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The Insurance industry participates in various processes that are characterized by data exchange, which is modified or updated by many parties. Hence, the insurance industry can benefit from the adoption of blockchain technology. However, there is a lack of understanding of the technology, the legal implications and the issues in implementing the technology. This paper aims at finding potential opportunities for the insurance sector on the implementation of blockchain technology. It also discusses issues and concerns for insurance companies wanting to adopt block chain technologies. A search was carried out for relevant electronic bibliographic databases (searched by means of keywords), articles published in scientific journals, websites of consultancy firms and blockchain developers, and reference lists of relevant review articles. Articles were screened and eligibility was based on participants, procedures, interventions comparisons, outcomes (PICO) model and criteria for PRISMA (Preferred Reporting Items for Systematic Reviews). A total of 23 papers were finalized after scrutiny for this study whereby the results disclose that blockchain, as a single source of reality, has the potential to improve productivity and mitigate the complexity of the insurance processes. Examples of real-world applications and insurance use cases are presented to demonstrate the strengths & capabilities of the technology. This study also considers the present-day issues, risks and concerns in the implementation of the blockchain technology. Finally, the challenges and obstacles in the application of Blockchain technology in the Insurance Sector is highlighted and presented. Keywords distributed ledger technology, blockchain, insurance, risk management, smart contracts, cryptography, hyperledger, Ethereum, Bitcoins like healthcare, pharmaceutical, banking and finance, e-com- Introduction merce, etcetera, have adopted blockchain to a greater extent The world is gradually switching to digitization where many which has proved to be a huge success. One particular indus- businesses have recently begun researching blockchain tech- try that has not picked up pace in adopting new technologies nology for adoption in their business processes. In the recent as compared to other industries, is the Insurance industry years, scores of industries are spending time and money on (Yu & Yen, 2018). The primary reasons for this could be learning about the viability of blockchain and the effect of its adaptability in the organization (Kantur & Bamuleseyo, 2018; Department of Commerce, Manipal Academy of Higher Education, Nizamuddin & Abugabah, 2021). Whilst many have antici- Manipal, Karnataka, India pated innovations namely big data, social media, cloud com- Department of Data Science and Computer Applications,Manipal puting, and artificial intelligence to shape and influence the Institute of Technology, Manipal Academy of Higher Education, Manipal, next decade of business, Blockchain is the most disruptive of Karnataka, India all in the numerous industries of the world economy like Corresponding Author: finance and banking, health care, manufacturing, e-com- Rashmi Yogesh Pai, Department of Commerce, Manipal Academy of Higher merce, and food sectors. Skepticism was also expressed con- Education, Next to Block 9, MIT Campus, Manipal , Karnataka 576104, India. cerning blockchain’s real potential (Akande, 2018). Industries Email: email@example.com Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (https://creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open career advancement within the management and the internal sources, legacy underwriting models, and clearer informa- struggles over resources (Knights & Murray, 1992). However, tion on third-party software to name a few (Morabito, 2017). that is about to change. The Block chain Insurance Industry From a customer’s perspective, the handling of insurance Initiative (B3i) was founded in 2016 as a partnership between claim will be more automated and faster (Nath, 2016). insurers and reinsurers to find out how all the different stake- Although technology has permanently transformed entire holders in the value chain (B3i, 2017) could benefit from industries over the past decade, in many respects the multi- Distributed Ledger Technology (DLT) (Kantur & Bamuleseyo, trillion dollar global insurance industry has remained trapped 2018). Blockchain technology, for instance, can provide more in the past with little customer service advancement or innova- than just a means of generating digital currencies. Blockchain tion. Many customers still contact insurance brokers by phone processes can potentially eliminate all third parties, such as to buy new plans, amid the emergence of online brokers. banks and governments, who provide the trust in the transac- Policies are frequently processed on paper contracts, making tions (Alcazar, 2017). claims and payments that are prone to error and often requir- Blockchain and Smart Contracts are both new phenome- ing human intervention and oversight. Compounding this is nons in the global market as there is limited information on the inherent uncertainty of insurance, including the risk—the either of the two. As the name entails, a “blockchain” is, in key product of insurance, consumers, brokers, insurers and its simplest terms, a “chain” of previously validated transac- reinsurers. Each phase in this collaborative process is a possi- tion “blocks” that constitutes an immutable digital ledger ble failure point in the overall system, where data can be lost, and a distributed, resilient basis for value transfers (Eling et policies misinterpreted, and settlement times lengthened. al., 2021). Nevertheless, the pioneering recognition to block- Enter blockchain technology—a form of decentralized chain has come with an uptick in the attendant speculation. record-keeping that is cryptographically secure. Insurance is Blockchain technology is threatening to become the “next one of the basic services offered to reduce costs and assist big thing” and all kinds of blockchain-based projects are individuals during an emergent situation. Challenges related being proposed (Kar & Navin, 2021). The idea of smart con- to liability and authenticity of documents takes a long time to tracts was introduced by the cryptographer Nick Szabo in overcome through conventional methods (Shetty & Basri, 1997, which, in short, enables a user to invoke the terms of a 2018). Blockchain in this case serves as a simpler yet sophis- digital contract through an user interface (Szabo, 1997). ticated way to reduce various risks involved in an insurance Smart contracts are fragments of code that are self-executing company (Sharifinejad et al., 2020). Moreover, its core ele- and stored in the blockchain. The code may, for example, ment of redundancy, immutable storage, and encryption contain certificates, personal data, licenses, or wills. Such makes sure that records stored are secure and accurate smart contracts can be used in all sectors, but those most (Akande, 2018). likely to be disrupted in the next decade are the banking and insurance sectors. It is easy to access it, because the block- Review of Literature chain is public, decentralized, and distributed, and at the same time provides a safe and secure way of storing informa- Blockchain refers to the continuous chain of blocks that con- tion (Cuccuru, 2017). tain information built according to requirements by adhering Morabito (2017) argues that falsified