Traditional insurance involves trust, as it is a form or contract; it requires that the parties that belong to the agreement deal with each other in good faith. They are expected to meet their contractual obligations. Unfortunately, parties commonly fail to adhere to things, and disputes arise that, often, must be settled by litigation. Lawsuits are often expensive, counterproductive, and ineffective. Increasingly they may also be minimized by the use of smart insurance contracts.
What is a smart contract?
Two parties make an agreement via the computer. The popular system used to store the contract is called blockchain, a type of public database into which, once contract information is entered, it can’t be altered, but can be shared and accessed freely.
A simple insurance smart contract would involve an agreement to pay a sum if a loss takes place. Payment is only made when triggered by a loss. There’s total certainty with no involvement of a third party.
Various insurers are investing money in the development and use of smart contracts because they may significantly reduce the cost of insurance transactions as well as speed up the time to implement them. Less expensive, faster transactions are mutually beneficial to insurance companies, and their customers as premiums should be lower, and quicker loss payments would allow speedier recovery from injury or damage.
Certainly, removing trust issues would have a more considerable, social benefit, reducing incidents of breached trust initiating consumer complaints, requests for arbitration or lawsuits.
For now, only time and technology will tell whether smart contracts will become common. Unless and until then, let’s hope that we can depend on trust.