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future internetArticleBlockchain and Smart Contracts for Insurance: Is theTechnology Mature Enough?Valentina Gatteschi 1,* ID , Fabrizio Lamberti 1 ID , Claudio Demartini 1, Chiara Pranteda 2 andVíctor Santamaría 31 Politecnico di Torino, Dipartimento di Automatica e Informatica, Corso Duca degli Abruzzi 24, 10129 Torino,Italy; fabrizio.lamberti@polito.it (F.L.), claudio.demartini@polito.it (C.D.)2 Reale Group Innovation Team, Via Corte d’Appello 11, 10129 Torino, Italy; chiara.pranteda@realemutua.it3 Reale Group Innovation Team, Príncipe de Vergara, 125, 28002 Madrid, Spain;victor.santamaria@realeites.com* Correspondence: valentina.gatteschi@polito.itReceived: 30 December 2017; Accepted: 14 February 2018; Published: 20 February 2018Abstract: Blockchain is receiving increasing attention from academy and industry, since it isconsidered a breakthrough technology that could bring huge benefits to many different sectors.In 2017, Gartner positioned blockchain close to the peak of inflated expectations, acknowledgingthe enthusiasm for this technology that is now largely discussed by media. In this scenario, the riskto adopt it in the wake of enthusiasm, without objectively judging its actual added value is ratherhigh. Insurance is one the sectors that, among others, started to carefully investigate the possibilitiesof blockchain. For this specific sector, however, the hype cycle shows that the technology is still inthe innovation trigger phase, meaning that the spectrum of possible applications has not been fullyexplored yet. Insurers, as with many other companies not necessarily active only in the financialsector, are currently requested to make a hard decision, that is, whether to adopt blockchain or not,and they will only know if they were right in 3–5 years. The objective of this paper is to supportactors involved in this decision process by illustrating what a blockchain is, analyzing its advantagesand disadvantages, as well as discussing several use cases taken from the insurance sector, whichcould easily be extended to other domains.Keywords: blockchain; bitcoin; insurance; smart contracts1. IntroductionA blockchain is a distributed ledger maintained by network nodes, recording transactionsexecuted between nodes (i.e., messages sent from one node to another). Information inserted inthe blockchain is public, and cannot be modified or erased [1]. Smart contracts are self-executingcontracts (generally saved on a blockchain) whose terms are directly written into lines of code [2].Recently, blockchain and its relations with smart contracts has received increasing attention frommedia, which started to address it as “The next big thing” [3], “The new black”, “The philosopher’sstone” [4] or “The new Graal” [5]. In [6], blockchain has been compared to inventions such as the steamor combustion engine, since it is potentially able to bring benefits to a variety of everyday activitiesand business processes.According to Gartner’s hype cycle, blockchain is at the peak of inflated expectations, where theenthusiasm is at the highest level possible [7]. Nonetheless, concerns started to be expressed as wellabout a massive adoption of blockchain [5,8–13]. The common denominator in the above concernsis that technology is considered, on the one hand, to be not fully mature yet [5,9] and, on the otherhand, to be overhyped [8], since its application often produces outcomes that could be achieved usingwell-mastered alternatives [10].Future Internet 2018, 10, 20; doi:10.3390/fi10020020 www.mdpi.com/journal/futureinternetFuture Internet 2018, 10, 20 2 of 16The risk is that one is so much in love with this technology that it becomes impossible forone to objectively judge its true benefits. As stressed by Adam Cooper, a technical architect of theBank of England, “[With blockchain] the focus as always should be on fulfilling user needs, not onimplementing technologies simply because they are clever or interesting.” [11].The insurance sector, as with many others, started to investigate the application ofblockchain technology through considerable investments from both big and small companies [14,15],investigations from consultancy firms [4,16,17], and the creation, in 2016, of the B3i, the firstblockchain-centered insurance consortium [18].The hype cycle for the insurance sector [19], however, depicts blockchain technology at thebeginning of the curve connecting the technology trigger phase with the peak of inflated expectation,meaning that this technology has not been fully explored yet in this particular sector. Hence, thequestions that insurance companies are asking themselves right now are “Are there clear use casesexploiting blockchain technology and smart contracts in the insurance sector?”, “In case we want toadopt a blockchain, what is the most suitable blockchain architecture for our needs?” and, more ingeneral, “Is blockchain technology mature enough for insurance?”. It has been estimated that they willneed to wait about 3 to 5 years to see whether they made the right choice today by deciding to investor not in blockchain for their business [20].The objective of this paper is to help companies operating in the insurance sector to answer theabove questions by providing an overview of blockchain- (and smart contracts-) based use cases insuch specific sector, and by highlighting strengths, weaknesses, opportunities and threats for thistechnology. The authors decided to focus on insurance because, in this sector, blockchain technologycould have a relevant impact on a variety of processes and application scenarios. Notwithstanding,it is worth observing that, despite the focus on the particular domain the authors are operating into,many of the examples provided and considerations made throughout the paper could be helpful for anumber of other companies, not necessarily from the financial domain. In fact, the aim is to stimulatereflections and discussions on this topic, leaving to the reader the final judgment on the actual benefitsthat could come from the adoption of the considered technology in a specific scenario.The paper is organized as follows: Section 2 provides an overview of the blockchain technology,by presenting its key concepts. Section 3 discusses several use cases from the insurance sector, bymentioning prototype solutions available so far. Discussion is complemented by Section 4, whichreports a SWOT analysis performed on a wider context to broaden the scope of the analysis beyondthe insurance domain. Finally, conclusions are drawn in Section 5.2. How Blockchain WorksThe blockchain (literally, a “chain of blocks”) made its first appearance in the research scenario in2008, in the frame of the Bitcoin initiative [21,22]. The objective was to transfer online payments fromone party to another, without relying on intermediaries. In this context, the blockchain was actingas the underlying ledger recording Bitcoin transfers and guaranteeing, by means of cryptographicoperations, the authentication and non-repudiation of payments.Even though Bitcoin is, by far, the most famous cryptocurrency, it is not alone. In fact, since 2008,more than 1300 cryptocurrencies have been created [23], which are being used as exchange tokens inmany different blockchain-based applications.The core concepts behind the blockchain technology are reported in the following.