Blockchain & Decentralization 101

04/21/2022 - 7 minute read

If you haven’t been living under a rock for the past few years, then you’re fully aware of the rising tide of cryptocurrency & the decentralized economy. It practically permeates every conversation nowadays, and has taken the weather's crown as the king of small-talk starters. But many are still unaware of what it means. If you’re someone who’s interested to learn more about this topic, and how it may impact the insurance sector in particular, our Growth Marketing Manager and crypto enthusiast, Brian Zhanda’s, gives us his detailed take on the subject:

Decentralization is not a new concept. It has, however become a trending theme over the last few years with various business leaders and organisations such as the United Nations stating that ‘The Future is Decentralized’. The question that springs to mind is, what exactly is decentralization and how is this going to affect the way business is conducted in the world?

The rise of the decentralized economy has been driven by the emergence of blockchain technology, which has become a global phenomenon. The blockchain is a digital ledger that records transactions in a secure and immutable manner and this is distributed across a network of computer systems. It’s also referred to as distributed ledger technology (see exhibit 1 below). In the context of blockchain technology, simply put; decentralization is the transfer of control and decision-making from a centralized authority to a distributed network. According to Gartner, about $3.1 trillion in new business by the year 2030 will be generated by blockchain technology.

First things first, how does blockchain technology work? 🤔

To simplify how blockchain works and to help you visualize this better, we’ll use an explanation from Block Geeks - “Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.”

The blockchain is essentially a large database that records information at scale in a transparent manner, creating opportunities for many industries including insurance to improve their business processes.

The benefits of using blockchain technology are:

  • It allows for much greater transparency
  • Improved and optimized data reconciliation
  • Advanced automation
  • Improved security and privacy
  • Real-time information delivery
  • Optimised operational costs

Current state of the insurance sector 🚗

The Insurance Industry has been one of the slowest and least evolved industries over the last few decades. It is quite surprising, given how technology has been rapidly evolving and that this is an industry that is heavily reliant on data and paperwork. There are a lot of flaws in existing processes across the wider industry which increases the potential for human error, data misuse, leaks, and misinterpretation.

Fraud is another sticky point in the industry and the Coalition Against Insurance Fraud estimates that over $80 billion is lost every year globally, which represents about 3-4% of all claims.

All in all, there is a lot to be desired with regards to improving security, efficiency, customer satisfaction and new products, which are all issues that can potentially be tackled by blockchain technology.

Leveraging blockchain technology ⛓️

Blockchain technology appears to be the most obvious solution to the challenges faced in the insurance industry as it can bring about tremendous benefits to both businesses and customers. Transactions on the blockchain are free and this has the potential to disrupt the traditional model in which insurance contracts have been executed. Below are a few areas where the blockchain can be used to radically transform processes within the insurance industry:

1. Automated underwriting ✍🏻

According to the Insurance Global Industry Almanac Report, in 2020 alone there were hundreds of millions of policies underwritten to the tune of over $5.5 trillion dollars. A lot of this work is done manually and the application of smart contracts via blockchain technology will bring much needed automation, increasing processing speeds and cost efficiencies.

2. Automated claims settlements💰

There are hundreds of millions of claims each year, insurance claims handling is very expensive and consumes up to 20% of premium revenues collected. Blockchain technology will reinvent the claims operating model to enhance the outcomes for all stakeholders. By using smart contracts with the help of oracles that provide authoritative offline data, claims can be automatically executed, and payments made without any intervention from the insurers. Based on an analysis done by BCG, an insurance only blockchain could reduce the costs of motor insurance claim settlements as well as the time it takes to process them by over 75%.

3. Reduced fraud and abuse 🚨

With blockchain technology, insurance claims will be moved onto an immutable ledger, which helps eliminate the common sources of fraud within the insurance industry. The possibility of being able to leverage data from multiple reputable sources will help with fraud detection and limit the risk exposure insurance companies have. This will also be extremely beneficial to customers as the they will have greater conviction that their claims will be processed in a more timely, transparent, and objective manner.

Current challenges & limitations ⚙️


  • Partnerships – Having a blockchain requires strategic alignment to forge the right partnerships to ensure that the organisations data and competitive edge is maintained and not compromised.
  • Knowledge – There is wide knowledge gap and technical limitations that need to be bridged before insurance companies can start to use the blockchain in a manner that strategically benefits the business.
  • Governance – Insurance companies will most likely use private blockchains which include a limited number of selected participants. This will be necessary as there is a need to balance the benefits and governance as the number of stakeholders increases.


  • Scalability – Because of the way blockchains work and their use of various consensus mechanisms to provide security, this also presents a challenge in scalability. Solving the complex problems required to process new blocks of data can be quite computer intensive.
  • Security – Even though blockchains use highly impenetrable encryption coding, security risks still exist, and these mainly arise at the point of intersection between humans and blockchain technology, such as:
    • Forgetting wallet address and private keys
    • Theft of private keys through hacking of a 3rd party system
    • Theft or loss of physical keys
    • 51% attack on decentralized blockchain
  • Standards and protocols – While blockchain technology is no longer as new, global adoption and use cases are picking up, however the regulation has been slow and currently there are little or no standards in place to monitor the use of this technology

Closing thoughts 💭

Despite the obstacles that might leave many insurers wondering whether it is worthwhile for them to become early adopters of blockchain technology, the reality is that the blockchain will disrupt the old traditional operating models. Insurance companies that decide to sit on the fence are likely to leave themselves more vulnerable and at risk of being left behind.

At Beema Insurance we have already started to assess the key areas of our business that would be least resource and capital intensive but drive the highest output by adopting blockchain technology. As with any new technology adoption, it is important to have a clear roadmap in place that clearly articulates the steps, processes, and desired outcomes. Experimentation is key and only through this will individual companies find the solutions to address the existing challenges not only to blockchain, but for their own organisations as well.

This article was written by Brian Zhanda, Growth Marketing Manager at Beema

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Blockchain & Decentralization 101

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