Tokenizing Insurance For Fairer Claim Settlements Is the Future
A farmer in a third world country who has lost his crop to a sudden flood. He has insurance but no immediate access to the payout due to bureaucratic delays.
Thousands of miles away, a family in the U.S. struggles to claim life insurance for a deceased relative because the company hasn’t updated its records. These situations aren’t isolated — they highlight a global issue of inefficiency, fraud, and opacity in insurance claims.
Insurance fraud accounts for an estimated $308.6 billion in the US. The cost per customer due to increased premiums is $900 per head. Those are some staggering numbers!
Today, billions of unclaimed insurance claims lie forgotten, stuck in files and drawers. The opacity prevalent in claim handling, especially in life and health insurance, leaves many insured and beneficiaries without the benefits they are eligible for.
Tokenization can provide a sure-shot way of bringing insurance data on-chain and setting up a public registry for both the insurer and the insured in a distributed fashion. It can be the ultimate revolution to establish trust and simplify complex insurance claim processes for the masses. Let’s dig into the details.
The Challenges Plaguing Insurance Today
The challenges in the insurance sector aren’t just restricted to the disbursal of claims. Fraud is the biggest challenge plaguing the industry. Data shows that 20% of insurance claims are fraudulent, and 78% of consumers are worried about insurance fraud.
For instance, healthcare fraud alone has cost up to $105 billion in consumer losses. Whether it’s inflated medical bills or false injury claims, these cases undermine trust in the system and increase costs for everyone.
Current insurance processes are riddled with inefficiencies. Misclassification of employees, delays in claim processing, and dependence on middlemen lead to huge financial and emotional burdens for customers. For example, some insurers have been caught using data to stop annuity payments while ignoring the same data to notify life insurance beneficiaries.
These issues underscore the need for a system that is fair, transparent, and automated — a system that tokenization can deliver.
What Is Tokenizing Insurance?
At its core, tokenization means creating a digital token on a blockchain that represents real-world data or assets. In the case of insurance, this could mean converting policy information, claims, and beneficiary details into tamper-proof blockchain entries.
Smart contracts — self-executing agreements with terms written into code — ensure that payouts or other actions occur automatically when certain conditions are met.
But the important question is — why should we tokenize insurance?
Tokenized insurance data is stored on a decentralized blockchain, accessible to all stakeholders in real-time. This level of transparency helps reduce fraud. For example, many fraudulent claims occur due to manipulation by brokers or middlemen. Blockchain eliminates these intermediaries, ensuring that all transactions are verified and traceable.
Recently, Infineo, a blockchain startup specializing in financial services and insurance, tokenized $125 million worth of insurance policies. Infineo tokenized existing insurance policies onto its platform, where policyholders voluntarily uploaded the policy documents.
Another example is Schroders Capital and Hannover Re tokenized catastrophe bonds, which enabled near-instant settlement for disaster-related claims.
Many protocols also consider setting up a secondary market where these policies can be bought and sold. This would add more flexibility and liquidity to the insurance sector.
What Would Tokenizing Insurance Look Like?
Let’s talk about a scenario where life insurance policies are fully tokenized:
John, a 45-year-old teacher, purchases a tokenized life insurance policy. Instead of receiving a pile of paperwork and relying on intermediaries, John’s policy is converted into a token stored on a blockchain aka tokenization.
John’s insurer issues him a token representing his life insurance policy. This token is stored in his digital wallet, giving him instant access to view the policy’s terms and conditions anytime. The smart contract behind the token includes all necessary conditions for claim payouts, such as proof of death and beneficiary details.
John makes his premium payments, and each transaction is recorded on the blockchain. If there are updates to his policy, such as adding a new beneficiary, these changes are reflected on-chain in real time. This ensures John and his beneficiaries always have access to the most up-to-date information.
Years later, when John passes away, the system is triggered automatically. Let’s say John’s death is registered with the national database, which is linked to the blockchain. The smart contract detects this event and initiates the claims process.
John’s wife, Mary, who is listed as the beneficiary, receives a notification on her phone, confirming her eligibility to claim the policy. No middlemen, no paperwork, and no delays.
The payout process, often delayed by weeks or months in traditional systems, is completed within minutes. Mary receives the insurance settlement in stablecoins or her preferred currency directly to her digital wallet.
Why Is TokenFi Bullish on Tokenization?
Industry leaders like BlackRock call tokenization “the next evolution in markets,” with predictions that the market could reach $16 trillion by 2030. TokenFi is excited to lead this revolution
TokenFi’s upcoming Real World Asset (RWA) Tokenization Module will make it easy for anyone to bring assets onto the blockchain. This module is designed to tokenize anything — except securities — securely and transparently. It uses advanced tech like Chainlink’s Proof of Reserve (PoR) to ensure assets are accurately represented and can be moved seamlessly across blockchains.
What You Can Do Today?
While the RWA Module is on the way, TokenFi already has tools to get you started.
TokenFi Token Launcher: Create ERC-20, ERC-721, and ERC-1155 tokens in just minutes — no coding required.
QuickLaunch Bot: Build tokens through apps like Telegram or Discord, keeping it simple and fast.