– Transactions: each cryptocurrency transfer from one subject to another is represented as atransaction from A to B. Cryptocurrency is neither a physical nor a software object, but the resultof incoming and outgoing transactions. For this reason, the blockchain keeps track of all thetransactions occurred from its birth.– Blocks: transactions are grouped in blocks. Each block collects all the transactions occurring ina given timeframe and keeps a reference to the preceding block (that is where the concept of“chain” comes from).Future Internet 2018, 10, 20 3 of 16– Nodes: instead of being stored in a centralized database, the blockchain is spread over networkcomputers (the “nodes”), each containing a local copy of the entire blockchain.– Majority consensus: since a central authority is missing, decisions on the network are madeaccording to a majority consensus. Each node modifies its local copy of the blockchain to make itmirror the status of the majority of the network nodes.– Mining: nodes could either passively store a copy of the blockchain, or actively take part tothe maintenance of the blockchain, in the so-called “mining” process. During mining, nodescheck previous transactions to verify whether a subject is entitled to spend a given amountof cryptocurrency and, each time a block has to be added to the chain, solve a complexcomputational-intensive mathematical problem. This problem was specifically designed tolimit the possibility for a malicious entity to manipulate the blockchain by falsifying transactions.The probability of attacks is extremely low, since adding a new (malicious) block or modify apreviously added block to the chain would require control of the majority of the network nodes(to make them agree with the modification).– Wallet: people transfer cryptocurrency using wallets. Cryptocurrency cannot be stored on aphysical memory; rather, it is the result of previous transactions. Hence, the wallet only storescredentials (a complex, unchangeable combination of automatically assigned numbers and letters),which enable blockchain users to transfer cryptocurrencies they own. Each wallet is associated toone (or more) unique addresses. Should a user want to send a given amount of cryptocurrency toa peer, he/she would have to specify the recipient’s address and the desired amount, and usehis/her credentials to validate the transaction. This aspect is particularly important, since in caseof credentials loss, the cryptocurrency owned by the user would not “disappear”, but the userwould be no more able to spend it. Moreover, the fact that the user validates the transaction withhis/her credentials certifies that he/she was the actual initiator of the transaction.In order to better understand how the blockchain works, it could be worth considering the exampleshown in Figure 1. In the depicted scenario, Alice wants to send some amount of cryptocurrency fromher wallet (with address “x1z”) to Arthur’s wallet (with address “v4y”).Future Internet 2018, 10, 20 3 of 16‐ Nodes: instead of being stored in a centralized database, the blockchain is spread over networkcomputers (the “nodes”), each containing a local copy of the entire blockchain.‐ Majority consensus: since a central authority is missing, decisions on the network are madeaccording to a majority consensus. Each node modifies its local copy of the blockchain to makeit mirror the status of the majority of the network nodes.‐ Mining: nodes could either passively store a copy of the blockchain, or actively take part to themaintenance of the blockchain, in the so‐called “mining” process. During mining, nodes checkprevious transactions to verify whether a subject is entitled to spend a given amount ofcryptocurrency and, each time a block has to be added to the chain, solve a complexcomputational‐intensive mathematical problem. This problem was specifically designed to limitthe possibility for a malicious entity to manipulate the blockchain by falsifying transactions. Theprobability of attacks is extremely low, since adding a new (malicious) block or modify apreviously added block to the chain would require control of the majority of the network nodes(to make them agree with the modification).‐ Wallet: people transfer cryptocurrency using wallets. Cryptocurrency cannot be stored on aphysical memory; rather, it is the result of previous transactions. Hence, the wallet only storescredentials (a complex, unchangeable combination of automatically assigned numbers andletters), which enable blockchain users to transfer cryptocurrencies they own. Each wallet isassociated to one (or more) unique addresses. Should a user want to send a given amount ofcryptocurrency to a peer, he/she would have to specify the recipient’s address and the desiredamount, and use his/her credentials to validate the transaction. This aspect is particularlyimportant, since in case of credentials loss, the cryptocurrency owned by the user would not“disappear”, but the user would be no more able to spend it. Moreover, the fact that the uservalidates the transaction with his/her credentials certifies that he/she was the actual initiator ofthe transaction.In order to better understand how the blockchain works, it could be worth considering theexample shown in Figure 1. In the depicted scenario, Alice wants to send some amount ofcryptocurrency from her wallet (with address “x1z”) to Arthur’s wallet (with address “v4y”).Figure 1. Performing transactions on the blockchain.Alice makes a statement in which she specifies the amount to be transferred as well as therecipient of the transfer, and validates this message with her credentials (for sake of readiness, the‐ Rose sent 200 to Alice‐ Alice sent 100 to Bob‐ Bob sent 5 to Charlie‐ Jeff sent 43 to Bill‐ Julia sent 40 to Alice‐ …‐ …AliceAlice broadcasts themessage to thenetworkSend to ArthurArthurEach block containsrecordings of severalprevious transactionsThe blockchainis stored onnetwork nodesNodes check if the message was actually sent by Alice and ifshe owns the money she wants to transfer (by comparingincoming and outcoming transactions).If so, they add the transaction to a block (which also containsother transactions occurred in the same time frame)#1 #2 #3 #4The blockchain isa collection ofordered blocksThe added block contains thetransaction from Alice to ArthurIn order to add the newblock to the blockchain, thenodes have to solve acomplex mathematicalproblem (mining)The problem is finding arandom number that, ifcombined with a numericsummary of the previousblock, provides a given result+ 1531 =+ 6486 =+ 385 =… … …When the problem issolved, the new block isadded to the blockchain‐ Alice sent 2 to Arthur‐ Bill sent 30 to Jeff‐ …‐ …Arthur receivesthe moneyx1yv4yFigure 1. Performing transactions