Blockchain in Insurance: Automating Claims with Smart Contracts

Insurance has always been a trust-intensive industry. Customers pay premiums expecting timely payouts when things go wrong. Yet the reality often involves slow claim settlements, mountains of paperwork, and frustrating disputes. Blockchain technology is now changing this dynamic fundamentally-by introducing smart contracts that automate verification, policy issuance, and claims processing without human intervention.

How traditional insurance falls short
Smart contracts: the blockchain solution
Key benefits of smart contracts in insurance
A simple blockchain insurance model
Flight insurance: the AXA Fizzy experiment
How Fizzy worked
Lessons from Fizzy’s discontinuation
Marine insurance: the Maersk-EY-Microsoft collaboration
The problem with traditional marine insurance
The Insurwave platform
Benefits for stakeholders
The broader implications for smart city ecosystems
Challenges and future outlook

How traditional insurance falls short

The conventional insurance model relies heavily on manual processes. When a customer files a claim, it typically passes through multiple verification stages-documents need to be collected, reviewed, and cross-checked against policy terms. This process is time-consuming and prone to human error.

According to Guidewire, insurance transactions often involve numerous forms, multiple intermediaries, and poor communication between parties. The result is billions of hours spent on paperwork annually and increased opportunities for fraud. Customers, meanwhile, experience delays that can stretch weeks or even months before receiving legitimate claim payments.

Smart contracts: the blockchain solution

A smart contract is a self-executing digital program stored on a blockchain. It contains predefined rules based on the insurance agreement-essentially translating policy terms into executable code. When specific conditions are met, the contract automatically triggers the agreed action, whether that’s issuing a payment, updating a policy, or closing a claim.

This automation eliminates the need for manual intervention in routine cases. As ScienceSoft explains, smart contracts introduce effective automation of customer risk scoring, policy issuance, claim validation, and regulatory reporting. They process data from an insurer’s systems and relevant third-party sources to accelerate underwriting and claim resolution cycles.

Key benefits of smart contracts in insurance

Faster claim processing: Once the triggering event is verified, payouts happen almost instantaneously. There’s no waiting for paperwork to move between departments.

Reduced fraud: Blockchain’s immutable ledger creates a tamper-proof record of all transactions. Smart contracts help prevent fraudulent claims by ensuring that every trigger is verified against reliable data sources before any payment is released.

Lower administrative costs: Automation reduces the workforce needed for claims processing, allowing insurers to redirect resources toward customer service and product innovation.

Enhanced transparency: According to Norton Rose Fulbright, all stakeholders-including policyholders, providers, and regulators-can access the same verified information, reducing disputes and building trust.

A simple blockchain insurance model

Consider how a basic blockchain insurance transaction works. A client connects with an insurance agent through a blockchain network. The policy terms are coded into a smart contract specifying coverage conditions, premium amounts, and payout triggers. When the client pays the premium, the transaction is recorded on the blockchain. If a covered event occurs, data from verified external sources (called oracles) feeds into the smart contract. The contract automatically verifies whether conditions are met and, if so, initiates the payout directly to the client’s account.

This model applies across various insurance types-from vehicle damage claims to health insurance. Research published in Frontiers notes that smart contracts can automatically verify and process claims upon submission, validate patient identity, check claims against policy terms, and initiate payments-all without manual intervention.

Flight insurance: the AXA Fizzy experiment

One of the most notable early implementations of blockchain in consumer insurance was AXA’s Fizzy-a parametric flight delay insurance product launched in September 2017. The concept was simple: travelers could purchase insurance that would automatically compensate them if their flight was delayed by more than two hours.

How Fizzy worked

Customers visited the Fizzy platform, entered their flight details, and received a custom quotation based on the specific flight’s historical delay risk. Upon purchase, the policy details were written to a smart contract on the public Ethereum blockchain. The smart contract connected to global air traffic databases to monitor flight data in real-time.

When the system detected a delay exceeding two hours, compensation was automatically triggered and sent to the customer’s bank account. The customer didn’t need to file any claim-the smart contract handled everything independently.

As AXA’s R&D director noted, the independent smart contract rather than the insurer triggered consumer indemnification, representing a fundamentally new approach to insurance architecture. This removed any suspicion that insurers might deny valid claims-the decision was made by transparent, verifiable code.

Lessons from Fizzy’s discontinuation

Despite its innovation, Fizzy was discontinued in November 2019. According to Ledger Insights, the product failed to reach its commercial targets primarily because there wasn’t sufficient market appetite for blockchain-based consumer insurance at the time, and appropriate distribution channels hadn’t been established.