claims, labor-inten- to strict governing rules. A blockchain can be comprehended sive processes, fragmented data sources, and legacy under- as a ledger or a chronological database of one or many trans- writing approaches, are the major challenges faced by actions wherein those transactions are stored in blocks (Peters insurance today. These contribute to low customer satisfac- & Panayi, 2016). This trust is built without any influence of a tion. Creating policies on the blockchain, such as smart con- central authority (Benton & Radziwill, 2017), the blocks are tracts would provide power, consistency and traceability for written on the chain after consensus among members of the each claim and may result in automatic payouts. network. The very essence of blockchain is that it is encrypted Every industry needs to keep up with the markets’ to be immutable, once the block is written, it cannot be modi- dynamic nature in terms of trends and technology in order to fied or tampered with. More often, multiple copies of block survive (Ankitha & Basri, 2019; Grima et al., 2020). chains are stored on many different computer systems in the Similarly, insurance companies must adapt to modern tech- form of distributed ledgers, that are independent of each other nologies like AI and blockchain to avoid facing disruption in (Kim & Laskowski, 2018). Several industries in the global the market. Blockchain is a new and emerging technology market have taken a technologically advanced step by adopt- where information is stored on a shared database known as ing and implementing blockchain for the purpose of transpar- blocks which carries features that makes the stored data ency and traceability. Blockchain technology provides a “transparent,” “traceable,” “unforgeable,” and “collective decentralized and open platform that allows the creation of a maintenance” (Zhao, 2020). Furthermore, blockchain will transparent, secure, and robust database (Lipsey et al., 2005); offer companies new and better types of insurances (health, and it’s called a blockchain because it can be interpreted as a travel, life, property and casualty, reinsurance or otherwise), chain of blocks interlinked with mathematically determined fraud detection and risk prevention through smart contracts. data using complex algorithms, also known as cryptography. Also, minimal labor intensive processes, fragmented data It is an electronic ledger that can be private or public in nature Shetty et al 3 that uses a global peer-to-peer network to offer an open plat- industry as offers and policies can be translated to computer form in which transactions are recorded chronologically. It codes at will. Cryptographic algorithms and similar sophisti- allows a distributed transaction which further creates a chain cated digital processes are used to protect information like of transactions where all parties involved, trust the system participant identity and personal details, secure transactions (Bordekar et al., 2019). and confirm the authenticity of transactions. The application of information technology to insurance Murphy and Cooper (2016) have indicated four main industry has been profoundly debated and discussed. characteristics of a smart contract. These contain the Technologies like Big Data, Blockchain, Smart Contract, etc. following: are prophesied to dramatically change the functioning of insurance sector and make lives of all parties involved, has- Digital Form—it is about code, data, and program sle free (Yu & Yen, 2018). Insurance being one of the funda- running mental services offered to the citizen of the world, it makes Embedded—contractual clauses or functional results are an individual’s life easier. It helps the insured during a situa- embedded in the software as a computer code tion of emergency and reduces costs. Forging of documents Technologically Controlled Performance—payment for financial gain, theft of insured property, challenging sce- release and other acts are allowed by the technology. nario of proving liability are a few of the challenges faced by an insurance company. Conventional methods of addressing When initiated, the effects with which a smart contract is these challenges take a significant amount of time, money, encoded to execute, cannot be stopped unless an outcome and labor. Compared to other global industries in the market, depends on an unmet condition. the insurance industry has been considerably slow to adopt Therefore, a blockchain based smart contract is a contract new technologies (Gatteschi, 2018). between two or more parties that is securely stored and Although internet protocols facilitate the exchange of executed digitally using a secure code (Christopher, 2016). information, blockchain protocols define the online exchange Without the intervention of middlemen, smart contracts of value. The first group of blockchain technology is block- allow blockchain users to transfer something of value, trans- chain 1.0, a three-layer technology stack consisting of: a parently. Smart contracts stipulate the rules between two par- decentralized database or ledger that has a history of transac- ties, as do physical contracts. Smart contracts can also tions, a protocol performing financial transactions and a digi- however, unlike physical contracts, track insurance pay- tal currency (cryptocurrency). ments or claims and hold both the parties accountable. Blockchain technology first appeared in a white paper Insurance policies may be written as coded, decentralized written by a group or person under the fictitious name Satoshi smart contracts in which the company commits to help cover Nakamoto. Blockchain is the underlying infrastructure of the the potential future medical expenses toward the individual Bitcoin cryptocurrency, a peer-to-peer electronic cash type. who agrees to pay money to the insurance provider in Bitcoins can be sent directly from one party to another with- exchange. Blockchain smart contracts can produce immuta- out the need for a trusted third party like a bank to avoid ble data based on the records of an insurance policy owner double spending. who may approve or deny any insurance claims submitted to In addition, Blockchain 2.0 consists of contracts, eco- the company. These smart contracts make the entire process nomic, market and financial applications which, beyond cash automated and the contracts to be self-executing in nature. transactions, use blockchain. Smart contracts, intelligent Thus, for a policyholder and the insurance company, it property, inventories, shares, loans, mortgages, land, and becomes easier and vital to use it (Nam, 2018). property titles are examples. Blockchain 3.0 is made up of numerous applications that Bibliometric Analysis do not include cash, money, financial markets, trade, or other economic activities. Health, science, digital identity, govern- Though VOS- viewer has an extravagant visualization and is ment, education and different facets of culture are examples capable of loading and exporting data from various sources, of such applications. Biblioshiny contains a more extensive set of techniques which is suitable for practitioners for better loading and exporting of data in a robust way. (Moral-Muñoz et al., 2020) Smart Contracts In the current study a bibliometric analysis was conducted in Smart contracts are a part of blockchain technology that the graphic add-on “biblioshiny” for the package “bibliome- streamlines several processes, which at a given period of time trix” in R. Studio. This package is well suited for science are running across