Rethinking Insurance Payouts with Blockchain

Insurance companies hold significant weight and control when it comes to different aspects of the claims process. They set the terms and conditions, establish premiums, and handle the claim process. A struggle with transparency overrides the claim management process, sometimes generating outcomes that need to be communicated.

However, now there is a growing demand for openness, fairness, and trust within the insurance industry driven by policyholders. As described below, we aim to create a vision for how blockchain could help create a fair and more transparent insurance framework.

Note: The following write-up presents a potential solution for building a fair insurance model implemented on Kadena. (It is not currently an active project)

Is There a Way to Build a Fair Insurance Model?

To address this question, we must identify what causes the lack of fairness and transparency in traditional insurance models.

Two main reasons are:

• Information Asymmetry: Insurance companies possess more information about their customers than customers have about the companies, which disadvantages customers during disputes.
• Centralized Decision-Making: Insurance companies control the terms, premiums, and claims processes. This centralized power often leads to outcomes favoring the insurance companies over customers.

Benefits of Building a Fair Insurance Model

A fair insurance model offers several advantages:

• Increased Trust: Customers are more likely to trust a transparent and fair system, fostering loyalty.
• Lower (Reduced) Disputes: Transparent processes reduce the number of disputes, streamlining claim settlements.
• Simplified Appeal Process: Easier and fairer appeal processes enhance customer satisfaction and trust.

How Can We Build a Fair Insurance Model?

Community-Driven Insurance Pools

A significant source of opacity lies in fund usage. Community-driven insurance pools can provide transparency by clearly showing the source and allocation of funds. These pools consist of multiple stakeholders:

• Customers: Contribute premiums to the pool and receive coverage. Their contributions fund claims for those experiencing losses.
• Insurance Companies: Provide expertise in claims handling and risk management while staking funds to ensure accountability for fair claim handling.
• Investors: Supply initial capital and earn a share of the profits generated by the pool.

Smart Contracts

Smart contracts automate agreements, bridging paper-based contracts with blockchain-enforced execution. This fosters trust in the system rather than in individual companies. Key benefits include:

• Auditable Claims: Transparent claims and payouts ensure fairness.
• Crowdsourced Dispute Resolution: Disputes can be resolved fairly through community involvement, reducing dependence on centralized entities.

Human-Readable Smart Contracts

Kadena’s Pact smart contract language ensures transparency and accessibility. Human-readable contracts allow customers to consult independent experts, promoting trust and understanding.

Capabilities-Based Security

Pact contracts use capabilities-based security, ensuring funds in escrow are securely controlled and released only when conditions are met. This prevents companies from withholding funds unfairly, building customer confidence.

Scalability by Design

Kadena’s Chainweb technology supports high transaction throughput while maintaining security and decentralization. Its Proof of Work consensus ensures that the system remains tamper-proof.

Submitting a Claim

Consumers can submit a claim, providing information about the loss they have suffered in the form of a hash – this allows the information to remain private. The contents of the hash can be revealed to the insurance company to verify a claim.

Dispute Resolution

In case of disputes, a crowdsourced dispute resolution mechanism can be used to resolve the disputes fairly and transparently. A consumer needs to stake a certain amount of funds to raise a dispute. The funds are released only when the dispute is resolved in their favor. This ensures that the consumers do not raise frivolous disputes and that the disputes are resolved fairly and transparently. The crowdsourced dispute will have to be selected from an independent pool of experts, ensuring that the dispute is resolved fairly and transparently.

Beyond Insurance: Broader Applications

While this proposal focuses on insurance, its implications extend to other industries like banking, healthcare, and supply chain management.

By integrating KYC (Know Your Customer) or KYB (Know Your Business) protocols and leveraging NFTs for user identity traceability, fraud prevention and trust can be established across sectors. Transparent and fair models can disrupt industries reliant on opaque systems, paving the way for a more equitable society.

Kadena empowers users to challenge and innovate within industries through a decentralized yet structured approach. Stay tuned for updates, and share your thoughts — this is just the beginning of what blockchain can achieve!