Home / Blog / Smart Contracts for Insurance
May 11, 2023

Smart Contracts Development for Insurance Companies

May 11, 2023
Read 9 min

The insurance industry is one of those that are open to new technologies and innovations. To stay ahead of the market and keep their positions, insurance companies need to adopt various software tools and solutions that can allow them to optimize their processes, enhance the quality of provided services, and get the possibility to increase their profits. Among the most promising technologies that may have the strongest transforming effect on this industry, we should mention blockchain and smart contracts that are stored and coded on it. In this article, we offer you to have a look at how smart contracts work and what new opportunities can be provided by the use of a smart contract for insurance companies.

smart contract insurance companies

The nature and life cycle of smart contracts explained

Smart contracts are programs that automatically execute given the predetermined conditions are met. They are used to streamline workflow and automate agreement execution. This way all parties get their tasks done in the most time- and resource-efficient manner.

But how is it possible? How do smart contracts work? Their execution is based on simple “if/when…then…” algorithms. For example, smart contracts can be used for conducting payments, issuing tickets, or sending alerts. As soon as an operation is completed, it is already written on the blockchain and can’t be altered. Moreover, only authorized parties can get access to viewing results.

The life cycle of each smart contract includes four phases that will be described below.

1. Creation

This stage can be described as a preparatory one. It includes negotiations between parties as well as contract design, implementation, and validation. Exactly at this phase parties need to agree on the conditions, goals, and content of the contract. And this process is very similar to what happens when parties discuss a traditional contract. But in the case of smart contracts, all parties should have their blockchain wallets. 

As soon as conditions are discussed, the contract should be transformed into a code. If any of the parties have any objections, it is better to discuss them and introduce changes before the codified version of the contract is uploaded to the distributed ledger. Why? The reason for that is hidden in the blockchain nature. Once a smart contract is placed on the blockchain, it can’t be amended. The only way out will be to create a new one. 

But even when a smart contract is already stored on the blockchain network, it doesn’t mean that parties have entered an agreement. Otherwise, everyone could easily publish a smart contract and transfer any obligations to a random wallet address.

2. Freezing

When a smart contract is submitted to the blockchain, it must be confirmed by nodes. These are the stakeholders and their devices authorized to confirm the contract. They charge a fee for their services to prevent the unlimited flow of smart contracts in the network.

Smart contracts for insurance companies, as well as for other industries, after freezing are made public. This is due to the usage of the public ledger for contract submission.

At this phase, transfers to the wallets indicated in the smart contract are not available yet. To enable transfers, authority nodes first need to verify that contract conditions are met by all parties.

3. Execution

Participation nodes read the stored smart contract and check its integrity. Then, an inference engine executes the code. But when does it happen? For execution, inputs from the involved parties and the smart oracles are required. As soon as these inputs that trigger further steps reach the smart contract, a new set of transactions is generated and the status of the smart contract is updated. Then the smart contract is verified again based on the principles of the consensus mechanism, and all the updates are saved on the blockchain.

4. Finalization

After contract execution, the operation and new states of parties are placed in the distributed ledger. All the assets to be transferred now are unfrozen, and the recipient is granted access to them. 

How can insurance companies use smart contracts?

Regardless of the sphere of their application, smart contracts always function the same way. That’s why in this case, there won’t be peculiarities to mention when we are talking about the application of a smart contract in insurance. Nevertheless, it’s worth considering the use cases of smart contracts in this industry.

✔️ Claims processing

Representing insurance policies as smart contracts enables more time- and cost-efficient claims processing. Let’s consider a car accident scenario with two drivers involved:

• When one driver submits a claim to the insurer for recovering losses, the company investigates the case in a bid to get the money from the insurer of another driver.
• Meanwhile, the second company also has the claim for this case submitted by another accident participant.

This approach is time-consuming and often results in double work and potential human errors. But putting claims on a smart contract simplifies the process by enabling the automated sharing of required information between all parties and simplifying payment transfer.

✔️ Parametric triggers

Placing parametric insurance on a smart contract enables near-instant claim payment. The concept of parametric insurance implies compensation when pre-defined events take place.

Let’s explore the situation when an insurance company has agreed to pay a set sum if the rainfall amount on the insured’s farm reaches a particular level within an agreed period of time. By using a smart contract, the insurer can create a program that will accumulate data from oracles. I.e., this smart contract will keep the data related to rainfall in a particular area. If the set requirements are met and the rainfall amount exceeds the set level, the claim is paid automatically.

