Decentralized insurance is one protocol that’s currently revolutionizing the insurance industry. We are so used to having insurance packages for lives, cars, medical bills but this multi-million industry also covers many things. Above all, most insurance policies are supply-driven. That’s because the private and public insurance companies sell standardized policies designed to lower costs at the expense of limited choices. However, this method that we inherited from the industrial era doesn’t cut it anymore.
To get more options in the insurance industry, you will have to pay even higher fees and premiums. That’s what is termed speciality insurance. Such insurance coverage is expensive and sometimes exclusive. But when it comes to decentralized insurance, we get a wide range of insurance coverages that could potentially change the game altogether. So, what is decentralized insurance, and how does it work? Stick around to the end to find out more.
Decentralized Insurance Guide: Definition
In simple terms, Decentralized insurance is the application of blockchain technology in the insurance (is typically the means of protection against financial loss) sector. And with the decentralized technology introduced into this sector, insurance policies are now more transparent to the users and efficient.
Blockchain is a relatively new concept in the market, especially in the insurance industry. However, it’s already created a reliable ecosystem with the perfect insurance blockchain balance. That said, let’s look at how this system works and why this sector needs blockchain technology.
How does Decentralized insurance work?
Blockchain technology provides this industry with a decentralized, immutable, and transparent network that’s the ideal solution to eliminate some of the challenges afflicting insurance policies. That makes it the perfect fit for the insurance sector. Above all, blockchain has a unique framework that can be implemented in the insurance world. That said, below are some of the ways decentralized insurance works and how it can be embraced. So, without further ado, let’s get started, shall we?
- Health Insurance
To give you a clearer perspective, let’s use the health insurance industry as an example. Several different companies can share information easily and even detect any fraudulent claims within the industry. Through decentralized insurance, hospitals can record data regarding patient medical histories within the system, and it will be accessible by the insurance company.
Additionally, policy workers can claim compensation from their specific insurance company through this platform. Above all, once the data is added onto the decentralized insurance network, it can’t be erased or altered at any stage. That means there won’t be any document changes or loss of data since the system is decentralized.
- Automated Functionality
Another vital function of decentralized insurance is the automated smart contracts. The manual processes that happen within the insurance industry can be automated using smart contracts. The smart contract will execute commands depending on certain conditions and agreements between the insurance company and the policyholder.
That will help to reduce manual intervention and also speed up the insurance implementation at any level. At the same time, it will also lower the transaction costs within the blockchain. That will help create the ideal system leading to happy customers and smooth workflow within the company.
- Cyber Security
Blockchain technology is one of the most robust systems currently. The framework behind this tech is virtually impossible to hack. That’s all thanks to its cryptographic techniques, creating a secure system that safeguards the data in the insurance industry. Therefore, data and information can’t be misused or tampered with, making it easy for companies to implement their insurance packages.
Why do we need Decentralized insurance?
Even though the insurance industry is well established, several risks still threaten its functionality and well-being. Fraud schemes, data inefficiency, intermediate agents, and human-caused errors are potential threats to the industry. What’s more, these challenges are created by both the company and the customers.
Fraud typically arises from fake and false claims to earn profits from the industry. For instance, parties can claim compensation for services not rendered in the health industry to get higher payments. Another example includes parties hiding data about other insurance policies to hold double benefits or divorced couples applying for compensation from the same insurance company to get help. Those are some of the dubious conditions that ail the insurance companies.
Thankfully, we can mitigate the impact of such problems through blockchain, as we’ve seen earlier. The decentralized insurance offers transparent and unmanipulable data storage techniques that continue to safeguard the information in this industry. Additionally, the fact that decentralized insurance is automated reduces the chances of manual errors. Above all, this technology also speeds up the compensation process since transactions happen half the normal time. That makes it easy for customers to claim their coverage, especially when it’s an emergency.
Should we support decentralized insurance?
Why not? The perks of this technology outweigh, if any, the disadvantages that govern blockchain technology. The crypto market is quite volatile and still has a long way to go, but blockchain technology is barely affected by the fluctuations in the market.
That’s because this tech is only the background protocol that supports the use of crypto coins and can be applied in other industries such as insurance to equally support the policies and coverage packages. The beauty of this tech is its reliability and efficiency. Aside from the steep learning curve that comes with blockchain technology, decentralized insurance barely has any disadvantages.
Take Away Message
Blockchain’s ability to create a reliable and transparent ecosystem makes it an integral part of the insurance industry. It might take a few years before the full implementation of this new technology in the insurance sector, but it’s worth it. Most customers and insurance agencies currently have challenges that the previous system of governance can barely overcome.
And without proper care, such challenges could bring the insurance industry to its knees. Thankfully, decentralized insurance seeks to solve these problems and ensure we have a more reliable and transparent industry. That could help salvage the industry from further decline and also assist customers in getting better services. That’s because this system is relatively fast and efficient.