Blockchain has its advantages with regards to security, data integrity, record-keeping, and efficiency of the smart contracts. Blockchain is the right choice to decrease the complexities in the insurance Industry. Several Insurers are benefiting from these properties by exploring blockchain’s potential to streamline tedious procedures.
Need For Parametric Insurance
- One of the important business drivers in insurance ventures is quicker claim payouts and parametric insurance, which can prompt no claims procedure. Moreover, no other documents are required for the claim to be settled.
- This instigated procedure removes almost all the third parties, decreases paperwork, can practically remove claim investigations, increase productivity, and reduce expenses to the insurer.
- Parametric insurance comes into picture when a particular event happens, or a measurable condition is looked upon, like a flight delay, a quake, a specific hurricane wind speed, long stretches of flood or drought, and some more.
Parametric Insurance versus Traditional Insurance
Parametric insurance contradicts from traditional insurance in a few ways:
- Traditional Insurance often includes a complicated rating formula and elaborate policy wording to compensate the insured for the total losses acquired, whereas parametric insurance is unmistakably straightforward and to some degree, restricted.
- Contrary to traditional insurance, where resources are insured, Parametric Insurance insures parameters are otherwise called indices.
Parametric Insurance and Blockchain Smart Contracts
Smart contracts and parametric insurance appear to be made for one another. Moreover, it is not the only kind of insurance that will profit by blockchain technology. It utilizes information sources and algorithms for investment and claims, and it is started by and paid to the policyholder dependent on a lot of specific conditions.
How Blockchain is taking this Process Further
- Currently, it is possible to propose offers that cover particular circumstances, with a smart contract automatically activating payments when something occurs, without the client having to submit a claim.
- An example of parametric insurance is where flight statistics are the parameter to trigger the performance of the smart contract.
- It utilizes the blockchain in two different ways; firstly, for record-keeping (keeping up an accessible record of the insurance contract itself inside a smart contract) and secondly, as an instrument for triggering the payment to the customer once the two-hour delay mark has ended.
Distributed Ledger Technology and Parametric Insurance
Comparing with several technologies creating new solutions for the development of parametric insurance, Distributed Ledger Technology (DLT), explicitly the blockchain, is the most appropriate. There is a natural association between parametric insurance and Distributed Ledger Technology, especially with regards to smart contracts. Smart contracts empower automatic, prompt exchanges that are independently confirmed without the requirement for intermediaries.
The automatic payments incorporated in parametric insurance require trusted information sources and secure exchanges. Distributed Ledger Technology and smart contracts can guarantee this trust while automating the payment and also by accelerating the procedure even further. For risk experts who are anxious to expand their understanding of how the technology is influencing insurance and risk contributions, parametric insurance is something worth watching out for.