✔️ Reinsurance

Data sharing between insurance companies can be challenging and time-consuming. It often requires a lot of manual work that is also duplicated as insurance companies may engage several reinsurers for each risk. But blockchain and smart contracts streamline data and payment processing and reduce the amount of work.

When all reinsurance parties have access to the same distributed ledger, they simultaneously get all the data about losses, bonuses, fees, and policies. By applying a smart contract, insurance companies can also automate reinsurance claim settlement. 

✔️ Fraud detection and prevention

The risks of fraud in the insurance market remain high. Before smart contracts and blockchain, insurers needed to rely on publicly available data and data provided by private companies. This information is usually incomplete because of regulatory restrictions and data protection policies. This outdated approach paves the way for fraudsters.

But solutions powered by blockchain for insurance companies eliminate the risks by detecting and timely preventing any fraudulent activities. When an insurance claim is placed on the ledger, it can’t be changed which is already a crucial point for fraudsters. Moreover, it’s available to many insurance companies at once which facilitates coordination between them. When a claim is paid, this fact will become known to all the insurers that view this claim in the ledger. This way, any suspicious behavior (e.g., claim duplication) is identified instantly.

✔️ Customer onboarding

Smart contracts also allow for reducing the time needed to onboard new clients. Thanks to blockchain, it’s enough to add the personal details of a customer only once. If a person has used an insurer’s services and that company has put all the data on-chain, a new insurer or intermediary won’t need to duplicate this information – they can use the available data. Along with automated onboarding, smart contracts can also help insurance companies to save on KYC and AML processes.

How do insurance companies benefit from smart contracts?

The aforementioned smart contract and blockchain insurance use cases to prove the technologies’ efficiency in the industry. Now, let’s briefly summarize the new opportunities and advantages that they bring to insurance companies.

• Less fraud, more transparency. Having access to their clients’ claims histories, insurers can identify behavior trends and detect suspicious patterns. Moreover, if a client has submitted the same claim to another insurer, it will also be seen.
• Task automation. Smart contracts automate and secure multiple processes by excluding intermediaries. They also reduce the risk of human error by eliminating human involvement.
• Faster claims processing. Smart contracts speed up claim processing. As all the required data is kept on a public ledger, it won’t take long to verify a claim.
• Policy documents safety. Storing documents on the blockchain eliminates the risk of data loss or mistaken deletion.

Any questions? Drop us a line.


How to develop a smart contract for insurance?

To introduce smart contracts to your insurance business, it’s advisable to cooperate with skilled and experienced blockchain experts. Let’s explore the overall process of smart contract development so that you get a general idea of the process.

Step 1. Choose a blockchain and design a token

First, you need to pick a platform for your smart contracts. Ethereum is the most popular choice today. It provides access to a rich ecosystem of Dapps and tools that allow developers to create, test, and deploy smart contracts. It also allows for designing tokens to perform particular functions in smart insurance contract execution. At this step, you also need to define the exact function and the role of this token.

Step 2. Develop a smart contract

Then, it’s time for coding. If you are building Ethereum smart contracts, you will need to use the Solidity programming language and EVM (Ethereum Virtual Machine) for their creation and implementation.

Step 3. Test

Before deploying a smart contract on the blockchain network, you need to test it and make sure it works as expected. The best practice is to use autotests.

Step 4. Deploy

The exact steps depend on the tool you use. There are two popular tools for Ethereum smart contracts deployment – Hardhat and Truffle. In a nutshell,  to deploy the smart contract, you send an Ethereum transaction containing the compiled code of the smart contract. Note that at this step you don’t specify any recipient. Upon deployment, the contract is assigned an Ethereum address.

Step 5. Maintain and support

Like any other software tool, smart contracts need to be maintained and supported after deployment. You can outsource it to an external team (as well as the overall smart contract development) with relevant skills.


Both insurers and their clients benefit from smart insurance contracts. Insurers can leverage the technology to automate claims processing and verification, reduce operating costs, and streamline clients’ onboarding. Clients, in turn, enjoy better insurance experience and faster claims payments.

Though it’s too early to speak about the mass adoption of smart contracts within the industry, their application can become a substantial competitive advantage. Want to introduce smart contracts into your insurance business? We’ll pick and implement the most suitable option for you. Contact us to learn how we can help.

Recent Articles

Visit Blog

Cost to Develop an App Like Ally

How cloud call centers help Financial Firms?

Revolutionizing Fintech: Unleashing Success Through Seamless UX/UI Design

Back to top