Decentralized Insurance On Blockchain’s Distributed Ledger Technology Is Coming Chain By Chain

Insurance And The Blockchain

Insurance is a global industry that is worth trillions. However, the industry has issues of poor incentive models, opacity, and fraud. Insurance is designed to help people deal with unexpected issues. Despite this, the policy owner often ends up in long fights just to get compensation. This is because insurance companies only make a profit when there are fewer people demanding payouts. The blockchain can help resolve most of the issues that plague this industry.

Decentralizing In the Insurance Sector

• Opacity

One of the areas that would benefit from the decentralization of insurance is opacity. Right now, no one really knows what happens inside the industry. For one, the disclosure is limited. Besides that, the consumer protection laws are very weak in the sector.

For instance, the State Treasurer for Illinois took three insurers to court in 2016 to audit their records. The aim was to find death benefits that needed to be paid to families of the bereaved. It was found that between 2011 and 2015, over $550 million in unclaimed benefits existed. The complex insurance process is what plagues the industry. Besides that, insurers do not offer help to families that want to make claims.

This issue could be solved with a transparent distributed ledger. It will allow auditing of the value chain at multiple levels. Any premiums are recorded on the blockchain where policyholders can monitor them. The immutable contract can establish owners, which makes it easier to make claims.

• Data Collection

Another area that could do with decentralization is data collection. Policyholders have their data collected for the application. The insurer then keeps a permanent record of the data. Brokers use it to sell various products to customers. In fact, this issue is so serious that the top three brokers in the US generate about 40% of all revenue by the top 50 brokers.

The decentralization will make it possible to control the sharing of data. Data owners can revoke access to their data when the policy ends. This will also help create a data marketplace. Users sell their data to brokers and make a profit. It will also ensure that small companies can better compete in this industry, ending the monopoly.

• Fraud

Fraud is also an area where the blockchain could help. The insurance industry loses about 40 billion dollars each year to fraud. The most common issue is double billing. This is where a policyholder sends a bill to the insurer multiple times.

Nodes on blockchain-powered platforms can assist to prevent double billing. This will ensure the insurers do not have to pay numerous times for one issue. This is because the nods verify if a claim had been paid. Immutable certificates will offer proof of ownership to prevent falsified ownership and wrongful payments.


Although the blockchain can help to prevent fraud online, there are limits. It cannot prevent physical fraud. In most cases, the insurer will still need to have physical investigators to determine if it was an accident or deliberately caused.

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