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

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

    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.



    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.



    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.



    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.

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    Can blockchain enable a fully autonomous insurance model?

    Can blockchain be applied to any type of insurance?