Hypothetical scenario: you're in a car accident. It wasn't your fault, but now there is the daunting task of dealing with the insurance company. The endless paperwork, phone calls, and weeks of waiting for claims to be processed are frustrating.
It is entirely possible that decentralised insurance makes them a thing of the past.
With the global insurance market valued at a staggering $6.1 trillion, decentralised insurance, powered by Web3 and AI, could have the insurance industry see a seismic shift
By leveraging blockchain technology, smart contracts, and artificial intelligence, it offers a more transparent, efficient, and accessible alternative to traditional insurance models.
We'll now explore how the convergence of Web3 and AI is disrupting the insurance landscape, paving the way for a more trustworthy, affordable, and user-friendly insurance landscape.
What's Wrong With Traditional Insurance?
While insurance plays a vital role in protecting individuals and businesses from financial loss, the traditional insurance model has long been plagued by several challenges.
1. Opacity and Mistrust
Insurance policies can be complex and difficult to understand, leading to a lack of transparency. This complexity can breed mistrust, as customers may feel unsure about what they're covered for and how their premiums are being used. This lack of transparency is compounded by errand insurance representatives who upsell unsuitable policies just to make a quick buck.
2. Sluggish and Inefficient Claims
Anyone who has filed an insurance claim knows how agonizingly slow the process can be. This inefficiency stems from manual processes, reliance on intermediaries, and outdated legacy systems. In some cases, claims can take months to be resolved, leaving policyholders in a state of financial limbo. Moreover, claims processes are often opaque, leaving customers scratching their heads.
3. High Costs and Limited Access
Insurance premiums can be a significant financial burden, particularly for those with limited resources. Furthermore, access to insurance can be limited in certain regions or for individuals with pre-existing conditions. This lack of affordability and accessibility can leave many people and businesses vulnerable to unforeseen risks.
4. Centralisation and Fraud
The centralised nature of traditional insurance makes it vulnerable to fraud. From staged accidents to inflated claims, fraudulent activities cost the industry billions of dollars each year. With the increase in claims and the accompanying amounts, it eventually causes inflationary pressures on premiums.
Some common examples include:
- Staged car accidents: Fraudsters deliberately cause accidents to claim compensation
- Property damage scams: False claims are made for damage caused by fictitious events or pre-existing conditions
- Medical fraud: Inflated medical bills or claims for non-existent treatments
How Web3 is Transforming Insurance
Web3, with its arsenal of innovative technologies, can cure the ills of traditional insurance.
Blockchain brings transparency and trust by immutably recording all insurance transactions, as opposed to how paperwork data can be doctored.
At the heart of blockchain lies smart contracts, which automate processes like claims payouts, boosting efficiency and eliminating human error once preset conditions are met.
Imagine a scenario where your flight is delayed, and your travel insurance payout is automatically triggered by a smart contract based on real-time flight data. Here, it is likely that anyone would sing the praises of a Web3 AI integration for making the claims process such a breeze. This might be a reality in the near future.
In decentralised insurance, we could see tokens being used to reward policyholders for good behaviour, encourage community involvement, and facilitate new models for risk-sharing.
Through these Web3 technologies, decentralised insurance platforms can offer:
- Faster claims processing: Automated claims processing through smart contracts reduces delays and ensures prompt payouts.
- Lower costs: Reduced reliance on intermediaries and increased efficiency can lower premiums
- Increased transparency: All transactions are recorded on the blockchain, providing a clear and auditable record
- Greater accessibility: Decentralised platforms can reach underserved populations and offer more inclusive insurance products.
How AI Makes Decentralised Insurance Even More Credible
While Web3 lays the foundation for a more transparent and efficient insurance system, artificial intelligence adds a layer of trust and personalisation, elevating it with Web3 AI integration.
1. Risk Assessment, Redefined
In insurance using Web3 technology, AI would excel at analysing vast amounts of insurance data to identify claims patterns and predict outcomes, translating to more accurate risk assessments.
By considering a wider range of factors, including individual behaviour, medical history, and even social media activity, AI can create more precise risk profiles for fairer pricing and more personalised policies.
