Can blockchain smart contracts replace (re)insurance contracts?

Cedric Edmonds is a partner at insurance investment advisers Solidum Partners, which is active in Insurance Linked Securities (ILS) / Catastrophe Bonds. In August 2017 Solidium Re successfully created and issued $14.8 million of ILS notes on a blockchain set up by Edmonds. This article first appeared on the Solidum Partners blog.

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There has been much talk about how smart contracts on the blockchain will revolutionise insurance and reinsurance policies and contract wordings; about how they will be quicker, cheaper, digital, authenticated by nature, pay claims automatically and overall reduce the risk to all parties. The question therefore is, “can a smart contract on a blockchain replace an (re)insurance contract?”.

Back to First Principles

What is a blockchain?

A blockchain is essentially a distributed ledger system. It is distributed in that it exists on many nodes which are replicated and each participant has the ability to change their own account on the ledger. Provided that each participant runs their own node, it removes the need for a trust entity to keep the ledger and make the ledger entries. This is a strength when participants desire or require the removal of the trust entity.

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