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. Both parties are expected to meet 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. Minimize lawsuits by using insurance smart contracts.
What is a smart contract?
Two parties make an agreement via the computer. A blockchain is a system used to store the contract. This is a type of public database, once contract information is entered, 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 made if a loss occurs. 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. They also speed up the time it takes 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. Until then, let’s hope that we can depend on trust.
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