on the blockchain.Future Internet 2018, 10, 20 4 of 16Alice makes a statement in which she specifies the amount to be transferred as well as the recipientof the transfer, and validates this message with her credentials (for sake of readiness, the image reportsusers’ names instead of their addresses). Then, she broadcasts the message to the network. Networknodes verify if the message’s sender was actually Alice (by verifying if the message was correctlyvalidated using her credentials), and check if she possesses the amount to be transferred. In order toperform this check, they use their local copy of the blockchain and analyze incoming and outgoingtransactions from Alice’s wallet address that are stored in previous blocks. If the message sent byAlice is valid and she is entitled to spend the money, they add Alice’s transaction, together with othertransactions occurring in the same time frame, to a block. In order to add the block to the blockchain,they then start solving a complex mathematical problem, where they have to find a random numberthat, combined with a numeric summary of the previous block, provides a given result. During this(mining) process, the fastest node receives a monetary reward. When a valid result is found, the newblock is added to the blockchain. As a result, Arthur receives the money.The above example should have allowed the reader to get better acquainted with the maincharacteristics of the blockchain, which make it a disruptive technology:– Decentralized validation: the validation of transactions is performed by network nodes withoutthe need of intermediaries;– Data redundancy: each network node has a local copy of the blockchain, which preventsdata losses;– Data immutability: data stored in the blockchain could not be modified or deleted;– Trust: cryptography enables trust between parties, since a transaction that has been validatedusing user’s credentials cannot be repudiated;– Transparency: everyone could read the blockchain and the transactions stored in it.Though the example in Figure 1 refers to a transfer of cryptocurrency, application possibilities ofthe blockchain are not limited to monetary assets, but could encompass a wide variety of use cases.Among the early application scenarios that were explored for the blockchain, it is worth recallingthe notarial context. In fact, since the blockchain is immutable and publicly available, researcherssuggested using it for storing public records and attestations [1]. Another domain where the blockchainhas been recognized to be able to bring significant benefits is intellectual property protection. In thiscontext, blockchain technology could be used to prove/certify the existence of a document at a giventime [24]. In contexts where, e.g., freedom of thought is threatened, blockchain technology could beused to store information in order to avoid censorship [25]: in fact, everyone can write information onthe blockchain and read it.As time has passed, researchers have realized that the blockchain could also be used to store otherkinds of assets, including pieces of code. It was the birth of “smart contracts”, i.e., small programsstored in the blockchain and programmed to autonomously behave in a given manner when someconditions are met.The idea of a smart contract has been known since the 90s [26], but it was only with the blockchaintechnology—and, in particular, with the Ethereum blockchain (probably the most famous blockchainafter Bitcoin)—that smart contracts were able to unleash their full potential [27].With a smart contract, a person could, for instance, encode his/her will in the blockchain in theform of a set of rules. In case of death, the smart contract could then automatically transfer the testator’smoney or other kind of assets to the beneficiary. The testator may also provide additional constraints,such as enabling the transfer only when the beneficiary reaches the age of majority, when he/sheobtains a diploma, etc.Since smart contracts’ conditions are based on data stored in the blockchain, they need to relyon external services, which take data from the “real” world (e.g., from death records) and push themto the blockchain (or vice versa). These services are referred to as “oracles” [28]. By consideringthe testator’s example, an oracle could inspect death records to identify whether the person passedFuture Internet 2018, 10, 20 5 of 16away. If so, it could write this information on the blockchain (e.g., by changing the value of a Booleanvariable indicating whether the person is alive or not). The smart contract, then, would trigger aconditional statement (based on the value of the variable), and execute the block of code initiating themoney transfer.Based on the type of information collected and on the interaction with the external world, oracleshave been grouped into “software”/“hardware” oracles, and “inbound”/“outbound” oracles [29].Software oracles are in charge of extracting information mainly from Web sources, whereas hardwareoracles are meant to extract information from the physical world (e.g., through sensors). Inboundoracles insert information in the blockchain, whereas outbound oracles allow smart contracts to sendinformation to the external world (e.g., letting hotels’ intelligent lockers unlock themselves as soon asa person pays for a night).Oracles have a huge responsibility in the correct execution of smart contracts, as the insertionof wrong information could trigger a money transfer without possibility of refund. Thus, there arecompanies that have developed oracles that certify the authenticity of extracted data for a smallcost [28]. In some cases, it could be worth relying on more than one oracle, e.g., by considering asituation as “happened” if 3 out of 5 oracles confirm it [30].Recently, an even more complex application of smart contracts and oracles was proposed, whichis associated to the concept of Decentralized Autonomous Organization, or DAOs [31]. In this context,smart contracts are used to encode rules to govern an organization, e.g., how decisions are taken,the weight of each member’s vote, etc. The advantage is that no external party is required to verifythat the organization is properly managed, and underlying rules can be verified by the wider public,ensuring transparency and trust.From the architectural point of view, it is worth remarking that there exist different types ofblockchains, which differ in terms of read/write permissions. “Public blockchains” (such as the Bitcoinblockchain) are blockchains that could be readable and potentially writable by everyone. “Privateblockchains” are blockchains that could be written only by organization members. Read permissionscan be either restricted to the organization, or made public. In “consortium blockchains”, a set ofselected nodes belonging to different institutions control validation, and the blockchain is used toshare information among participant institutions. Public blockchains are particularly useful whenno central entity is available to verify a transaction, and full decentralization is needed. Privateand