by JP Buntinx
Blockchain technology has unlimited use cases, as developers are only just discovering the tip of the iceberg of possibilities. The finance industry seems most prone to disruption due to this technology, and the insurance market is often overlooked in that regard. When blockchain technology is combined with smart contracts, the way we think about commercial insurance and reinsurance becomes very different.
Insurance and Reinsurance
There are two different types of insurance available in the world today. On one hand, there is the insurance customers and enterprises purchase from a bank or licensed insurance company. But on the other hand, there is also reinsurance, which is slightly different. Such products are typically purchased from other companies active within the same industry and serve as a means of risk management.
In the end, the majority of insurance companies want to reduce their exposure to loss. Passing a portion of the risk of loss to someone who acts as a reinsurance provider is an excellent way of doing so. As one would come to expect, these agreements need to be drafted carefully, as there is a great deal of risk involved for both parties.
Contrary to what some people may believe, reinsurance marketplaces are a real thing. These platforms are primarily designed to ensure all companies remain solvent, so they have enough capital available if a lot of claims are expected. In the end, this whole ordeal is a very complicated process that relies on many prior dependencies. Monitoring these agreements has become all but impossible, and new technological solutions are direly needed.
Blockchain Technology Can Alleviate Concerns
In the reinsurance sector, transparency and collaboration are two driving factors. The blockchain offers real-time information, which can be used to identify problems as soon as they occur. For a business that is all about risk versus reward, identifying key issues in time can save a lot of money and headaches.
In theory, the blockchain will serve as a distributed ledger of transactions between insurance companies. It will also become the source for payments, amendments, claims, and novation, all of which can be taken care of in real-time. Gone will be the days of unnecessary administration and delays.
But the blockchain on its own will not be a sufficient countermeasure to solve all of these problems. Smart contracts are very appealing to the reinsurance industry, as they would make all related transactions fully auditable. Embracing this technology would create a transparent platform for risk and reward, while also providing vital information regarding the insurances themselves.
For now, all of this is a utopian dream, as smart contract technology is far from mature. Despite its infancy, this technology already offers advantages over the methods currently used. The blockchain will need to start making an impact in the financial sector soon. Failure to do so will result in slow adoption.Then again, no one is doubting blockchain-based smart contracts will make an impact on reinsurance in the future.