different systems and databases. They are mapping with respect to segmentation in the body of knowl- implemented on top of blockchain technology as a platform edge (Burda et al., 2020). Italian scholar Massimo Aria to make authentication and similar tasks automatic, which developed the “Biblioshiny “tool in the R language environ- can, in case of manual authentication, exhibit a high risk of ment. Bibliometrix and Biblioshiny packages are free and error or abuse (Deloitte, 2016b). Implementation of such a open source. Biblioshiny being more flexible is able to fulfill technology can bring about a drastic change in the insurance the whole literature analysis and data flow process which 4 SAGE Open Figure 1. Co-occurrence network analysis. ultimately prevent researchers from involving into tedious Each node signifies the keywords while the lines denote the multi-step operations (Xie et al., 2020). This improves work co-occurrence network or times each title word appear with efficiency and reduces the probability and intensity of errors. other title words in published documents on Blockchain and Biblioshiny is suitable for processing multi-step computing Insurance. Each node’s size or diameter signifies the strength tasks where researchers can rewrite the relevant R language of occurrence of each Keyword in the published document on program code accordingly depending upon their own require- Blockchain and Insurance where the Louvain clustering algo- ments. (Taqi et al., 2021). It utilizes the shiny package for rithm with a repulsion force of 0.1 is being utilized encapsulating the core code of Bibliometric and creates a The construction of a co-occurrence network permits us to web-based online data analysis framework for a synthesized scout and explore the conceptual structure of the scrutinized study in an efficacious and constructive manner in compari- research domain. The observation from Figure 1 posits that the son to VOS- viewer. research domain was subdivided into three main clusters the ones highlighted in red were devoted to a highly generalized notion of Blockchain predominantly connected to Insurance Co-occurrence network industry, smart contracts, Ethereum, internet of things, crypto- On the basis of the keyword data, co-occurrence features of currency, bitcoins, consensus, blockchain security while the various keywords related to “Blockchain” and “Insurance” other highlighted in blue was particularly in the domain of are considered which aims to depict the significant trends of Health insurance or healthcare, blockchains, data sharing, keyword co-occurrence. Taking into consideration the exist- decentralizations, and IOT. Also, the cluster in green indicated ing pluralism of denotations regarding the essence of the the proximity to the keyword in connection to insure tech, study on Blockchain and Insurance, we first outlined the technology. risk, fintech banking related to finance. For the existing connections to the well-established knowledge cat- sound purpose of innovative research, the Blockchain cluster egories. The Keywords co-occurrence network is determined is evidenced to be of particular interest and great significance. based on the number of occurrences, association, and co- The prominent fact that is noticed is that notions of Blockchain, occurrence of each keyword in published documents on Insurance, Cryptography, Electronic currency (bitcoins) are Blockchain and Insurance. The title words co-occurrence situated very close to one and other that contributes to their network analysis, association, and node of 50 most fre- semantic similarity and proximity. Hence cluster 1 indicated in quently used words in published documents on Block chain red offers the ground for a precursory description of the funda- studies are featured in the above Figure 1. mental logic of blockchain Insurance construct. The collective Shetty et al 5 Table 1. Co-word Network Analysis (Keywords). Node Cluster Betweenness Closeness PageRank blockchain 1 889.1224699 0.018867925 0.257865257 smart contract 1 27.40710662 0.012195122 0.067488559 smart contracts 1 6.094996359 0.011904762 0.041202936 Ethereum 1 3.089695426 0.011764706 0.044127796 internet of things 1 0 0.010204082 0.011106519 cryptocurrency 1 5.783861577 0.010869565 0.015160127 bitcoin 1 0.159217874 0.010526316 0.01474144 consensus 1 0.0625 0.010204082 0.009136962 cryptography 1 0 0.010752688 0.01158497 Hyperledger 1 0.112775321 0.010752688 0.011240013 Hyperledger fabric 1 0 0.010752688 0.014005829 ipfs 1 0 0.010309278 0.010940979 internet of things (iot) 1 0 0.010204082 0.007577169 electronic health records 1 0 0.01 0.005603979 internet of vehicles 1 0 0.01 0.005603979 covid-19 1 0 0.01010101 0.006081978 fraud 1 0 0.01 0.005095428 insurance industry 1 0 0.010204082 0.006810331 agriculture 1 0 0.010204082 0.006021009 big data 1 0 0.01 0.005095428 blockchain security 1 0 0.01 0.004078326 healthcare 2 78.80065244 0.0125 0.047353587 security 2 35.38744715 0.0125 0.047768328 privacy 2 35.65824322 0.012195122 0.037559788 iot 2 0.481223403 0.011111111 0.02123366 blockchain technology 2 0.676476812 0.008928571 0.010913813 distributed ledger 2 0 0.010869565 0.012117922 access control 2 12.06213147 0.011494253 0.019620089 decentralization 2 0.146337716 0.010752688 0.009718371 distributed ledger technology 2 0.703429044 0.010638298 0.008690719 ehr 2 0.260209173 0.010869565 0.011931242 artificial intelligence 2 0.234476348 0.010204082 0.00562445 blockchains 2 0.01183432 0.008403361 0.006267299 health insurance 2 0 0.01010101 0.007380225 authentication 2 0.006525285 0.010526316 0.008108593 data sharing 2 0 0.010309278 0.005669109 permissioned blockchain 2 0 0.008547009 0.008003086 scalability 2 0 0.008547009 0.008663006 smart city 2 0 0.010416667 0.007693196 transparency 2 0 0.010416667 0.007028905 insurance 3 20.3701624 0.0125 0.060657244 fintech 3 47.02758621 0.010638298 0.017709166 insurtech 3 0.35090312 0.010638298 0.013537027 innovation 3 0.646365915 0.010638298 0.013726933 technology 3 0.105263158 0.010416667 0.011006229 risk 3 0 0.010309278 0.009813607 banking 3 0 0.007092199 0.005113878 usage of the keyword gives us a strong foundation and a robust are for preliminary consideration that are to be developed fur- background for administering an in-depth analysis of the stud- ther by righteousness and rectitude of an in-depth investiga- ies through this stream of research. However, it is not advis- tion of the research papers from the dataset. In this network a able to solely rely on these results, but a mechanistic process lot of concepts and co-occurrence are tied to accentuate the of investigation alongside would have high yielding outcome betweenness and closeness of interconnections amidst the benefits. Therefore, the above-mentioned findings and results concepts which are shown in the Table 1. 