Blockchain for insurance:
key use cases & implementation tips

Blockchain for insurance: key use cases & implementation tips

December 20, 2023

Market statistics

the value of the global blockchain in the insurance market by 2031

Allied Market Research

CAGR of the global blockchain in the insurance market from 2021 to 2031

Allied Market Research

the total cost of insurance fraud (non-health insurance) per year in the US


How blockchain works in insurance

The root cause of the absolute majority of insurance industry problems comes down to the misalignment of incentives between insurance companies and policyholders, which leads to insurers spending inordinate amounts of resources to combat fraud, examine claims, and resolve disputes. Meanwhile, policyholders who are kept in the dark about the influencing decision-making factors are becoming more incentivized to outsmart the system. Blockchain can be the ultimate solution to this problem by providing a mutual trust layer between the two parties.

The cornerstone of applying blockchain in insurance is smart contracts, programs that automatically execute themselves when events specified in a contract between multiple parties occur. The events that cause the contract execution can be external, which makes smart contracts a particularly valuable technology for insurance. For example, IoT sensors in homes can determine gas leaks and initiate automatic claims processing. Given that smart contracts are stored and validated on the blockchain, no party can change contract terms but all of them can access a single source of truth. With a well-thought-out implementation of smart contracts, companies can drastically increase the efficiency of the insurance process and make it transparent for all parties involved.

Pre-defined contract

Terms are agreed by all counterparties


Event triggers contract execution

Executive & value transfer

The smart contract is automatically executed based on the pre-agreed terms


Payout and other settlement is completed instantly and efficiently

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Key use cases of blockchain in insurance

In the insurance context, blockchain offers a unique and innovative way to improve traditional processes. Let's explore how this technology can be used for insurtech:

Parametric insurance

Parametric insurance contracts are commonly used to protect a policyholder from a specific accident. Premiums are usually based on the significance of the event rather than on the economic losses. For example, a parametric insurance contract can imply that regardless of the actual economic damage, an insurer will pay $1m to a policyholder if an earthquake goes above a specific magnitude value and reaches a particular territory. Similarly, parametric insurance can protect farmers from unforeseeable weather events like drought that impact their crops. In this case, smart contacts can automatically execute payouts using decentralized oracle data (like Chainlink nodes) based on rainfall data obtained from IoT-enabled sensors and/or publicly available weather APIs.

While the core idea behind parametric insurance originated more than 20 years ago, this approach hasn’t been reliable because of technology limitations. However, with smart contracts, IoT sensors, and smart wearable devices, parametric insurance can become increasingly autonomous, transparent, and efficient.

Scheme title: Example of smart contract for crop insurance

RainfallTemperatureOther product evaluatorData sourcesIndependent oraclesRainfall evaluator smart contractTemperature evaluator smart contractOther product evaluator smart contractWeather smart contract evaluatorsDecentralized


Banks, insurance companies, and other financial service providers don’t exchange KYC information due to regulatory concerns, forcing customers to reenter the same data multiple times. As a result, financial institutions waste time performing work that has already been done and generating data discrepancies among each other. Blockchain is poised to solve these problems since it allows partnering insurers to share KYC and AML data within a private blockchain. This way, customers enter data only once, so it can be securely shared within a private blockchain-based database. Insurers, in their turn, don’t have to spend inordinate amounts of resources to process customer data, as it’s immutably stored on the blockchain. Itransition is ready to develop such a KYC verification application using blockchain and non-fungible tokens (NFT), which will enable the secure exchange of customer data within a private blockchain-based database. On top of that, blockchain can also streamline regulatory compliance and significantly decrease compliance costs. Insurers won’t need to submit compliance reports manually, as regulators can access all the necessary information on blockchain in real time.

KYC verification
with a bankShare KYC resultsBankKYC stored on the blockchainInsurance company

Scheme title: Exchange of KYC data via blockchain

Fraud management

One of the insurance industry’s legacy challenges is a lack of trust and transparency, as, according to IBM research, 42% of customers don’t trust their insurers. This statistic is truly alarming because trust is the foundation of long-lasting customer relationships. Importantly, this lack of trust is mutual, with customers often thinking that insurers are deliberately skimping on payouts while insurers are forced to carefully evaluate each claim to mitigate fraud risks. However, there is no surprise that insurance is an attractive field for wrongdoers. With multiple insurers and reinsurers constantly shuffling papers between each other, criminals have ample opportunities to make multiple claims for a single accident. Using blockchain, insurers can combat fraud by permanently storing claims data and sharing it with everyone within the network. This will significantly lower the risk of double-booking, counterfeiting, and other types of insurance fraud.