consortium blockchains provide some advantages, such as lower validation costs and shortervalidation times (given the fact that, because of the smaller number of nodes, the mathematical problemcan be simplified), reduced risk of attacks (since nodes that validate transactions are known) andincreased privacy (as read permissions could be granted only to selected nodes). Furthermore, in caseof errors or bugs in smart contracts, private and consortium blockchains could extraordinarily modifyor revert previous transactions.The choice of the type of blockchain to adopt should be based on the amount of decentralizationrequired, and on time/cost constraints [8,32]. Eventually, some hybrid solutions, exploiting cross-chainexchange layers between public and private blockchains, could be exploited [33], e.g., by using aprivate blockchain for a company’s backend activities and a public blockchain for receiving/sendingmoney from/to customers. Finally, it must be underlined that, when selecting the blockchain touse, one should pay attention to avoiding decentralization for the sake of itself. In fact, a number ofcompanies’ processes are currently managed in a successful way using relational databases, and theswitch to a (private) blockchain could not be worth the effort [8,32]. With respect to private blockchainsversus centralized databases, experts argue that “the biggest advantages of private blockchains incomparison to centralized databases are cryptographic auditing and known identities. Nobody cantamper with the data, and mistakes can be traced back” [34]. Others suggest that a blockchain could bea solution more suitable than a database only in case a company “plans to start privately and evolveinto a regular public blockchain for public cross-verification as demand/volume grows” [34].Future Internet 2018, 10, 20 6 of 163. Blockchain Applications in Insurance: Selected Use CasesAs illustrated in the previous section, advantages of blockchain are various. A number ofenthusiasts already proposed using this technology in various sectors and contexts, including:– Government [35], to record in a transparent way citizens’ votes, or politicians’ programs (forverifying if promises made have been kept) or to enable autonomous governance systems [36];– Intellectual property [24], to certify the proof of existence and authorship of a document;– Internet [25], to reduce censorships, by exploiting the immutability of data stored inthe blockchain;– Finance [37], to transfer money between parties without having to rely on banks;– Commerce [38], to record goods’ characteristics as well as their ownership, especially for luxurygoods, thus reducing the market of counterfeit/stolen items;– Internet of Things (IoT) [39–41], e.g., by exploiting smart contracts to automatically processdata coming from sensors, in order to let intelligent machines interact with each other [42] andautonomously take actions when specific situations occur;– Education [43], to store information on qualifications acquired by learners, e.g., to reduce jobapplication frauds; in this context, multiple actors (e.g., universities, training institutions, etc.)could write qualifications achieved by a person on the blockchain; human resources staff couldthen easily obtain information about when and where a given competency was obtained.A rather comprehensive overview of applications developed in each of the above sectors can befound in [32,44]. What should be evident from the above list is that benefits deriving from the adoptionof blockchain technology are not limited to a single sector/scenario. Moreover, even within a givensector, blockchain can have different impacts considering the various stakeholders operating in it, theirbusiness models, their needs, etc.In the following, the attention will be specifically devoted to the insurance sector, where theuse of blockchain could positively affect different internal processes (from customer acquisitionand management, to frauds prevention, etc.) and could even allow companies to reach newmarkets [4,16,17,32]. In particular, a selection of use cases that could potentially benefit from blockchaintechnology will be introduced. For some use cases, prototype implementations have already beendeveloped. In other cases, the use of blockchain has been only analyzed from a theoretical point of view.For each use case, advantages, disadvantages and impact on the insurance domain will be discussed.3.1. Improvement of Customer Experience and Reduction of Operating CostsIn this use case, blockchain and smart contracts could be exploited to increase the speed of claimprocessing as well as to reduce the costs (and mistakes) associated with the manual processing ofclaims. From this perspective, a smart contract could encode the rules for enabling the transfer ofrefund from the company to the insured.A simple application could consist of triggering an automatic transfer of refund only if thecustomer repairs the car at a certified mechanic, with the mechanic sending a transaction to the smartcontract to prove its identity.More complex use cases could also involve oracles to gather information from the real world.To make an example, in crop insurance an oracle could periodically check weather data and push thisinformation in the blockchain. A smart contract could then read these data, and trigger a payment incase of persistence of bad weather.These problems have been dealt with, for instance, in the prototype presented in [45]. In this case,the focus is on travel insurances, and the idea is to exploit a smart contract developed on the Ethereumblockchain for automatically refunding travelers if their flight/train was delayed.Another interesting use case, which could widely benefit from the increasing diffusion of sensors,is the exploitation of smart contracts in combination with IoT. For instance, homes could be equippedFuture Internet 2018, 10, 20 7 of 16with sensors that can directly notify a smart contract of a damage (e.g., damp sensors could be used tomonitor damages on the roof) [46]. Similarly, smart appliances could automatically monitor their state,and initiate a claim or directly contact the repairer for a quicker assistance when needed.Solutions such as the ones envisioned above bring benefits to different actors: to the insurancecompany, which could reduce the amount of resources normally devoted to claim processing, but alsoto customers, who would receive money even before having become aware of the damage.Another advantage would come from the fact that everyone could inspect the smart contract.That is, the customer undersigning a policy would get a clear idea of its contractual conditions (eventhough, at the moment, he/she should master some programming skills in order to understandthe smart contract code). Consequently, it would become easier for him/her to compare policies.Furthermore, the choice of a policy would no more based only on how much he/she trusts a givencompany (since trust would be implicitly guaranteed by the smart contract), but on objective data.Despite these advantages, it