6 SAGE Open Figure 2. Search strategy. were the search operators in our present study and each term Conceptual Structure Map also depicted the following keywords in the search syntax. This study also illustrates the conceptual structure map of each word that continuously appears in research papers on the theme of Blockchain Insurance refer Figure 2. By frag- Flow Chart menting it based on mapping the relationship between one Scopus identified N = 362 documents related to “Blockchain” word and another through area mapping we can see that each AND “Insurance” AND “Cryptography” AND Risk word is placed according to the values of Dim 1 which is Management” AND “Information Management” whereby 74.06% and Dim 2 which is 10.61% to produce a mapping after applying the document type, editorials, notes, and short between words whose values do not differ much. In this data, surveys were excluded which were five in number, further, there are two parts of the area that are divided, namely the were limited to language English, where seven articles were red and blue areas, each area contains words that are related in other languages were excluded and the retrieved strategy to each other. Based on the picture above, the red area shows reached N = 339 of which 327 documents were removed after more, and various words included in it closely connected title and abstract screening refer Table 2. N = 23 articles were with “blockchain,” “insurance,” “smart contracts,” “risk eligible and considered to be highly relevant where the assessment,” “cryptography,” “emerging technology,” “bit- Biblioshiny tool was utilized for the analysis refer Figure 3. coins” suggests that many research papers link between the words listed in this area. The blue area shows the connectiv- ity with health insurance as a separate domain connected to PICO (Population, Interventions, “medical records” and “electronic health records.” The Comparisons, Outcomes) closeness and the nearness of the words reflects the mapping and the relation toward each other frequently used by the The current systematic literature review adopts the PICO researchers in their study. guidelines encompassing Population as Insurance Adopters in “Blockchain” AND “Insurance” AND “Cryptography” Block Chain, Interventions which include the opportunities AND Risk Management” AND “Information Management” and challenges of implementing blockchain, comparators are Shetty et al 7 Table 2. The Search Syntax Utilized for the Bibliometric Analysis Through Biblioshiny. Term 1 Term 2 Term 3 Term 4 Term 5 Blockchain Insurance Cryptography Risk Management Information Management OR OR OR OR OR Blockchain Technology InsurTech Cryptocurrency Risk Assessment Internet of things Or OR OR OR OR Blockchain Insurance Insurance Companies Bitcoins Risk Evaluation IoT OR OR OR Insurance Sector Electronic Money Digital Storage OR Ethereum Figure 3. Flow chart. not applicable in the present context and the outcome refers to Method decentralization of processes, elimination of third parties for The review follows the guiding principles prescribed by trust, transparency in transactions and availability of distrib- Tranfield et al. (2003) for systematic review in management uted ledgers, simplification of documentation, contracts etc., and business research. Eligibility and screening evaluation using smart contracts, with sufficient security and privacy observed participants, interventions, comparisons, outcomes protection. 8 SAGE Open (PICO), and the suggestions of PRISMA (Preferred Reporting more effective in its work process. The potential of Items for Systematic reviews). PRISMA guidelines include a Blockchain to establish trust in a trustless environment by 27-object specification and a four-phase flow diagram that using shared ledgers and fortified cybersecurity protocols suggests items most crucial for the transparent reporting of a has positive implications for the future growth of the insur- review. By aiding researchers to document a deductive road- ance industry. Blockchain is poised, along with artificial map in their systematic evaluation, it offers the checklist intelligence and big data, to make headway in InsurTech referring to the rationale, objectives, protocol and registra- through three basic features in particular. tion, eligibility standards, source of information, search, and Fraudulent activities from customers poses major concern selection of the study, data collection technique, data objects, for the company as it costs the insurance sector huge amounts the risk of bias in individual research, précis measures, syn- of money in settling claims due to loopholes, deliberate over- thesis of outcomes, and the threat of bias throughout the seeing and frauds. With the implementation of blockchain research studies. It additionally provides an explicit declara- technology, the entire insurance industry can work together to tion eliciting information on the PICO model. safeguard itself from fraud. If the policy owner makes any We have in particular, concentrated on analytical ques- false or fraudulent statements (or if the insurance provider tions and a specific research approach for this review. The denies to cover a previously negotiated condition), the smart research query is defined and elaborated in the first segment, contract will automatically dissolve and the premium/s paid while search strategy encompassing inclusion criterion, will be transferred back to the individual. The mechanism pro- identification of the database and search phrases are given as vides a sense of reciprocal confidence between the two parties follows: Inclusion criteria: Intervention—object of the study: for two reasons: all data is displayed in a transparent manner, Blockchain Technology in the Insurance Industry; outcome: and the slightest contractual deviation results in reimburse- promising implementation methods of blockchain technol- ment to the concerned damaged party (Daley, 2020). ogy in the insurance industry; nature of the study: longitudi- According to an earlier report by Kim and Kang (2017), it nal/cross-sectional study; publication: academic journals; is argued that in terms of products and services, blockchain population: Insurance sector looking to explore Blockchain would bring immense market opportunities to the insurance Technology and the benefits of implementing blockchain, sector (Kantur & Bamuleseyo, 2018). According to this smart contracts, distributed accounting and asymmetric report, some of the possible use cases for blockchain tech- encryption; Period: 2008 to present; Language: English. nology include: Search approach: We have used a few search techniques to look up research articles, searches in several digital data- •• Travel and life insurance—providers will create a bases on the internet and iterative references of articles “pay-as-you-go” insurance model that will offer retrieved, and hand searches. The database consists of immediate payouts if delays or cancelations occur. Emerald Insight, Springer LINK, JSTOR, Sage, ScienceDirect •• Management of claims—businesses can automate (Elsevier), SSRN and EBSCO. These databases are specially coverage verification and streamline claim resolution, considered as well-established databases with utmost cover- improving operating performance and reducing costs. age of highly ranked peer-reviewed journals in the research •• Personal accident insurance—providers will create a topic considered. crystal clear and all-in-one claims path that will maxi- The search strategy involved a preliminary search with the mize the satisfaction of costumers. use of phrases, namely: Distributed Ledger Technology, •• Record keeping—businesses can establish, organize Blockchain, Insurance, Risk Management, ERM Framework, and preserve records in a single, accurate and usable InsurTech, Technology Impact, Cryptography, Cryptocurrency, database. Bitcoin, Insurance Blockchain uses AND cases, Blockchain •• Reinsurance claims—businesses will be able to auto- AND Insurance, Distributed Ledger AND Insurance, Smart mate simple claims through smart contracts and mod- Contracts, Cybersecurity, Ethereum. A total of 23 research els of reinsurance. papers met the inclusion standards of the studies. •• Digital identity—to digitalize and verify customer