Smart contracts: balancing innovation and consumer protection in insurance law and regulation

Abstract

This chapter examines the implications for law and regulation of the use of smart contract technology in insurance policies. It sets out the uses to which smart contract technology can be put and the potential benefits it brings to the insurer-customer relationship. These benefits include (i) the design of products that are more responsive to customer needs and (ii) prompter pay-outs upon the occurrence of a covered loss. The chapter demonstrates that a clear benefit of the technology is that it can respond to customer demand by ensuring clear outcomes upon the occurrence of a loss. However, the introduction of this technology can cause disruption to law and regulation in a number of ways, namely, disruption to legal doctrine, disruption to the regulatory environment, and disruption to specific regulatory objectives such as consumer protection. The chapter analyses disruptive tendencies and makes the following findings: (i) that both legal doctrine and the rules of conduct of business regulation may evolve in certain directions in response to the changes wrought by the introduction of the technology into insurance contracting; and (ii) that the regulatory environment will need to develop so as to simultaneously enable beneficial innovation and maintain proper safeguards for insurers’ customers. This chapter assumes the application of English law, but the principles of law considered are likely to have their equivalent in most jurisdictions with corresponding relevant implications for smart contracts.