Insurance clients in the UK could save hundreds of pounds on fees associated with their policies if their insurers adopted smart technology contracts.
According to a report by Capgemini's Digital Transformation Institute, consumers could save significant amounts of money in fees for banking, house purchases and insurance if their providers were quick to adopt blockchain technology.
The report said new types of smart contracts, based on this technology, could replace costly and time-consuming contracts between insurers, banks and clients - and these could be adopted by the financial services sector as early as 2020.
The so-called ‘smart contracts’ work similarly to standard written contracts in serving as a legally binding agreement based on a set of agreed terms and conditions. However, smart contracts differ in that they are electronically programmed and based on distributed ledgers such as blockchain technology.
This means they can automatically enforce actions such as payments as soon as the agreed conditions have been met, and without the need for independent verification or manual processing, which would significantly speed up the process of getting a mortgage or making a health insurance claim, for example.
According to Amol Khadikar, lead blockchain researcher at Capgemini’s Digital Transformation Institute: “Contracts have largely escaped the digitisation of financial services, leading consumers to bear the financial brunt of manual, antiquated processes.
"We’re at a point where distributed ledger technology can, and will, drive a revolution in contracts. This will hugely benefit the industry to reduce risks, cut costs and enhance operational efficiencies.
"Consumers would benefit, not just financially, but also from processes that are simpler and free of many of the hassles of today’s customer experience.”
Although there are several hurdles, such as regulatory reporting and security issues to be overcome, the 28-page report, 'Smart Contracts in Financial Services: Getting from Hype to Reality' said there could be many positives for the whole financial services industry - intermediaries, clients and the provider.
The report said: "Smart contracts will speed up claims, with fewer forms to fill out and interactions between claimants and insurers needed.
"A smart contract system would bring all parties in the insurance value chain – consumers, insurers, claim agents and third-party vendors – together on one platform.
"This would result in fast and seamless claim processing due to reduced documentation, reduced dependence on manual checks and faster settlement of dues to vendors."
The report cited figures from the US personal motor insurance industry alone, where analysts believe smart contracts could result in approximately $21bn (£17.2bn) in annual cost savings globally for insurers through reduced processing costs.
Were insurers to pass even half of these savings onto consumers this would lead to an average annual saving of $45 (£36) on premiums.