must be said that the scenario above could be adopted only for alimited number of policies. In fact, the majority of claims processed by insurance companies still needto be evaluated by an external expert before being settled. In case of manual processing, however,the customer experience could still be improved by managing payments in cryptocurrencies, whosetransfer would be quicker than with traditional methods (several seconds or minutes depending onthe blockchain used).From the architectural point of view, probably the most suitable choice is to adopt a combinationof private and public blockchains. The private blockchain could be used to record policies andclaims data, whereas the public blockchain could be used to trigger the refund in terms of tradablecryptocurrencies (such as Ethers or Bitcoins). The private blockchain could be maintained by trustedcompany’s computers/nodes characterized by lower mining costs with regard to those of publicblockchains. The public blockchain would be maintained by the wider public, through the miningincentives presented in Section 2. Alternatively, the company could decide to exploit only a publicblockchain. This choice could be successful in case the company needs to improve its own reputationand obtain customers’ trust (as the process would be fully decentralized), but would imply highertransaction costs.3.2. Data Entry/Identity VerificationThe cryptographic mechanism underlying the blockchain could be used to reduce the overheadrelated to manual data entry and verification of new customers [47].With the blockchain, customers would be identified by a unique address (e.g., the one linked totheir wallet). The first time they use a service, a certified intermediary would verify their identity andlink it to their address. From that time on, every time they undersign a policy, they would no moreneed to provide an identification document; rather, they would only need to use their credentials.Benefits of this use case could be seen again in a reduced time and cost to gather/provideinformation.Nonetheless, this use case also has some relevant drawbacks the company should be aware of.A first drawback is related to the possible loss/steal of credentials. As said, since the blockchain workswithout intermediaries, no one could reset users’ credentials. A solution could be to rely on externalservices, which could store credentials and return them to the users in case of loss. However, using suchservices would mean providing someone else access to one’s sensitive information. Another drawbackis linked to the fact that the current legal regulations should be modified to include blockchain-basedidentification, and some governments could refuse to approve this type of identification, e.g., due tomistrust in the technology.From the architectural point of view, companies deciding to exploit blockchain-based Know YourCustomer (KYC) could rely on external services running on public blockchains. In fact, some KYCservices recently appeared, offering some prototypes based on existing blockchains. One example isCivic [48] (based on the Bitcoin blockchain) and KYC Legal [49] (exploiting the Ethereum blockchain).Future Internet 2018, 10, 20 8 of 16Such companies already built a network of validators, which receive a reward for each performedvalidation and charge small fees to companies requiring their services.3.3. Premium Computation/Risk Assessment/Frauds PreventionIn this scenario, the blockchain is used to let multiple certified intermediaries record informationrelated to a person (by linking them to his/her address).Such intermediaries could be insurance companies (e.g., to record previous claims), police officers(e.g., to store criminal acts), medical staffs (e.g., to record a person’s injuries and treatments), or evensmart wearable devices (which could inject in the blockchain data about one’s physical activity).A smart contract could read all the information linked to a person and automatically compute thepremium and perform risk assessment, based on his/her physical health, driving behaviors, etc. [50].Another application scenario is represented by fraud prevention. In this scenario, a smart contractcould analyze collected data and identify frauds during claim processing (e.g., by crossing data relatedto a person’s previous claims).A scenario such as the one depicted in the above examples, however, could be difficultly realized inthe short term. In fact, it implies that each person possesses a unique blockchain address (as presentedin Section 3.2), and requires the active involvement of different actors (insurance companies, policeofficers, medical staff, etc.) as the quality of the results would be a consequence of the quality andquantity of data stored in the blockchain. Privacy is another relevant issue (especially for what itconcerns medical records). In this view, in the construction of such a system, a thorough attentionshould be devoted to let only selected actors link information extracted from the blockchain toa person’s identity. Furthermore, particular care should be devoted to the definition of commonstandards to record the information, in order to enable interoperability.The most suitable architecture for this use case is a consortium blockchain. The blockchain wouldbe maintained by selected nodes of the consortium, e.g., belonging to the different actors involved.The limited number of trusted nodes would increase security and privacy. Furthermore, the blockchainwould keep track of the sender of each transaction. Finally, being controlled by a small number ofnodes, mechanisms to revert blockchain state in case of transactions erroneously made (e.g., a drivinginfraction notified to the wrong person) could be devised.3.4. Pay-Per-Use/Micro-InsuranceSmart contracts- and blockchain-based payments could enable new revenue sources, such as microand pay-per-use insurances. Though in the past micro-insurances were threatened by administrativecosts, the exploitation of smart contracts could enable quick and cheap policy undersignment andmanagement (even on mobile devices) [51]. Similarly, pay-per-use insurances could become a praxis,possibly in combination with IoT solutions for automatic undersignment. For instance, GPS data couldbe used to automatically collect, e.g., a travel premium only if the customer is abroad, a car premiumonly when the car is moving, etc. Pay-per-use mechanisms could be exploited in services such as Uberor Airbnb, e.g., activating the service when a customer is picked up or hosted.With respect to the other use cases described in the paper, from the point of view of actors andtechnology to be involved, this is probably one of the quickest and easiest to be realized (because ofthe limited number of involved actors, and because the feasibility of prototypal solutions has alreadybeen demonstrated [51]). Moreover, from the point of view of the insurance company, introducingblockchain-based pay-per-use insurances (which could be even paid by using cryptocurrencies) couldbring a competitive advantage, especially attracting