2. Fighting Fraud with Intelligence
We've established above that AI-powered systems can put on an underwriter's hat and assess risks. It can also go a step further and detect fraudulent claims. By analysing historical data and identifying suspicious patterns, AI can flag dubious claims for further investigation. This helps to protect insurers and honest policyholders from unnecessary costs.
3. Claims Processing on Autopilot
AI with Web3 technology can automate claims processing, from initial assessment to final payout, reducing the workload for human assessors. Policyholders thus enjoy faster settlements. Imagine an AI agent that can instantly assess damage from photos of a car accident and automatically authorise a repair. That's the future AI can deliver for insurtech.
4. Tailored Policies
Earlier in the article, we highlighted how errand insurance agents who missell policies exacerbate negative perceptions of the insurance industry. AI can help build back stronger relationships by creating and recommending targeted, necessary, personalised policies for each individual, rather than the nice-to-haves.
Real-World Examples of Web3 and AI in Insurance
The convergence of Web3 and AI is no longer a futuristic concept–it's happening now. Here are a few examples of companies and projects leading the charge.
Nexus Mutual
Nexus Mutual is a decentralised insurance platform specifically designed to provide coverage for losses in the crypto space. It allows users to pool funds and share risk, offering protection against events like smart contract failures, hacks, and exploits.
Customers benefit from this Web3 AI technology, and are allowed the flexibility of adjusting their coverage amount and period as needed.
For those involved in staking activities, Nexus Mutual offers ETH slashing cover, which protects against potential losses due to downtime or penalties.
Nexus Mutual is currently working on expanding its coverage to include real-world risks like Directors & Officers (D&O) insurance.
Etherisc
Etherisc is an open-source, blockchain-based platform building decentralised insurance protocols for various use cases, including flight delay insurance, crop insurance, and parametric insurance. It makes use of smart contracts to automate claims processing and provide faster payouts, through Web3 AI integrations.
Insurance providers, whether they are start-ups, large companies, non-profit groups, or small businesses, can leverage Etherisc’s Generic Insurance Framework to design and offer a variety of parametric and peer-to-peer insurance products.
Other than the first-of-its-kind train travel delay insurance, it also protects customers against crypto depegging risks, especially with stablecoins.
Etherisc’s innovative use of blockchain technology has garnered the attention of major insurance companies like AXA, which see the platform as a leading example of how insurtech is changing the industry.
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Looking ahead, imagine platforms like aelf, with its sophisticated AI and blockchain technology, facilitating near-instantaneous claims processing and payouts.
Consider a travel delay scenario: an oracle, a secure data feed, monitors real-time flight information. When a delay exceeds the policy's threshold, this off-chain event is communicated to a dedicated smart contract on aelf's blockchain. This triggers an automated claims process, verifying the delay and instantly authorising a payout to the policyholder's digital wallet.
This seamless integration of AI and blockchain can redefine insurance as we know it, making it more efficient, reliable, and customer-centric.
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In Closing
The insurance industry stands at a crossroads. The old ways–opaque, slow, and inefficient–are no longer fit for purpose.
Web3 and AI offer a path forward, a chance to rebuild insurance on a foundation of trust, transparency, and efficiency.
Decentralised platforms, powered by blockchain and fuelled by AI, are poised to disrupt the status quo, offering personalised policies, automated claims, and unprecedented access. This is not just a technological shift; it's a paradigm shift. The future of insurance is being written in code, and it's a future worth embracing.
*Disclaimer: The information provided on this blog does not constitute investment advice, financial advice, trading advice, or any other form of professional advice. aelf makes no guarantees or warranties about the accuracy, completeness, or timeliness of the information on this blog. You should not make any investment decisions based solely on the information provided on this blog. You should always consult with a qualified financial or legal advisor before making any investment decisions.
About aelf
aelf, an AI-enhanced Layer 1 blockchain network, leverages the robust C# programming language for efficiency and scalability across its sophisticated multi-layered architecture. Founded in 2017 with its global hub in Singapore, aelf is a pioneer in the industry, leading Asia in evolving blockchain with state-of-the-art AI integration to ensure an efficient, low-cost, and highly secure platform that is both developer and end-user friendly. Aligned with its progressive vision, aelf is committed to fostering innovation within its ecosystem and advancing Web3 and AI technology adoption.
For more information about aelf, please refer to our Whitepaper V2.0.
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