AccidentPayout OKPayout stoppedInsurerInsurerBlockchain

Scheme title: The same claim at two insurers


When it comes to reinsurance, there is usually a gamut of parties, including clients, brokers, and reinsurance companies themselves, all using different data standards. This significantly complicates reconciliation and disrupts the flow of information between parties. For example, excess of loss reinsurance, commonly used for catastrophic events, covers all losses beyond a specific threshold, with reinsurers often sharing loss percentages with the ceding company to avoid excessive responsibility. This way, reinsurance becomes an increasingly complex and resource-intensive process, because multiple parties need to endlessly exchange documents with each other since every claim submitted by the insured party requires reconciliation between all participants.

Blockchain allows for significant cost and time savings for reinsurers by providing tamper-proof and time-stamped records of claims. This allows all involved parties to have a single source of truth, eliminating the need for manual reconciliation, enabling reporting standardization, and enhancing risk management. Smart contracts can also be used to automate reinsurance accounting, further streamlining cash flows.

P2P insurance

Peer-to-peer insurance involves a group of individuals that pool their resources together and insure each other against various risks. P2P insurance eliminates the need for a central authority, decreases overhead costs, and allows group member policyholders to get their refund at the end of the coverage period. However, these benefits are typically compromised by the lack of trust between group members. Blockchain can be that very missing ingredient that makes a P2P transaction network self-sufficient and trustworthy. By applying smart contracts, P2P groups at least partially automate claim payouts.

For example, when a claim is made, smart contract applications can automatically check if all the necessary documents are attached and whether the claim amount is below the defined limit.

Given that many P2P insurance groups are formed by friends, family members, and people that are socially close to each other, it’s also possible to employ secure voting mechanisms using blockchain. So, when a claim is made, members can vote to approve or refuse it, further simplifying payouts.

Crypto-based financial insurance

In the world of cryptocurrency like Bitcoin, platforms for lending and financial hedging have become the norm. Borrowers and lenders can connect directly, utilizing various on-chain protocols like Aave or Lyra. Through smart contracts, AAVE implements lending mechanisms, while LYRA offers hedging financial instruments. However, unlike traditional financial markets, cryptocurrency markets are inherently volatile and prone to unexpected events. This implies that borrowers’ collateral value can suddenly plummet, making lending on decentralized platforms unjustifiably risky.

However, insurers can use blockchain to protect lenders against significant drops in borrowers’ collateral value by using smart contracts. Current market price data from trusted financial exchanges can be continuously sent to the insurance smart contract, allowing it to always keep tabs on the borrowers’ collateral value. In case when the collateral value drops below a certain threshold, the smart contract automatically triggers a payout to the lender. As with any other smart contract-based application of blockchain insurance, the off-chain data must be tamper-proof and accurate, meaning that insurance providers should be extremely cautious with selecting their data sources.

Insurance-linked securities

Insurance-linked securities allow both insurers and reinsurers to transfer risk to the capital markets instead of other commercial insurance companies. While ILS doesn’t imply it by default, in most cases, these securities are usually linked to specific catastrophic events. Essentially, insurance companies issue catastrophe bonds to raise capital and cover potential losses. For investors, ILS offers a way to earn returns that aren’t linked to traditional financial markets.

Similar to parametric insurance, investors and insurers have to agree on specific terms that will trigger payouts, like an earthquake of a specific magnitude. Usually, in the event of environmental disasters, remittance takes time as the shifting of funds should be verified by an intermediary. With smart contracts, settlement becomes much faster, and payouts are triggered automatically when predefined conditions are met. The self-executing nature of smart contracts fosters trust between insurers and investors, significantly reduces administrative costs, substantially decreases fraud and insolvency risks, and ensures accurate claims processing.

Examples of blockchain for insurance

    Fraud detection by ClaimShare

    ClaimShare uses blockchain and confidential computing to prevent double-dipping fraud. When a customer files a claim, ClaimShare shares a person’s publicly available data with other insurance providers via the Corda blockchain. Using an AI fuzzy matching algorithm, the system automatically detects suspicious claims. Once the system identifies a claim as potentially fraudulent, the confidential computing platform Conclave matches personally identifiable information with the claim data to validate a fraud attempt. In this case, confidential computing helps to analyze data without compromising sensitive information, allowing the ClaimShare solution to stay compliant with GDPR.