young, technology enthusiasts.Concerning architectural choices, companies aiming at addressing pay-per-use insurance couldrely on a public blockchain. In this way, a smart contract could collect money from customers (e.g.,Ethers or Bitcoins), keep them until a given date and transfer them to the insurance company ifno damage occurs. Being on a public blockchain, everyone could inspect the smart contract code,increasing trust between parties.Future Internet 2018, 10, 20 9 of 163.5. Peer-to-Peer InsuranceSeveral peer-to-peer insurances already exist [52–54], though it must be said that, at present,they are not “real” peer-to-peer models, as they have a traditional insurance model or risk carrierbehind them, supporting the heavy part of the insurance business.In this context, smart contracts could represent an important innovation, as they would enablethe creation of DAOs, where self-insured groups’ functioning rules could be hard-coded.A prototype solution named DYNAMIS and based on the Ethereum blockchain has alreadybeen implemented [55]. This solution aims to provide supplemental unemployment insurance for acommunity of self-managed people in terms of underwriting and claims acceptance and processing.Even though in peer-to-peer insurance the blockchain could really become the key technology,from the insurance company’s perspective it must be underlined that the objective of peer-to-peerinsurance is the removal of intermediaries (i.e., the insurance companies themselves). Hence, a wisechoice insurance companies could make here is to recognize this risk, and turn it from a threat into abusiness opportunity, e.g., by providing the infrastructure for peer-to-peer insurance.From the architectural point of view, since this scenario requires a high amount of decentralization,a public blockchain would be more suited.It should be underlined, however, that the adoption of peer-to-peer insurance models by the widerpublic is not imminent yet. In fact, apart from a small amount of technology enthusiasts who aim atreducing insurance costs, a high number of customers still considers the interaction with intermediariesimportant and worth of extra costs [56].4. A SWOT AnalysisThe above discussion should have provided the reader with a broad overview of potentialapplications of blockchain technology in the insurance sector. As seen, advantages appear tobe numerous. Nonetheless, only a few prototypes exist so far, and it has been estimated thatblockchain-based applications will be available to the wider public only in 10–15 years [5].Starting from the considerations drawn in Section 3, in the following a SWOT analysissummarizing advantages and disadvantages of this technology is provided (Table 1). The objectivehere is to abstract from the specific domain considered, i.e., insurance, and to perform an analysis,which could potentially be helpful in a variety of contexts/sectors.The strengths of blockchain technology are mainly related to the technological aspects presentedin Section 2. By removing intermediaries, the cost of money transfers can be lowered (e.g., bankcommissions cease to exist). Transfers can also be made faster, as cryptocurrencies are directly movedfrom a wallet’s address to another without intermediate steps (as it usually occurs, e.g., in overseasbank transfers). Smart contracts provide a high degree of automation. Transparency is guaranteed aswell, as the blockchain could be accessed worldwide. In addition, since everyone could potentiallywrite on the ledger, the blockchain could become the repository of a huge amount of information,which could be used for data analytics in different sectors (not necessarily related to insurance andfinance, such as medicine, education, etc.). The underlying cryptographic mechanism guarantees thatdata are not modified and that transactions could not be repudiated. Finally, the replication of theblockchain on each network node ensures that the blockchain would survive to unexpected events.The most relevant weaknesses are related to scalability, energy consumption and performance.In fact, at present, the number of transactions that could be handled per second is extremelylow when compared to traditional systems (mainly because of the computational power required tovalidate new blocks). If, at the present time, blockchain-based transactions are quicker than traditionalbank transfers (on average they require few seconds to several minutes, instead of 1–2 days), for instantpayments and for other kinds of applications, performance should not be adequate to needs. In thisrespect, it is worth outlining that some blockchain platforms are changing the process of validatingblocks, reducing the complexity of the mathematical problem to be solved and restricting the possibilityto perform mining only to a subset of trusted nodes. Apart from time, space is also an issue, sinceFuture Internet 2018, 10, 20 10 of 16data are replicated on each network node. To make an example, the Bitcoin blockchain requires morethan 170 GB of storage on each network node [57]. In addition, the amount of energy consumedby network nodes, and the cost of the hardware required to validate new blocks is extremely high,estimated around 6$ per transaction [58] (though it must be underlined that several initiatives to limitthe amount of consumed energy are currently under development [59]).Table 1. SWOT analysis of the adoption of blockchain.Positive NegativeInternal Strengths– Fast and low-cost money transfers– No need for intermediaries– Automation (by means ofsmart contracts)– Accessible worldwide– Transparency– Platform for data analytics– No dataloss/modification/falsification– Non-repudiationWeaknesses– Scalability– Low performance– Energy consumption– Reduced users’ privacy– Autonomous code is “candy for hackers”– Need to rely to external oracles– No intermediary to contact in case of loss ofusers’ credentials– Volatility of cryptocurrencies– Still in an early stage (no “winning”blockchain, need of programming skills toread code, blockchain concepts difficult tobe mastered)– Same results achieved withwell-mastered technologiesExternal Opportunities– Competitive advantage (if efforts toreduce/hide the complexity behindblockchain are successful, or in case ofdiffusion of IoT)– Possibility to address new markets(e.g., supporting car and housesharing, disk storage rental, etc.)