Blockchain in Insurance: Evaluating the Pros & Cons

By Brian Nibley · August 09, 2021 · 6 minute read

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Blockchain in Insurance: Evaluating the Pros & Cons

Blockchain, the technology that powers cryptocurrency, has several other use cases, including the ability to facilitate financial agreements and contracts quickly and transparently. That makes blockchain a particularly interesting technology for the insurance industry, which revolves around the creation and execution of financial contracts.

Blockchain 101: The Basics

Blockchain technology is the technology allows users to hold and transfer Bitcoin and other cryptocurrencies. A person or group known as Satoshi Nakamoto invented blockchain technology in 2009.

Blockchains are a specific type of distributed ledger technology (DLT). While all blockchains are distributed ledgers, not all distributed ledgers are blockchains.

Distributed ledgers keep records of transactions or other information throughout different computers in different locations. A blockchain is a special type of distributed ledger that developers created to be immutable (can’t be changed) and decentralized (can’t be centrally controlled).

A blockchain works by processing transactions into groups referred to as “blocks.” Each new block gets attached to the block that came before it, creating an ever-growing chain of blocks. This is where the term “blockchain” comes from. Altering the data inside any single block would require changing the entire chain, something almost impossible to do in most cases.

However, the data held in blocks can take many forms, not just financial transactions. The ability to create an immutable, transparent, decentralized ledger of data without a single point of failure means there are many potential applications of blockchain.

Recommended: A Guide to Blockchain Technology

How Does Blockchain Help Insurance?

There are a number of key ways that insurance blockchain could benefit the industry:

Enhanced efficiency

With so many time-consuming manual processes with the potential for human error, blockchain can streamline the processing of insurance contracts.

Trust and transparency

The encrypted nature of blockchains mean that transactions can be trusted as secure and authentic, which both ensures customer privacy and leads to less confusion.

Claims processing

Real-time data collection and analysis become possible with blockchain, bringing with it the potential to speed up claims processing and payouts.

Smart contracts

These virtual contracts can be programmed to automatically execute when certain conditions are met. These could be used to create insurance policies that are cheaper to administer and also cost less for customers.

Recommended: What are Smart Contracts? A Beginner’s Guide

Insurance fraud

People often falsify information in claims for casualty and property insurance, costing the industry more than $40 billion per year. The way the insurance industry conducts business today leaves room for error and increases the risk of fraud. If insurance companies were able to store information about their claims on a blockchain, this could help them more easily identify suspicious behavior.

Block chain could reduce such fraud by introducing:

• Automated claims via smart contracts

• Automated insurance claim payouts

• Authentication for documentation, lowering the risk of fraud

• Creating a permanent record of all transactions

Drawbacks to Blockchain in Insurance

Introducing Blockchain to insurance also has some potential downsides. While decentralization makes a blockchain more secure by eliminating any single point of failure, it can be difficult to maintain. When a single organization creates its own blockchain for specific purposes, the computers that run the network (referred to as nodes) could wind up becoming centralized, leading to the destruction of one of the key benefits of blockchain.

Recommended: 51% Attack: A Threat to Decentralized Blockchain

There could also be a problem with trust. With the Bitcoin blockchain, people may trust the transaction data because from the moment they’re mined, users can see where coins go, at what time they moved, what crypto wallets they’re in and what crypto wallets they used to be in. all of this information is transparent, provided that the asset being tracked is native to that blockchain.

Most of the potential use cases for blockchain involve assets that didn’t originate on-chain (like insurance claims) but were first created somewhere else. For this reason, it’s possible that the data being put onto a blockchain could be inaccurate. And if the blockchain truly is immutable, those inaccuracies might be impossible to fix.

Potential Blockchain Use Cases in Insurance

Blockchain for insurance could create many advantages for the industry. The potential benefits mostly stem from the universal features of blockchains, like immutability, blockchain security, and transparency (or privacy, if that’s what’s required). There are several ways that insurers could put this to use:

Health Insurance

One potential area of use for blockchain is in health insurance. Insurers currently keep health records on their own systems, and transmitting that information from one provider to another can be inefficient.

However, blockchain could make it possible to conduct faster and more accurate sharing of medical data between insurers and healthcare providers in a way that is private and secure. This could result in health insurance claims being processed faster and customers paying lower premiums for their coverage.

Property Insurance

Property insurance and casualty insurance includes home, commercial, and auto insurance. The dollar amount of premiums written for this type of insurance was more than $638 billion in 2019. Introducing smart contracts could make claims processing more accurate and efficient. Smart contracts execute themselves automatically when certain network conditions are met.

For example, a smart contract for auto insurance could automatically execute and trigger a payment after a car accident.

Travel Insurance

Delayed flights and other unexpected travel interruptions can create headaches for everyone involved. People who hold travel insurance policies have to go through a long and arduous process just to file a claim. Blockchain can make the whole process smoother and faster, allowing customers to automatically get paid for events like flight delays and receive payouts immediately.

Title Insurance

Title insurance is intended to make up for losses created due to mistakes in titles or similar legal documents. Title insurance underwriters often share information about their policies between themselves. A blockchain-based platform could allow underwriters to easily see previous title insurance policies automatically. This could not only speed up real estate transactions, but also reduce potential fraud due to the transparent and immutable nature of blockchain.

What Companies Use Insurance in Blockchain?

Some companies throughout the world have already begun implementing blockchain technology in insurance for their day-to-day activities. While decentralized finance (DeFi) is revolutionizing financial services, blockchain is being used by some existing insurance companies to improve their existing practices.

Blue Cross

Blue Cross, based in Hong Kong, uses blockchain to prevent fraud and accelerate the processing of insurance claims. The platform verifies data in real time and gets rid of the need to reconcile claims data between different parties like insurers and healthcare providers.


Lemonade, based in New York, is a company that combines artificial intelligence and blockchain to offer insurance to homeowners and renters. Lemonade uses smart contracts to instantly verify losses when a customer makes a claim. If a claim gets approved, the AI and blockchain system makes payment immediately.


FidentiaX, based in Singapore, is a marketplace for tradeable insurance policies. Users have the ability to buy and sell their policies on a blockchain. Users can buy insurance policies from others and access all relevant data in a single location. The company developed something called ISLEY, which lets customers get detailed overviews of policies, receive notifications about premiums, and see records of their history.


IBM is making its blockchain available to insurers, streamlining recordkeeping and allowing for instant updates after transactions. The company claims that users also reduce management costs and enhance customer satisfaction.


The insurer is testing a blockchain-powered platform for its commercial insurance business that would allow for faster and more secure police and claims management.

Universal Fire & Casualty Insurance

This small business insurer has begun accepting crypto as a method of premium payments.


This pay-as-you-drive car insurer is not only accepting crypto for premium payments but also using it to pay out claims.

The Takeaway

The blockchain has many uses outside of sending cryptocurrency, and the insurance industry could likely benefit from many of those uses.

Photo credit: iStock/blackCAT

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