and transactions. The Economist magazine famously labeled blockchain the “Trust Machine” in a cover story two years ago, hailing the technology’s potential to transform how the economy works. Indeed, proponents of blockchain herald the properties of a shared ledger that everyone can inspect and nobody controls as the best way to end reliance on costly regulators and middlemen.

Perfectly Suited to Insurance

In many ways, blockchain, which has attracted experiments in industries from banking to energy to supply chain, is perfectly-suited to insurance. Blockchain-powered contracts that execute automatically are a tantalizing vehicle for helping to boost confidence. Reputable intermediaries can often benefit from being trusted—and then benefit even more abusing this good faith. Shifting trust from intermediaries to the blockchain can dramatically improve insurance. Humans are fallible, software code is immune to conflicts of interest.

Blockchain insurance applications open the path to smaller risk pools. Typically, nowadays, an industry dominated by large corporations with expensive overhead fail to reach down to the intimate level of customers and provide policies specific to their lives. The insurance industry has for years sought to improve customer intimacy in a bid to boost profits. Now, blockchain’s efficiency, combined with its transparency, has the potential to reduce costs enough to unlock value in low-paying premiums. Farmers in a remote village could create their own risk pools via the blockchain or local sports clubs could create their own policy to protect against injuries during a tournament.

Still, as promising as it is, the technology alone is no panacea for the industry. In the end, the blockchain technology is only as good as the people or processes behind its code. Insurers who really want to establish trust can take steps to incorporate the technology for the benefit of their customers. They should use and create open-source code that can be freely inspected, creating transparency around their policy and payment processes.

Blockchain for Parametric Policy Payouts

They can also use blockchain to expand offerings in parametric insurance, where certain events trigger automatic payments. Policies can be created for payouts for flight delays or extreme weather. It does not matter whether the traveler actually missed his business conference or the farmer lost his crop. The parametric insurance, enabled by the blockchain’s smart contract, is executed automatically when a plane lands late or there is a month of drought. What better way to establish trust with customers—and consequently retain their business—than for insurers to pay promptly, efficiently, no questions asked?

Blockchain for Insurance, Simplified

Stephan Karpischek // Stephan Karpischek is a co-founder of Etherisc, an insurtech company building a platform for decentralized insurance applications. Etherisc has won numerous prestigious startup technology awards for its blockchain and insurance innovation.

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