Smart Contracts, Insurtechs and the Future of Insurance

Abstract: The insurance industry is notoriously conservative and has seen comparably few technological improvements in the last fifty years. A wave of new technology- driven insurance firms, or insurtechs, is changing that. By leveraging new technology and offering more customer-centric and innovative products, these firms have captured shares in many insurance markets. One technology — yet to be broadly adopted but with great hype — is blockchain- based smart contracts. These contracts promise to increase operational efficiency while simultaneously creating more equitable insurance products. Whether this is realistic is an entirely different matter; blockchain-based smart contracts have yet to prove tangible business value in insurance. Given the emergence of insurtechs and the growing interest in smart contracts, the purpose of this study is to increase knowledge of the strategic relevance and factors affecting adoption of smart contracts within the insurance industry — focusing on Swedish consumer-facing insurance applications. The research is based on a triangulation methodology, consisting of a comprehensive literature review coupled with expert interviews concerning both smart contracts and the insurance industry. The study consists of a descriptive, exploratory and problem-solving component. The descriptive part-study resulted in a taxonomy of smart contracts; a strict (third-party-absent) and soft (third-party- present) definition. The exploratory part-study resulted in findings about the strengths and weaknesses of the technology; suggesting that soft smart contracts have a higher strategic fit than strict smart contracts in digitally mature and institutionally democratic markets. The problem-solving part-study — based on a case study of Swedish insurtech Hedvig — resulted in findings about realisable business value, particularly in claims management; suggesting that full automation is difficult for existing claims flows but possible for new insurance products. Finally, these empirical findings were combined with a set of conceptual frameworks to determine key drivers in the adoption of blockchain-based smart contracts and future scenarios.