LETTERS: Blockchain technology has seen a lot of hype and what started it all was bitcoin, the first cryptocurrency launched in 2009.
Since then, blockchain used in the cryptocurrency space has witnessed many innovations.
Cryptocurrencies launched after bitcoin not only adopted its technology but also added many layers to it.
Ethereum, for example, was the first to introduce smart contracts into the mix.
What followed was a myriad of blockchain networks adding smart contracts to their platforms.
All of this brought cryptocurrencies to the mainstream where the public was made even more aware of their potential.
Still, a lot of people don't understand what blockchains are. At its core, a blockchain is the distributed public ledger that records information.
Blockchains have the benefit of immutability, since tampering with a single ledger would have no impact.
And by that, blockchains are tamper-proof and have showcased potential applications in a variety of sectors with insurance being one of them.
This immutability offers a secure record of transactions and it also showcases a valuable application in the insurance industry.
However, without smart contracts, blockchains would not have as much applicability.
If a car is involved in an accident, for example, the insurance company will pay the claim.
Factors contributing to accidents can be programmed as a smart contract in blockchain and allows payment contracts to be executed without human interaction.
This would not only significantly lower administrative costs but also make payment processes faster and more efficient.
Another example is agricultural insurance.
Weather extremes harm agricultural production, jeopardises food security and affects livestock production.
So, buying insurance can be a helpful way for farmers to manage these risks.
Farmers can pay for insurance premiums before they start production and they will receive compensation for any loss incurred by the farm.
However, agricultural insurance differs based on loss assessment and payout triggers.
Consequently, indemnity-based insurance and index-based insurance are two types of insurance that can be issued. However, index-based insurance is more commonly used.
The standard procedure can be a lengthy process given the unpredictable nature of weather conditions, which makes precise estimates difficult.
Then, there is also the chance of fraud, which adds another layer of complications.
Blockchains help solve problems like this by using smart contracts.
Specific conditions can be met depending on data collected by weather stations and damage claims can then be initiated.
However, by using smart contracts, other data such as plant development or data acquired by farm machinery can be added.
Risk assessment and payment processes would then be made more efficient. All of this would improve insurance processes while also lowering risk.
Blockchain technology offers a level of transparency that is not usually seen in the world of insurance.
Let's look at health insurance. The health insurance industry has many intermediaries that make the process inefficient. These not only raise costs but also complicate processes.
Through blockchain immutability, insurance companies can improve the way they keep records and perform transactions by incorporating smart contracts.
The data of patients' insurance policy can be automatically saved.
This information can then be secured by storing it on a blockchain.
If insured patients go through medical treatment, smart contracts can be automatically triggered and the insurance company can then transfer funds to the hospital.
The same can be true when providers get into contracts that involve certain drug manufacturers.
These contracts are agreed on with precise terms, such as price and product delivery.
As a result, payments to drug manufacturers can be made automatically if all of the predefined requirements are met.
BENJAMIN IRFAN MOHD ILAHI
Gelugor, Penang
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times