records, businesses can use blockchain data and digi- tal ledgers; thus, enhancing compliance. Results •• Peer-to-peer insurance—providers can create a peer- Blockchain technology makes it possible for insurance com- to-peer network without the need for an intermediary panies to make processes easy, anonymous, invariable, and to create and set up smart contracts. securely transparent as it serves as a decentralized system of •• Surety insurance—firms will create an asset source of data storage (Sharifinejad et al., 2020). There are scores of surety bonds information that is accessible to all avenues for the insurance sector to reinvent itself to become members in real-time. Shetty et al 9 The insurance sector can benefit from the adoption of Fidentiax blockchain technology where the operations span across Place: Singapore multiple countries and has many actors including the end What they do: FidentiaX is the world’s first tradeable user. The insurance sector is subject to a multitude of differ- insurance policy marketplace. ent trade, legal, and regulatory regimes. Block chain tech- Application of Blockchain Insurance: With FidentiaX, nologies can help businesses record all their transactions in users are able to purchase, sell or store their insurance poli- encrypted blocks which are immutable. The insurance cies on the blockchain of the company. The blockchain-pow- industry can be connected via a de-centralized network ered marketplace uses tokenization to take current policies wherein the transactions are recorded across distributed into account and put them in the encrypted database. Users ledgers. The trust for transactions can be provided by the are able to cash out on their respective policies in real-time, blockchain members through consensus, thereby eliminat- purchase policies from others or find all their insurance ing the need for third parties. Contracts and Insurance poli- details in one place. cies can be recorded electronically as smart contracts Real-life use case: ISLEY, a blockchain-powered digital with a set of rules for the terms, conditions, duration of the ledger for insurance policies, was recently developed by policy etc. FideniaX. ISLEY provides clients with a full summary of their insurance policies, sends notifications when their pre- miums are due, and shows the entire policy history with an Blockchain Use Cases in the Insurance Business immutable record. The introduction of block chain is led by some of these orga- nizations. The insurance companies which adopted technol- B3I. Place: Zurich, Switzerland ogy are mentioned below (Daley, 2020). What they do: The Blockchain Insurance Industry Initiative (B3i) is a consortium of insurers founded to inves- Etherisc. Place: Munich, Germany tigate the utility of blockchain and Distributed Ledger What they do: Etherisc is a platform for open-source Technology (DLT) to the insurance industry. development that focuses on decentralized applications for Application of Blockchain Insurance: Founded in late 2016, insurance. the company’s mission is to use blockchain to enhance the Application of Blockchain Insurance: For various sectors management of data and payments, minimize risk and make of the insurance industry, Etherisc develops decentralized, insurance more accessible. Many applications devoted to their blockchain-centric applications. The organization is focused mission are currently being worked upon by the company. on reducing inefficiencies, namely high transaction fees and Real-life use case: A blockchain prototype for property extensive claim-processing times, using ledger technology. reinsurance contracts is B3i’s first completed venture. The Real-life use case: Six separate decentralized insurance- company was able to implement the entire reinsurance con- related applications have already been developed by Etherisc. tract process on a safe and secure blockchain, with the One of them is a crop insurance app for farmers to recognize involvement of 38 insurers and brokers. their land and crops and any weather losses. Another app insures members of Etherisc against probable hacking of Fizzy. Place: Paris, France crypto wallets. What they do: Fizzy, an insurance tool for flight delays, is a subsidiary of the multinational insurance giant AXA. Guardtime. Place: Irvine, California Application of Blockchain Insurance: Fizzy uses block- What they do: Guardtime builds blockchain solutions in chain to guarantee instant coverage and compensation for cyber security, public policy, banking and finance, defense, members whose flights are delayed for more than 2 hours. and logistics. The blockchain of the company supplements travel insur- Application of Blockchain Insurance: Guardtime recently ance that typically does not cover financial losses that partnered with the logistics giant Maersk to develop a mari- incurred due to flight delays. time insurance network based on blockchain, in order to In order to lock in terms of payments and policy details, manage risk, use smart contracts and set up an immutable the tool uses smart contracts. Users just have to enter their shipping chain to aid insurers to provide coverage. flight details, configure their coverage and make a payment. Real-life use case: The Insurwave framework of the orga- Blockchain can then aid Fizzy to check flight delay data nization was able to handle the insurance processes for over immutably and reimburse customers. 1,000 vessels in the first year. More than 500,000 ledger Real-life use case: Fizzy’s instant blockchain-based flight transactions dealing with relevant maritime insurance data delay payments covered 80% of all worldwide flights by are also planned on the site. December 2018. 10 SAGE Open Lemonade. Location: New York City, NY use by financial institutions since 2,000. When What they do: Lemonade incorporates AI and Distributed required, customers can give insurance companies Ledger Technology to provide tenants and homeowners with access to their identity data. The customer can pre- insurance starting at $5 and $25 a month, respectively. vent duplicate authentication procedures once the Application of Blockchain Insurance: Blockchain comes KYC profile is checked and recover the checked into play through smart contracts, at Lemonade. The busi- identity data when other businesses need it. KYC ness model of the firm takes a fixed charge from each based on blockchain technology has many benefits, monthly payment and allocates the balance to potential such as disintermediation, transparent transactions claims. If a claim is made, the smart contracts of the block- and no centralized control. chain will automatically attempt to validate the loss so that a customer can get paid instantly. Several organizations have used the features of blockchain Real-life use case: Lemonade’s AI and blockchain combi- de-mediation to change the way information is processed. For nation will pay its customers in 3 seconds on approval of a instance, Stratumn—an insurance company based in Paris, claim. (For customer satisfaction in renter’s insurance, France; shares substantiated customer information through Lemonade was voted number 1 of 270 companies). blockchain, which in turn saves cost and time for each demand side of information, to validate if the customer meets the Teambrella. Venue: Saint Petersburg, Russia insurance purchase requirements; therefore, consumers can What they do: Teambrella is an insurance marketplace buy insurance independently. Let’s take a further case. Ant whereby the team co-insures claims, rather than being a cen- Insurance