– Availability of a huge amount ofheterogeneous data, pushed in theblockchain by different actorsThreats– Could be perceived as unsecure/unreliable– Low adoption from external actors meanslack of information– Governments could consider blockchain andsmart contracts “dangerous”– Medium-long term investment– Not suitable for all existing processes– Customers would still consider personalinteraction importantThe fact that, once information is encoded in the blockchain, it is immutable and accessible byeveryone is another weakness, and could harm users’ privacy. To make an example, everyone couldcheck the amount of money owned by a person, by analyzing his/her incoming transactions. Shouldother types of information be stored in the blockchain (e.g., medical records), this issue would becomeeven more relevant. To cope with privacy issues, some solutions to anonymize payments/transactionshave been proposed [60–63].The immutability and self-execution of code could be another weakness for blockchain, sincesmart contracts could become “candy for hackers” [9]. In fact, hackers could exploit bugs in smartcontracts to steal money, as it recently happened on the Ethereum network, where, in the most famousattack of this kind, around $60 million were “stolen” in June 2016. Even assuming that smart contractsare free of bugs, some applications would still need external oracles to inject information in theblockchain. The weakest point, in this case, would become the oracle. As said, the consequences ofinjecting in the blockchain wrong information could be partially mitigated by relying on more thanone oracle, each getting information from different sources.Apart from technical aspects discussed above, other weaknesses affect blockchain usability. Firstof all, the impossibility to receive assistance in case of credentials loss (even though this weaknesscould be partially removed by relying on trusted services, as explained in Section 3). Another aspectis cryptocurrencies volatility, which could become a limitation to the adoption of blockchain-basedpayments. In fact, given the fact that cryptocurrencies are subject of speculation and consideringFuture Internet 2018, 10, 20 11 of 16that technology is not fully mature yet (and bugs frequently appear), value of cryptocurrencies showhuge fluctuations.Another weakness is related to the fact that development tools are still in an early stage,and standards for developing blockchain-based applications have not been defined yet.Finally, it is worth remarking that, in some cases, blockchain would not be the most suitabletechnology to use, as existing, well-mastered alternatives would enable the achievement of comparableresults [64].Opportunities are mainly related to whether the market would embrace the technology or not.At the present time, interacting with the blockchain requires some technical skills (e.g., masteringthe concept of blocks, installing a wallet, etc.). Several efforts are currently carried out in order toreduce/hide the complexity behind the technology (e.g., the development of browser plugins whichlet users easily inspect the ledger [65], the creation of user-friendly wallets [66], etc.). Should the aboveinitiatives be successful, companies providing blockchain-based applications and services (and, in theinsurance market, companies offering blockchain-based policies) could have a competitive advantage.This advantage would become larger in case of an increasing diffusion of IoT, as smart contracts couldbe coded to autonomously make decisions based on data acquired by sensors [39–41].Another opportunity is related to the possibility to address new markets and create new types ofservices, mainly by leveraging DAOs and low transactions fees. Blockchain could be successfully usedto support the sharing economy, from car and house sharing [67] to disk storage rental [68] (and, in aninsurance scenario, to support micro, on-demand and peer-to-peer insurances).Finally, should a high number of actors write data on the blockchain, innumerable newapplications could appear. As a matter of example, a person’s previous medical history could be easilyretrieved by doctors in case of urgency; blockchain could become a repository of medical data whichcould be used by research scientists; blockchain-based supply chains could be more efficient as datacould be shared nearly instantaneously among heterogeneous involved actors; in an insurance scenario,data could be used for frauds prevention, policies personalization, etc. Nonetheless, the type andimpact of these applications would be a function of the amount and quality of information recorded.Threats are linked to different external causes. First of all, there is still a risk that the marketdistrusts this technology, perceiving it as unsecure or unreliable, due to bugs, cryptocurrenciesvolatility, etc.Other actors could think that it is too complicated, and the adoption rate on a worldwidebasis could be low. As a countermeasure, such actors should receive a suitable training to be madeaware of the advantages of this technology. Alternatively, efforts could be carried out to hide theunderlying complexity.Particular attention should be paid to legal regulations, which could threaten the adoption ofblockchain. For instance, the regulation of the use and jurisdiction of smart contracts is still underdebate. To make some examples, there could be situations in which the outcome of a smart contractwould not be considered as legal by a court under existing laws (e.g., a smart contract regulatingtransactions of illegal goods) [69]. Similarly, there could be situations where hackers exploit smartcontracts bugs to steal money. Some governments could consider blockchain and smart contracts too“dangerous”, thus resulting in a limitation of the adoption on a larger scale.Concerning practical aspects, blockchain-based applications are a medium- to long-terminvestment, and they could not be suited for integration in all the existing processes. In fact,as previously discussed for the insurance sector, some claims would still need to be manually processed,as not all the damages could be evaluated by sensors.Finally, should blockchain technology become a praxis, it could impact on companies’ relationshipwith their customers. First of all, some customers could refuse to adopt it, as they might still considerthe personal interaction important. Similarly, companies that invested in human capital to offer agood customer service could lose market share, as the competition could be moved from the quality ofservice provided, to its price.Future Internet 2018, 10, 20 12 of 165. ConclusionsBlockchain is receiving an ever-growing attention from research and industry, and is considereda breakthrough technology. The increasing enthusiasm reported in the media, however, could biasan objective evaluation about whether to invest or not in this technology. The risk is that a companydecides to embrace blockchain technology because it is fascinating, without reflecting on whether it ismature enough for an adoption in everyday activities, and by a wider public.To help companies reduce the risk of chasing decentralization for the sake of itself just becauseblockchain is now under the spotlight, in this paper we presented an overview of potential applicationsand use cases of blockchain and smart contracts in the insurance sector. We also drafted a more generalSWOT analysis of blockchain, which could be potentially applied to a variety of other sectors.We decided to focus on insurance because this is a sector where blockchain has not been fullyexplored yet and in which blockchain could have a relevant impact on several processes and applicationscenarios. Hence, use cases in this sector could be helpful in identifying advantages and