Boosting The Nigerian Insurance Industry Through The Adoption of Smart Contracts — A Blockchain Technology

One of the major hindrances to the development of the Nigerian insurance sector is mistrust. Customers have demonstrated strong mistrust in the practitioners and this has great consequences. In a bid to survive, some insurers have cashed in on the weak regulatory framework the system was built on. Despite the significant evolution in the nation’s Insurance regulatory space today, the bad taste left with customers still lingers, especially in the retail sector.

The Nigerian insurance sector has made profound progress, thanks to the regulatory demands which has literally forced compliance on many practising institutions. The importance of insurance should be emphasized, regardless of regulatory requirements. There is a need to sensitize the public on this matter.

While education and awareness campaigns can help to reassure customers and regain their trust in the system, technology is the key to ensure that the insurance companies keep to their promises. Today’s emerging technologies show that trust may no longer be necessary before business transactions are carried out. This is one of the biggest business cases for blockchain technology, and the insurance sector can benefit from its adoption.

Smart contracts, which are based on blockchain technology, will revolutionize our insurance offerings and ensure a win-win outcome for both the insured and the insurer. All underwritings and relevant agreements must be fed into smart contract enabled platforms to drive the entire customer journey end-to-end. This system ensures premiums and claims are executed based on the exact conditions of the underwritten contract without prejudice or sentiment.

Blockchain technology driving smart contracts ensures unparallel security and data immutability through the underlying distributed data on the participating nodes in the blockchain network. This means that the underwritten contract exists in the same state across nodes and all nodes must agree before a decision or transaction is consummated.

What Is A Smart Contract?

A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the execution of credible transactions without third parties. These transactions are trackable and irreversible. The aim of smart contracts is to provide security that is superior to traditional contract laws and support transactions that are partially or fully self-executing, self-enforcing, or both.

3 Key Benefits of Smart Contracts in Insurance

1. Removal of ambiguity in contracts

There have been persistent cases of misinterpretation of contractual agreements at the point of claims execution. In many cases, the insured has little or no clue about what he or she signed and in other cases, there is evidence of insurance brokers overselling their products to customers. Smart contracts ensure clarity at the point of entry and exit which does not allow further interpretation or misinterpretation after the transaction is initiated.

2. Protection Of Both The Customer And The Insurance Company

Smart Contracts guarantee the protection of both the insurer and the ensured throughout the contract life cycle. They remove ambiguity and leave no room for future interpretation or misinterpretation of contracts after a transaction is initiated.

3. Boundaryless business opportunities

Smart contract adoption and implementation provides a huge opportunity for practitioners to go global at minimal risks. Since the contracts surrounding insurance products can be managed by immutable and secured digital systems end-to-end, anyone from any part of the globe can purchase any product from any insurer without fear of losing their money owing to political or regulatory instability.

How Our Insurance Companies Can Begin Their Smart Contract Adoption

Broadly speaking, insurance companies can begin their journey of adopting smart contract technology into their strategic initiatives with these two models:

1. Insurance Firm Led:

This model requires that the insurance firm begins to design and develop smart contract enabled products, and automate existing products to ride on the technology. This will require more than just the technology input as the human aspect is even more critical for success. The organisation culture will be impacted; hence, a deliberate change management programme driven top-down is required. This model is better adopted by focusing on the quick-wins and taking the transformation in piece meals. Organisations taking this route should appreciate the enormous risks involved and adopting the Agile implementation approach for delivery.

2. Insuretech Led:

Insurance firms can team up with start-ups already playing in this space . This will involve the insurance firm investing in these start-ups and evolving with them. By doing this, the firm remains intact while testing smart contract technology. This option is highly recommended for risk-averse firms.

Whichever option your firm chooses to adopt, just begin. You might find a blend of the above options that will fit your organisational strategy and digital transformation journey. Start by taking some awareness trainings and putting together a think-tank team to develop an implementation road map.

Role of Regulators and Policy makers

Blockchain technology has come to stay and will surely drive the insurance industry revolution alongside other technologies like internet of things (IoT), cloud computing, and big data. Regulators and policy makers need to be educated on these emerging technologies to be better positioned to enact laws that create an enabling environment for the operators and customers.

Regulators must introduce laws and policies that empower the insurance firms as well as Insuretech start-ups who are mostly better positioned to innovate and build the technology capabilities that will meet the various business needs. These policies include, but are not limited to making progressive entry criteria, easy access to funding in the form of grants, and laws accelerating mainstream adoption.

Conclusion

Customer protection should be a crucial consideration for both the policy makers and insurance companies to drive the growth of the insurance industry. The customer experience from Insuretech and traditional insurance firms should drive innovation. More power and options are given to customers through various touchpoints and channels.

Smart contract adoption will restore customers’ confidence in our insurance services and product offerings, especially within the retail space. Even if we resist the global technological disruptions now, we will eventually have to catch up with the rest of the world. We need to act now and act fast.

• Henry Ogbu