However, AXA emphasized that Fizzy was always a learning experiment. The company gained valuable insights about consumer needs, the technology’s capabilities, and how to build and operate smart contracts on Ethereum. These lessons continue to inform blockchain insurance development across the industry.

Marine insurance: the Maersk-EY-Microsoft collaboration

While Fizzy targeted individual consumers, blockchain’s potential in commercial insurance is even more significant. Marine insurance-a $30 billion annual premium industry-presented an ideal case study due to its inherent complexity and inefficiency.

The problem with traditional marine insurance

Marine insurance involves multiple stakeholders across different jurisdictions: ship owners, captains, brokers, insurers, reinsurers, and regulators. According to EY, the industry has operated on 17th-century business practices despite modern technology being available. Contracts often aren’t finalized until after ships have already departed. Information passes through long chains of intermediaries, getting lost or distorted along the way.

As Maersk’s head of risk and insurance Lars Henneberg stated, the distance between risk and capital is simply too far in traditional marine insurance. The sequential, linear, and highly frictional value chain creates unnecessary costs for everyone involved.

The Insurwave platform

In 2018, EY and data security firm Guardtime launched Insurwave-a joint venture developed in collaboration with Microsoft, Maersk, Willis Towers Watson, XL Catlin, MS Amlin, and industry standards body ACORD. Built on Microsoft’s Azure cloud platform, Insurwave became the first blockchain platform for marine insurance.

The platform connects clients, brokers, insurers, and third parties on a common distributed ledger. It collects real-time information about shipments, logistics risks, and vessel movements, integrating this data directly with insurance contracts. Smart contracts can automatically update policies based on changing conditions-such as a ship entering a high-risk zone.

The initial phase focused on hull and machinery insurance for Maersk’s fleet of around 350 commercial vessels. The system was designed to support more than half a million automated ledger transactions and manage risk for over 1,000 vessels in its first year.

Benefits for stakeholders

For shipping companies: More accurate premiums based on real-time risk data and faster claims processing when incidents occur.

For insurers: Dramatically improved data accuracy and quality, with automation reducing time-consuming administrative work. This frees staff to develop value-added services rather than pushing paperwork.

For the industry: Greater transparency and trust between all parties, opening doors for collaboration and innovation that weren’t possible with fragmented, paper-based systems.

The broader implications for smart city ecosystems

These insurance innovations connect directly to smart city development. As urban areas integrate more IoT sensors, connected vehicles, and digital infrastructure, the data streams they generate can feed directly into smart contract insurance systems.

Consider parametric insurance for urban infrastructure: smart contracts could automatically trigger payouts to municipalities when sensors detect flood levels exceeding thresholds, or when traffic data confirms major disruption events. Similarly, residents could purchase automated insurance for smart home systems that pays out instantly when sensors detect qualifying damage.

The Lemonade Crypto Climate Coalition, for instance, has already demonstrated how blockchain-based parametric insurance can protect vulnerable communities. As Built In reports, the system uses smart contracts to automate claims based on rainfall data, protecting farmers against drought and flood without requiring manual claims processing.

Challenges and future outlook

Despite the promise, blockchain insurance faces real obstacles. Consumer understanding and trust in the technology remains limited. Regulatory frameworks vary across jurisdictions and often haven’t caught up with decentralized technologies. Integration with existing insurance systems requires significant investment.

Smart contracts also work best with objective, data-driven triggers-flight delays, weather measurements, sensor readings. More subjective claims involving personal injury or complex disputes still require human judgment.

Nevertheless, the trajectory is clear. As blockchain infrastructure matures and more real-world data becomes available through IoT networks, smart contract insurance will expand into new sectors. Aviation, energy, global logistics, and urban services are all prime candidates for similar transformation.

What do you think? As cities become smarter and more connected, should residents expect their insurance to become fully automated through smart contracts? What concerns might people have about removing human judgment from the claims process entirely?

References

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Blockchain in Insurance: Automating Claims with Smart Contracts

Table of Contents

How traditional insurance falls short 🔗

Smart contracts: the blockchain solution 🔗

Key benefits of smart contracts in insurance 🔗

A simple blockchain insurance model 🔗

Flight insurance: the AXA Fizzy experiment 🔗

How Fizzy worked 🔗

Lessons from Fizzy’s discontinuation 🔗

Marine insurance: the Maersk-EY-Microsoft collaboration 🔗

The problem with traditional marine insurance 🔗

The Insurwave platform 🔗

Benefits for stakeholders 🔗

The broader implications for smart city ecosystems 🔗

Challenges and future outlook 🔗