disadvantagesof the technology itself.The considerations made throughout the paper helped us answer the key questions reported inthe introduction.Concerning question 1, “Are there clear use cases exploiting blockchain technology and smartcontracts in the insurance sector?”, at the present time a number of use cases and prototype solutionshave been devised in this sector. In particular, blockchain and smart contracts could be successfullyused to speed up claims processing and reduce operating costs. In this scenario, a smart contractcould trigger reimbursements based on data acquired from physical sensors (e.g., damp sensorsinstalled on roofs) or from the Web (e.g., weather or flights delay data). In another scenario,data entry/identity verification, the blockchain could be used as the infrastructure to verify a person’sidentity. People’s identities could be linked to a blockchain address; then, each time a person needsto be verified (e.g., to open a bank account), he/she could send a signed transaction from his/heraddress, by proving he/she is the address’ owner. In the context of premium computation/riskassessment/frauds prevention, the blockchain could act as a shared ledger recording a person’sprevious history (previous claims, committed infractions, medical history, etc.). Insurance companiescould rely on these data to identify frauds, or to automatically compute the premium of a policy.In the scenario of pay-per-use/micro-insurance, blockchain and smart contracts could be used toautomatically activate/deactivate policies and covers, based on data collected by sensors. Finally,in the last identified scenario, i.e., peer-to-peer insurance, blockchain and smart contracts could be thekey technologies to enable a shift to a full decentralization, e.g., supporting the automatic managementof self-insured groups’ funds.Concerning question 2, “In case we want to adopt a blockchain, what is the most suitableblockchain architecture for our needs?”, as presented in Section 3, the architectural solutions shouldbe chosen based on the company’s decentralization needs. In general, for the backend a privateblockchain may be sufficient. Private blockchains have been frequently demonized, since using aninstrument originally born to foster decentralization in a fully centralized environment may seem acontradiction. Nonetheless, they have the advantage of keeping track of the sender of a transaction andof all the previous occurred transactions, reducing the risk of data tampering. Furthermore, togetherwith smart contracts, they could be used to increase the automatization of existing tasks. In casemultiple institutions need to access data, a consortium blockchain may be preferable. This blockchaincould be maintained by nodes belonging to the different institutions of the consortium, and could beused as a shared ledger. Finally, public blockchains could be useful to manage (automatic) paymentswith existing cryptocurrencies, or when there is the need to provide trust (using an unmodifiableledger) between parties.Concerning question 3, “Is blockchain technology mature enough for insurance?”, while webelieve that blockchain is a tremendous invention that could have an impact similar to the World WideWeb in the 90s, we also think that this technology still needs several improvements before becomingFuture Internet 2018, 10, 20 13 of 16mainstream. The reasons behind this statement are various: first of all, a current limitation of existing(public) blockchains is scalability. In fact, the number of transactions per second is low, and the networkfrequently suffers congestions. In a pay-per-use insurance scenario, these facts would translate intolong waiting times before the desired policy cover is actually activated (and, what if an accident occurswhile the transaction activating a cover was waiting for validation?).Second, a winning blockchain is still missing. That means that a company could develop anapplication exploiting a given blockchain, and discover after few years that the chosen blockchain isno longer supported by the wider network. Using a public blockchain supported by few nodes couldincrease the risk of attacks (as few nodes could control the majority of the network).Third, the interaction with the blockchain is still complex for the “average user”. Mastering theconcepts of wallet, transaction, mining, etc. requires some technical background. At the same time,Bitcoin has frequently been associated with a pyramid scheme or a fraud. As a consequence, thereis still a lot of misinformation on blockchain, and people could still prefer “traditional” applicationsrather than decentralized ones. Furthermore, cryptocurrency volatility (which sometimes is driven bymedia news) could scare the potential users of decentralized applications.Finally, the resources and best practices to develop a free-of-bugs smart contract are still insufficient.Smart contracts frequently experience attacks, in some cases with disastrous consequences [70]. Thisaspect could especially threaten peer-to-peer insurances, which would widely rely on smart contractsfor their governance.For the above reasons, we do not expect blockchain-based insurance applications to appear in thevery near future.It must be said, though, that the blockchain community is devoting great efforts to improving theabove weaknesses. Regarding scalability, Lightning Network (for Bitcoin) [71] and Raiden Network(for Ethereum) [72] are currently under development. Both solutions are investigating how to mixonline and offline transactions, in order to reduce mining costs and time. Concerning easing theinteraction with the blockchain, some applications that let users easily interact with blockchain-basedapplications using their browsers or mobile phones are currently under development [65,66].Concerning smart contracts security, bug bounties programs are more and more frequent, and awide community of blockchain white hat hackers is currently being created [73].Once the above initiatives are successful, blockchain technology could be gradually inserted ineveryday lives. In the meantime, insurance companies are strongly suggested to start investigating it,by acquiring the required competencies, and by creating some prototype solutions. Such prototypescould be useful to evaluate how existing processes would be influenced and to what extent thistechnology would be accepted by the staff or by customers.What is clear already is that blockchain is bringing a radical transformation to the way we act andthink, and we all should be prepared for this change.Author Contributions: The paper was prepared by all the five authors, which were involved in a study ofBlockchain technology in the Insurance Sector. All the authors equally contributed to the manuscript. ValentinaGatteschi focused on technical aspects related to Blockchain and on State of Art approaches and applications,under the guidance of Prof. Fabrizio Lamberti and Prof. Claudio Demartini, who also provided assistance whileshaping and revising the paper. 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