    Submit claim
at Insurer A23Insurer A4110AccidentPublic data matchingPrivate data matchingSubmit claim
at Insurer B78Insurer B96105Payout 

    Scheme title: ClaimShare technology architecture
    Data source: — Solving duplicate payouts in the insurance industry

      Parametric insurance by Lemonade Foundation

      The Lemonade Foundation launched a blockchain-based project to provide crop insurance for low-income farmers. Providing insurance to smallholder farmers has always been a hard proposition. Given the small scale of their businesses and correspondingly small claims, it’s simply economically unfeasible for insurance companies to work with such farmers because the cost of processing a claim can be higher than the cost of the claim itself. With the help of self-executing smart contracts, the claims processing costs are getting significantly lower, making it economically justifiable for insurers from the Lemonade Crypto Climate Coalition to service low-income farmers. Importantly, aware of the utmost importance of reliable data sources, Lemonade is partnering with, a global leader in weather forecasting and monitoring.

        Collateral insurance by Etherisc and Chainlink

        Etherisc developed a blockchain-based solution to provide collateral insurance for decentralized finance (DeFi) platforms, which can suffer significant losses if borrowers default on their loans or the market takes an unexpected dip. Using the Etherisc platform and Chainlink Data Feeds, insurers can automatically pay out insurance claims as soon as the DeFi platform’s collateral value drops below a certain threshold. Insurers also benefit greatly from the transparency provided by Etherisc and Chainlink, as they can review all transactions on-chain to properly assess the risk of providing coverage.

dataChainlink networkChainlink price feedAsks for ETH/USDC priceReturns ETH/USDC priceInsurance smart contract

        Note: ETH/USD price feed to regularly help insurance smart contract in determining value of collateral

        Scheme title: Chainlink Data Feeds
        Data source: — Powering the next generation of blockchain-enabled insurance

          Marine insurance by Insurwave

          Insurwave, created by EY and Guardtime, is a blockchain-based platform that helps manage risk for thousands of commercial vessels. By integrating disparate data sources involved in insuring shipments worldwide, the platform provides all parties with access to the same risk data in real time. This enables the automation of premium calculations and greater visibility of the whole value chain, leading to improved underwriting and claims governance. Maersk, the world’s largest shipping company, is already reaping the benefits of this platform. Before the implementation of Insurwave, Maersk’s risk management department used to spend 75% of its time on contract administration. By automating insurance transactions, the company has managed to free up resources to focus more on managing business risks. On top of that, instead of measuring risks based on just seven data points, Maersk now uses more than 50 data points, allowing the team to insure risks much faster.

          Video title: How Insurwave has helped Maersk
          Video source:

          Blockchain implementation roadmap in insurance


          Opportunity consideration

          Take time to thoroughly review your insurance value chain to detect inefficiencies and pain points. Then, analyze how blockchain can address these challenges and identify where blockchain can provide the most value, whether it’s claims processing, reducing fraud, or improving data security.



          After selecting blockchain use cases, carefully choose the most suitable blockchain type (permissioned, permissionless) based on privacy and security requirements. Assess the feasibility of partnerships with other companies for industry-wide blockchain implementation. Create a detailed business case outlining the benefits, costs, and ROI of the proposed blockchain adoption.


          Pilot testing

          Choose a small-scale pilot project to test the feasibility and effectiveness of the blockchain solution. Collaborate with key stakeholders, including reinsurers, agents, and customers, to ensure buy-in. Monitor the pilot project closely and gather data to measure its impact on efficiency and customer satisfaction.



          Assemble a dedicated team that consists of blockchain technology experts and insurance professionals. Develop a fully-fledged blockchain solution relying on insights and feedback from the pilot project. Make sure you comply with regulatory requirements and data privacy laws in your specific region. Importantly, invest in employee training to realize the full potential of blockchain technology.


          Business as Usual embedding

          After the project release, gradually integrate the blockchain solution into the company's daily operations and try to slowly scale it across different departments. Set up a performance monitoring framework and make adjustments to the technology workflow as needed. Establish a culture of collaboration within the organization to maximize the benefits of blockchain.



          As a final step, identify what risks the technology introduces, especially to regulatory compliance and data privacy. Given that blockchain’s regulatory requirements are constantly changing, it’s paramount to continuously monitor this space and perform reviews at regular intervals.

          5 benefits of blockchain in insurance

          Blockchain and smart contracts offer insurance companies an alternative way of conducting the majority of their operations more efficiently and transparently, eliminating customer distrust and enhancing the security of sensitive data.

          1 Fewer disputes

          Instead of leaving claims assessment to inherently subjective human opinion, blockchain implementation allows insurers to execute contracts based on real-time data, decreasing the probability of disputes.

