There are many new and exciting ways to use blockchain in the insurance industry. I’m not talking about cryptocurrencies like Bitcoin or Ethereum, but non-fungible tokens (NFTs) — unique digital assets that can be used to buy and sell, transfer and track ownership of just about anything.

Think of NFTs as “crypto-collectibles” like CryptoPunks or CryptoKitties. But unlike these two examples, which only exist on their respective platforms, NFTs are programmable and interoperable across multiple platforms.

What are NFTs?

Non-fungible tokens, or NFTs, are a type of digital asset that is unique and cannot be copied. They are stored on the blockchain—a decentralized ledger that records transactions between users in a distributed database.

The blockchain is maintained by multiple computers at once (instead of one central authority), so it’s impossible for anyone to change or delete anything from it without everyone noticing.

NFTs can also be used to represent all kinds of things: artwork, land titles, collectibles, even tickets for events like concerts and sporting events.

Digital signatures on an NFT indicate authenticity and ownership; they can also provide proof-of-existence for certain types of digital assets like legal documents or financial records (for example, if someone wanted to prove they purchased something online).

Representing Real-World Items

NFT’s are more commonly associated with digital collectibles they can be used to represent real-world items like real estate and artwork. This is done by “Tokenizing” the real-world tangible asset to allow them to be bought, sold and traded within the blockchain, which aims to make the process more efficient and reduce the probability of fraud.

The unique nature of NFTs becomes evident as one tries to apply normal insurance protocols. Standard homeowner policies focus on covering physical damage to assets.

Normally, NFTs do not exist in the physical world. They are intangibles. They can be expressed physically, such as with a printout of a digital graphic, but the physical expression is not what is owned. This Token can then act as a certificate of authenticity and ownership.

The Role of Smart Contracts

The key characteristic of smart contracts is that they are trustless, meaning they can reduce or even eliminate the need for third-party intermediaries.

Made possible through blockchain, smart contracts are essentially a way to automate the insurance process. They can be used to store information about an item, such as its location and value. This information can then be accessed by the insurer at any time.

In addition, smart contracts can automatically make payments on claims as they come in, eliminating some of the administrative processes that happen when filing them manually and speeding up the claims payment process.

Finally, smart contracts have been used in many cases where insurers need verification from third parties before making a decision on whether or not to issue coverage for an item or event (e.g., natural disasters).

Aiding Insurance Claims

NFTs have the potential to aid in insurance claims processing, and in some cases, may help prevent fraud. In the future, NFTs may be used to track and authenticate collectibles, art, and digital legacies.

Collectibles: The collectible industry is huge—$2 trillion by some estimates. An NFT can help verify the authenticity of a collectible item or assist in tracking its ownership history.
Art: Art is another area where NFTs have the potential to improve processes surrounding tracking and authentication. Artists can use non-fungible tokens (NFTs) to track their work so they know who owns it, while collectors and institutions can use them as proof of provenance when purchasing pieces from artists or other collectors.
Digital legacies: NFTs can also be used to ensure that digital assets are protected after death by tracking who has access to them and making sure they're not transferred without proper authorization.

Digital Legacies

Digital legacies are one of the bigger buzzwords in this space, but what is a digital legacy? Simply put, a digital legacy is an asset or collection of assets that can be passed on to someone after your death. You can think of it as your very own will for the virtual world.

The most popular way that people are using digital legacies right now is by leaving their favorite games and accounts behind for friends and family members—they’re basically making an online version of a will. This has been especially popular with gamers who wish to pass on their account or items from their favorite game as gifts after they die.

Insurance & Blockchain Moving Forward

There is no doubt that blockchain and smart contracts will play a role “Tokenizing” the real-world tangible asset to allow them to be bought, sold and traded within the blockchain.

How NFTs make their mark on the insurance world is still in question will remain complex like fine art, worth only what the market says they are — and for insurance purposes, that is heavily influenced by the historical value over time.

Figuring out how to value NFTs, assess risk and set premiums is the goal of IMA Web3Labs, a company tasked with getting IMA’s insurance offerings up and running — despite the reality that only a handful of sizable insurance policies have been written for the broader cryptocurrency market.

How Non-Fungible Tokens (NFTs) Can Impact Future Insurance