Let’s look at how a smart contact could work in the real world using the insurance industry as a model for our example.
Traditional insurance companies have a lot of overheads directly related to the large amount of administrative tasks, and therefore human effort, associated with creating new customer accounts and processing customer claims.
The direct impact of this not only affects the insurance company but also their customers, as these costs are usually added to insurance premiums.
But there could be a better way to manage these processes by use of a smart contract, but how exactly?
Smart Contract Automation
Let’s suppose that John wants to take out a home insurance policy with Sensa Home Insurance. Being a forward-thinking company, Sensa’s website has been created on a blockchain network that uses smart contract technology. On completion of the online registration form, Johns details are processed within the smart contract, which automatically decides whether or not to accept John as a customer, as well as the cost of his premiums.
A smart contract achieves this by running user inputs, in this case, John’s answers, through a series of checks pre-programmed into the smart contract e.g. if John has a good credit rating, that’s a positive, but if he also lives in an area that is prone to flooding, that’s a negative.
Smart contracts ultimately balance all inputs against vast pools of internal and 3rd party data to make a final decision.
Lucky for John, he scores well and is offered a low premium contract at just £100 for the year. John accepts the offer, agreeing to the smart contract terms and conditions and pays his premium.
A record of payment, along with all of the contract terms and conditions are now emailed to John, as well as stored in the smart contract within the blockchain, thus reducing the human effort traditionally required in processing new customer accounts.
In this scenario, the smart contract could also be pre-programmed to execute in the event of a claim, managing settlements and pay-outs inline with the trigger event e.g. a burglary, input by John via the Sensa Home Insurance website