launched the “blockchain + claim” project in tralized insurance provider. December 2018, in which electronic notes could be used as For example, a member of Teambrella in the U.S. will claim notes (Kim and Kang 2017). inform the team that his or her dog needs emergency sur- Detection of fraud primarily utilizes smart contract tech- gery. The rest of the team will vote on whether to pay for nology based on blockchain technology. Smart contracts the operation of the pup and how much of the cost they can are special protocols designed for the automated validation cover. and compliance of contracts. In particular, smart contracts Application of Blockchain Insurance: To execute insur- allow us, without the need for third parties, to perform ance payments, Teambrella uses blockchain and smart con- traceable, permanent, and secure transactions. A smart con- tracts. Members of one Teambrella group are locked in a tract includes all the transaction details and will execute the smart contract and use these contracts to vote for each claim resulting procedure only if the specifications are fulfilled. transparently and execute payment. The distinction between smart contracts and conventional Real-life use case: The organization currently has four paper contracts is that computers generate smart contracts. insurance pilot groups in Peru, The Netherlands, Argentina For instance, “Taikang Online” had an “Anti-Moth” project and Germany; concerned with bicycle damage and pets. that used blockchain technology-based Insurance fraud They are in the process of growing their operations to include detection. The company’s intelligent contracting system pet insurance in the U.S., and automobile insurance in can deduce if the client is planning on insurance and satis- Russia. fies the insurance criteria that not only preserves privacy but can simultaneously stop insurance fraud (Wang and Kogan, 2018). Present Application of Blockchain to the Insurance Sector 3. The existence of distributed ledgers enables records 1. The blockchain implementations work on reducing of capital flows to be monitored over time. A distrib- inefficiencies, high transaction fees and extensive uted ledger is characterized as one that is managed in claim-processing time, using distributed ledger a decentralized form, across multiple locations and technology. The data and payments are recorded does not require a third party to maintain the validity securely, thereby minimizing risk and making insur- of the data it holds (such as a bank or clearinghouse). ance more accessible. “Self-purchase insurance,” A distributed ledger is a database consisting of sev- “automatic claim settlement,” “fraud detection,” eral independent computers (nodes); it is the duty of and “fund flow record monitoring” are currently the the nodes to check, store and update information. main applications of blockchain in the insurance The distributed ledger has the functionality of a dis- industry. More particulars are as follows (Zhao, 2020). tributed witness, making it incredibly difficult to tar- 2. Historically, claims were primarily carried out get and attack the network. Only one entity owns a through KYC (know your customer), while KYC was copy of the ledger in a centralized ledger. All nodes de-intermediated by automated claims. KYC is one of the network however, have a copy of the same of the key processes of identification frequently used ledger in case of a distributed ledger. Without the by business entities around the world and has been in consent of all participating nodes, no single entity Shetty et al 11 can make changes to the ledger, as any new changes blockchains to rule out suspicious activity easily and take will be applied to all nodes within seconds. To store care of issues before they become an utmost problem. all of the data, it uses cryptography and can only be When a company adopts blockchain technology, it creates opened by using the key and encrypted signature. a visible change in how the claims are handled. It becomes The distributed ledger will therefore not only explain more efficient and effectively streamlined in nature. This the long-term monitoring of capital flow data, but approach goes ahead to drastically reduce fraud as long as also ensure the complete security of the stored identities of participants in enforced to be stored and authen- information. ticated on blocks using codes. This would mean that partici- pants would not be able to exploit the policy while potential The “mutual insurance” project by Xinmei Life, is China’s criminals will not be able to tamper with another individual’s first “blockchain + mutual insurance” project. Its account capi- personal data. tal flow is transparent using blockchain technology. For audit monitoring, the data remains unchanged and permanent. Check list of Issues and Concerns Furthermore, the streamlining of processes offers better user experience for clients to apply for claims (Nath, 2016). Technology Based Challenges in Implementation A blockchain, as a single source of truth has the potential to Most organizations have currently implemented blockchain reduce complex procedures while also increasing efficiency based solutions for particular use cases and not for their in the system. entire operations. Organizations will have to integrate the The primary advantages of using blockchain technologies blockchain based solutions with their existing information are: systems and network. There is also the challenge of choosing the correct technology stack, getting the IT support for the application. Cryptographic methods to validate and write the Advanced (Progressive) Automation Using block, the authentication methods, digital certificates and Blockchain Technologies signatures need for transactions need to be identified. Because millions of insurers, healthcare providers, patients, Blockchain based Apps for the different players in the net- and consumers are involved in the insurance ecosystem work will have to be designed and developed. The cost of (Shetty & Basri, 2017), it is easy for the industry to get hin- adoption of the new technology will have to be evaluated to dered by money-and time-wasting inefficiencies resulting see if it further reduces costs or mitigates risk. from billions of forms, human error and poor coordination between parties (Shetty & Basri, 2020). The Challenges of the Legality and Non- Digital ledger systems such as blockchain can support to repudiation of Smart Contracts automate obsolete procedures, save billions of paperwork hours per year, and reduce human error because the chain The legality of the smart contracts, distributed ledgers and safely records all forms and data. Blockchain technology the processes may differ in each country. The use of smart helps to distribute power, the trust and integrity is networked contracts poses different concerns from a legal perspective. into the system. Via distributed ledger technology, inclusion Parties which are interested in smart contracts may be anony- is achieved, the rights of all parties are preserved. Corres- mous. One party may sign an agreement with a minor, for pondence between significant parties in an insurance claim instance. This poses the possibility of the agreement being can also be enhanced. If stored on a blockchain, doctors and enforceable. Although procedures exist to determine age insurers can safely access the medical history of a patient to before the entry of a blockchain transaction, such a scenario determine correct policies and procedures going forward. may be difficult