          2 Improved automation

          With well-thought-out smart contracts in place, claims can be processed automatically, resulting in decreased operational costs.

          3 Improved reach & inclusivity

          Many third-world countries don’t have adequate access to professional insurance services. With more affordable, intermediary-free blockchain solutions, disadvantaged groups can gain access to reputable insurance providers.

          4 Enhanced transparency

          With the help of smart contracts, IoT sensors, and trusted data providers, insurance companies don’t need to rely on claims processors or policyholders to evaluate cases, effectively eliminating distrust between all parties.

          5 Streamlined regulatory compliance

          Given that transactions stored on the blockchain are tamper-proof, it becomes easier for insurance companies to maintain an audit trail to comply with regulations.

          Adoption risks & limitations

          It can be argued that despite blockchain’s massive potential in insurance, there is an apparent lack of real-life applications. At the same time, unlike many other innovative technologies like artificial intelligence or IoT, blockchain can face several limitations, requiring collaboration between industry players to realize its full potential.



          Software vulnerabilities

          The recurrent theme in advocating blockchain adoption in any industry is shifting responsibility from a central authority to a consensus mechanism. While this concept has proven effective in many cases, stating that blockchain is inherently secure and completely tamper-proof is often an exaggeration. The problem is that consensus mechanisms are created by humans, meaning that they can still have vulnerabilities.

          The recurrent theme in advocating blockchain adoption in any industry is shifting responsibility from a central authority to a consensus mechanism. While this concept has proven effective in many cases, stating that blockchain is inherently secure and completely tamper-proof is often an exaggeration. The problem is that consensus mechanisms are created by humans, meaning that they can still have vulnerabilities.

          There is no clear-cut way to ensure that smart contracts are properly written, as it all comes down to the expertise, experience, and responsibility of the developers writing the code. This should persuade insurance companies to collaborate only with trusted technological partners with a proven track record of successful projects.

          Unreliability of off-chain data

          Smart contract execution often relies on external information, be it from web APIs, IoT sensors, or public legal repositories. In such use cases, the reliability of smart contracts becomes dependent on the credibility of these off-chain data feeds, also known as oracles. These oracles can be tampered with, making smart contracts execution inaccurate.

          Smart contract execution often relies on external information, be it from web APIs, IoT sensors, or public legal repositories. In such use cases, the reliability of smart contracts becomes dependent on the credibility of these off-chain data feeds, also known as oracles. These oracles can be tampered with, making smart contracts execution inaccurate.

          One of the ways to significantly raise the oracles’ trustworthiness is to make them decentralized. This is exactly what Chainlink is doing in this space. Their Decentralized Oracle Network (DON) consists of a number of independent data sources that provide data to a particular type of smart contract.

          Lack of legal frameworks

          Given the relative novelty of blockchain in insurance, industry players often struggle to clearly define the format for legal relationships that govern business processes on the blockchain. The core challenge lies in the lack of horizontal collaboration between insurance market players to establish these legal frameworks.

          Given the relative novelty of blockchain in insurance, industry players often struggle to clearly define the format for legal relationships that govern business processes on the blockchain. The core challenge lies in the lack of horizontal collaboration between insurance market players to establish these legal frameworks.

          To address the challenge of lacking legal frameworks, it is crucial for insurance providers to engage in open dialogues and collaborate with each other. Determining the necessary legal frameworks that align with the unique requirements of blockchain technology in insurance is a matter of cooperative effort.

          The next frontier of insurance

          The next frontier of insurance

          Undeniably, blockchain is the next frontier of insurance. Blockchain’s ability to harmonize and decentralize data across insurance processes, compensate for the lack of trust between policyholders and insurers, and reduce operational costs can’t be overlooked. The current lack of legal frameworks certainty shouldn’t be surprising, as organizations are still in the midst of exploring blockchain’s real risks, opportunities, and implications in the insurance context. In the meantime, insurance companies are encouraged to explore the possibilities of this technology. Evidently, industry players that take the lead and dive deep into adopting blockchain applications will reap the benefits of this technology and gain a competitive edge. While carefully choosing a technological partner is one of the biggest prerequisites for success in any industry, implementing blockchain in insurance puts even more pressure on making the right choice. With over 25 years in software development, Itransition is no stranger to making the most out of disrupting technologies like blockchain.

          The next frontier of insurance

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          Can blockchain be applied to any type of insurance?

          While blockchain holds promise for most insurance applications, applying this technology for simple, low-risk insurance policies with a limited number of intermediaries doesn't make sense, as it will unreasonably complicate the operations.

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