Abstract
Blockchain is highly secure in design and can hand huge data efficiently. A smart contract, based on a blockchain, can automate the entire process and make the contract self-executing in nature. Since the first introduction of these technologies in the 1990s, they have been at the center interest for academia and industry. Numerous researchers and practitioners have investigated the principles and usage of blockchain and smart contracts. However, little is coincidental regarding estimating the consumer’s additional willingness to pay (WTP) and analyzing the relationship with socio-economic characteristics of the consumer for blockchain and smart contracts in the insurance sector. This study conducted the survey on 1000 heads of the household or homemakers who represent population well in South Korea and estimated additional WTP using one-and-one-half-bounded dichotomous choice contingent valuation (OOHB DC CV) method. About 65% of sample respondents answered they are willing to pay some additional premium for blockchain and smart contracts. The mean WTP has the value of KRW 28,425.43 (USD 25.38) and the median WTP is KRW 16,111.71 (USD 14.39). Those with high incomes, high education and more insurance contracts are more likely to pay extra for insurance policies using blockchain and smart contracts. Considering the total number of households in South Korea, the aggregated additional WTP is about 8 percent of the net income of the insurance industry in fiscal year of 2017. Consequently, strategic development of insurance products using block chains and smart contracts targeting educated consumers with high-income will increase the number of policyholders, which can in turn increase premium revenues.
Highlights
Some have documented that the blockchain is the greatest revolution since the internet
Strategic development of insurance products using block chains and smart contracts targeting educated consumers with high-income will increase the number of policyholders, which can in turn increase premium revenues
Estimation results were obtained with using maximum likelihood estimation (MLE) method that maximizes Equation (5) derived from Hanemann utility difference model
Summary
Some have documented that the blockchain is the greatest revolution since the internet. Blockchain has been used to transfer money between parties without having to rely on banks through simplifying the business process while creating safe, trustworthy records of agreement and transactions [4]. Consultancy firms investigated applicability of these technologies on the insurance domain and anticipated that blockchain and smart contracts enable to improve customer engagement by providing a greater degree of transparency and to the perceived fairness of claims handling. They expected to enable blockchain and smart contracts to offer cost-efficient production for emerging markets and develop insurance products related to the Internet of Things (IoT) [6,7,8]. Fraud related to the integrity of a policy or claim will be reduced by sharing all transactions written to it and will minimize counterfeiting, double booking, document or contract alterations [9]
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