for the police to investigate. Whether such a contract is binding is a question. Managing asset and financial transactions through a smart Stronghold Cybersecurity contract may pose a challenge, particularly if either party The potential of Blockchain to guard confidential informa- does not understand the programmable logic and code (rep- tion while preserving privacy is particularly appealing to an resenting the terms and conditions) in terms of how it industry that relies heavily on data garnered from being at behaves. Another problem is when parties’ exchange an the intersection of health, work and personal life. Blockchain external agreement containing all legal terms and conditions ledgers are decentralized, so no one authority can corrupt or that will bind the parties and represent the actions of the manipulate them. Instead, to ensure a consistent recording of smart contract. “As autonomous business agents advance events, all data is chronologically time-stamped. through smart contract creation and compliance protocols, And although blockchain information is encrypted, par- blockchain technology will minimize the risk and speed up ticipants (nodes) on a chain are often completely transparent, the adoption of artificial intelligence-driven e-commerce if implying that all nodes may view the behavior and actions of the external document represents how the code will behave. an individual whose identity remains undisclosed. This helps The problem in dispute is As autonomous business agents 12 SAGE Open advance through smart contract formation and compliance can intensify mistrust. As a result, insurance firms either protocols. The parties should mutually agree in the event of need to do more to create trust with customers or to strengthen any errors in the code. The parties should pursue a court the insurance process in order to reduce the cost of credit. order demanding that the smart contract code representing Many insurance companies have a limited understanding of their actual status, be amended. blockchain and have not yet explained how blockchain will The implementation of a smart contract does not fit into sustain their business growth strategically. They lack the the conventional territorial jurisdiction, thereby making it aptitude to conduct pilot projects and advance their produc- difficult to decide which laws are to be enforced in order to tion practices. While blockchain can connect insurance com- deal with contractual issues relating to a particular smart panies with other relevant industries, however, we must contract. Moreover, there is a challenge to decide on which stress that the insurance industry is linked to everything from court has the prerogative to hear legal arguments that pertain health care to education, to even business operations. to smart contracts being used. For example, if one of the par- Therefore, it takes high connection costs and an immense ties’ challenges whether a smart contract is legally binding, it amount of work to create a complete blockchain. The legal is difficult to settle and arbitrate conflicts resulting from framework also presents obstacles to blockchain-based smart contract performance. It is difficult to foresee with cer- insurance. There is risk that such insurance may be effec- tainty how such a problem will be solved, considering that tively barred by the legal system and the likelihood that, even there is no central enforcement agency. though blockchain-based insurance prevents enforcement regulation, the absence of a legal system could lead to inef- Challenges and obstacles in the application of Blockchain ficiencies, such as preventing the effective investment of technology to the Insurance Sector. There are many gover- premiums. Finally, if blockchain-based insurance prospers, nance, legal, data security, and technological challenges this may offer economic effectiveness, but at the cost of other facing the application (Zhao, 2020), particularly in the fol- legal system priorities such as ensuring that insurance pric- lowing aspects: ing does not take certain factors into account. While DLT can There is still a long way to go in truly appreciating knowl- strengthen security of data, it is not “bullet-proof” and can edge sharing. The insurance market is an asymmetric infor- typically give rise to three key types of possible risk of liabil- mation market in which the customer and the insurer each ity: risk of ledger transparency, cyber risk, and operational have their own set of information that they do not want to risk. The authors of the Working Paper of the European share about each other. For example, insurance firms often Banking Institute point out that, paradoxically, the increased try to gather sufficient information about the health of the degree of transparency by which every node operator has insured when the insured buys life insurance, while the cus- access to data stored on a distributed ledger, allows for the tomer often wishes to mask those health conditions. data stored on the distributed ledger to be re-personalized or Therefore, to achieve the full exchange of knowledge and facilitates nodes to make a conversant guess as to the identi- information on medical insurance and other forms of insur- ties entering those transactions. In turn, this leads to two key ance, a broad consensus on the creation of blockchain must legal threats, privacy of data and insider trading and market be established by the entire society. Therefore, achieving manipulation. In most jurisdictions, data privacy or protec- total sharing of information through industry-wide adoption tion laws as well as prohibitions against insider trading and of blockchain is difficult. market abuse, bear essential civil and criminal penalties, Different insurance products have distinct business struc- ensuring that DLT programs have to pursue a careful course tures or models that function differently, such as life insur- in the management of data security and transparency. To ance and property insurance. The operating earnings of quote an instance, in June 2016, a “hack” of Decentralized insurance institutions would be influenced by each of these Autonomous Organization (“DAO”), a decentralized invest- variables, such as business networks, actuarial models, and ment fund created by a network of smart contracts that sought consumer groups. Whether a particular insurance policy is to build a virtual company on the distributed ledger Ethereum acceptable for the implementation of blockchain technology (a blockchain-based distributed computing platform and needs to be independently demonstrated, but the insurance operating system that is open source, public, with smart companies’ research on this aspect is just beginning. contract features); illustrated cybersecurity problems and Therefore, it will take considerable time and orderly steps to the operational risks involved. A consumer exploited a flaw facilitate the introduction and application of blockchain tech- in the original code or algorithm of the blockchain underly- nology in the entire insurance industry. There is a general ing the DAO platform to redirect 3.6 million of the USD mistrust of insurance firms because of the regular incidence 50 million worth of Ether (roughly one-third of the total of consumer fraud and the company’s rejection in the insur- value of the DAO), outside of the DAO network. The combi- ance industry. It is a fact that there is often a lack of trust and nation of errors in coding and the lack of a clear-cut gover- confidence between policyholders, insurers and intermediar- nance solution, presented participants with major challenges. ies in service. Although blockchain technology can simplify In turn, this involved backtracking to the block containing the process of purchasing insurance and making claims, it the “hacked” transaction and the development of a new block Shetty et al 13 (to replace the previous block) to transfer the funds to an Smart contracts also streamline different processes by auto- address where investors were only able to withdraw their mating computational processes and authentication (Hans et investments in return for their DAO tokens (representing al., 2017). This decreases the occurrence of “moral hazard” their DAO shares). This had the effect of almost all funds that has been tampering with the smooth functioning of being restored, but by substituting the old block with the new insurance companies (Zhao, 2020). Providing the best insur- and latest rules, that led to a “hard fork” in the Ethereum ance offer keeping the customer’s needs above all, goes a blockchain. This has been criticized as creating a dangerous long way in satisfying customers and being ahead of com- precedent by weakening DLT’s immutability, which is seen petitors. Blockchain enables the development of new market as a crucial technological asset (Tarr, 2018). horizons where insurers will be in a better state to develop customized services through insurance offers (Cohn et al., 2017). Customer engagement is vital for customer satisfac- Study Implications tion, and blockchain technology improves engagement Fraudulent activities are a constant occurrence in the insur- methods with customers, where the data is verified and digi- ance industry. Blockchain technology will help bring down tal in nature. Customers will not need to submit documents the risk of fraud, through the creation of a global level tam- more than once. There is greater transparency in transactions per-proof ledger. This will further lower the risk of insured that paves the way for better monitoring and detection of property as well. A digital ledger protects, and tracks insured fraudulent activities. Insurers enjoy the liberty to automate articles throughout its life and also contains details such as the processing of insurance claims by integrating with third its ownership, characteristics, nature, etc. This makes it pos- party vendors who take up the task of claiming for insurance sible to verify the authenticity of the item in question by vari- through a consorted network of insurers. Apart from this, ous stakeholders in the supply chain. Such a digital ledger is smart contracts will trigger payments only after certain con- also known as a “digital thumbprint.” Participants can trans- ditions are validated (Deloitte, 2016a). fer data without third party intervention, which results in keeping transactions shorter, faster and simpler as they are Conclusion processed digitally and automatically rather than manually (Chekriy & Mukhin, 2018). Blockchain technology will Blockchain technology along with distributed ledgers have pave the way for hassle free automation resulting in the elim- been capturing massive attention by triggering multiple proj- ination of human input in certain areas of operation. For ects in insurance industries. The different application fields for instance, in case of catastrophe insurance, a system based on blockchains in insurance believe to be manifold, establishing a smart contracts can be put into motion to improve the pro- good amount of trust. The interface that exists between the cess of claim management. When a particular event that physical world and the digital realm may turn out to be the meets the terms and conditions of the contract/policy occurs, weak link that hinders the digital trust originated by a block- the smart contract automatically executes payments to rele- chain system in the insurance sector. The primary purpose of vant parties that are part of the contract/policy. Improved this study was to understand and acknowledge how the insur- efficiency and decreased cost of operation are two areas that ance sector may foster with a recognizable wave of change in companies strive for on a daily basis in order to maximize terms of technological adaption, through the implementation profits. Blockchain goes a long way in facilitating the same, of blockchain technology and smart contracts. Blockchain has as smart contracts eliminate challenges such as manual pro- given rise to a significant change in industries such as Food & cessing of data, human error and differences owing to timeli- Beverages and Pharmaceutical Supply Chain, as they are now ness of data. Persistent challenges like these are eliminated open to scores of new opportunities. Blockchain is however by means of verifying coverage information readily avail- praised to be a technological innovation that is allowing to able in the blocks. Blockchain technology ensures a signifi- revolutionize different society trades and interactions. This cant decrease in operating costs of insurance companies as it technology is at an infancy stage and has huge potential to can achieve permanent audit tracking (Zhao, 2020). extemporize, make it more efficient and effective, though it is Blockchain technology facilitates smooth collaboration already considered to be the safest platform to store and pro- between banks and insurers through systems integration. cess data. This paper summarizes the current possible applica- Different systems are integrated into a single platform by tion of blockchain technology to the insurance industry in using data stored in those systems. Platforms like Know Your particular. The technology landscape is rapidly expanding Customer (KYC) aims at improving sharing of customer where it is vital and challenging to develop a firm grasp of data between the insurance industry and banks so as to make answering the question of what the core technologies have to sure there is transparency and avoid conflicts (Savitha et al., offer in blockchain insurance, mainly highlighting to their data 2019). With the adaptation of blockchain technology, KYC processing capabilities. In this paper, Blockchain insurance, related tasks may be reduced to zero, thus shortening the distributed ledger, cryptography, and smart contract has been overall processing time and improving customer satisfaction. analyzed. Blockchain in has the potential to generate 14 SAGE Open disruption in the insurance industry it incorporates in triggered Funding smart contracts, envisages better pricing and risk assessment The author(s) received no financial support for the research, author- and increases the back-end efficiency. A bright focus on ship, and/or publication of this article. designing an efficient approach for the processing of insurance related transactions that is based on a blockchain-enabled plat- ORCID iD form is the need of the hour in the service industry. In order to Ankitha Shetty https://orcid.org/0000-0002-1314-7322 realize the actual potential of blockchain, insurers should incorporate other technologies in tandem, that includes References advanced analytics, internet of things and artificial intelli- gence. The use of blockchain and blockchain based smart con- Akande, A. (2018). 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SAGE Open – SAGE
Published: Mar 4, 2022
Keywords: distributed ledger technology; blockchain; insurance; risk management; smart contracts; cryptography; hyperledger; Ethereum; Bitcoins
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