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We’ve seen how blockchain could change the insurance industry—how it could bring transparency, cut down fraud, and make processes more efficient. But here we are, a year later, and widespread adoption still feels like a work in progress. The big question is: If blockchain is so promising, why aren’t insurers diving in headfirst?

The short answer? It’s complicated.

Blockchain has all the right ingredients to fix some of insurance’s oldest problems, yet many companies are struggling to actually put it to use. Between outdated systems, regulatory red tape, and an industry that isn’t always quick to embrace change, the road to blockchain adoption is full of potholes. But that doesn’t mean it’s impossible. Let’s break it down.

The Blockchain Promise vs. The Reality

Blockchain has been pitched as a catalyst for new approaches in insurance. A secure, tamper-proof digital ledger where data is shared in real-time across multiple parties sounds like a dream for insurers dealing with fraud, slow claims processing, and fragmented data sources. And in theory, it is. Smart contracts could automate claims payouts, cutting out endless paperwork. Fraud detection could be sharper than ever, with every transaction permanently recorded and easily verifiable. Even reinsurance, one of the messiest corners of insurance, could become far more efficient with real-time data sharing.

But theory and reality don’t always line up. Despite the potential, blockchain adoption in insurance has been sluggish. Why? Well, let’s just say old habits die hard.

Why Insurers Are Stuck in Neutral

For one, insurance is built on legacy systems—some of them decades old. It’s not like flipping a switch. Integrating blockchain into these systems is a massive undertaking, and many insurers aren’t sure where to even start. Unlike banks, which have poured money into fintech over the years, insurers have been slower to embrace new technology.

Then there’s the issue of compliance. Insurance is one of the most heavily regulated industries in the world, and blockchain introduces a whole new set of legal questions. Who’s responsible if a smart contract misfires? How do regulators audit something that’s decentralized? These are the kinds of questions that keep insurance execs up at night.

Cost is another issue worth talking about. Blockchain isn’t free. Setting up a secure, private blockchain network requires time, money, and expertise. For many insurers, the investment feels risky, especially when the return isn’t immediately clear. Without industry-wide adoption, early movers risk spending millions on a technology that partners aren’t ready to use.

Even culture plays a role. Insurance has always been a “relationship business.” Adjusters, underwriters, and brokers—these roles rely on human judgment. Handing decisions over to an automated system feels unnatural to many in the industry. There’s a trust factor at play, not just between insurers and customers but within insurance companies themselves.

So, What’s the Fix?

The good news? These roadblocks aren’t impossible to overcome. Insurers just need a more practical approach. Instead of thinking about blockchain as a full-scale industry overhaul, they should start with smaller, high-impact use cases.

Fraud detection is an obvious place to begin. Billions are lost each year to fraudulent claims, and blockchain’s ability to create a verifiable, tamper-proof claims history could be a game-changer. Companies like Allianz and Lemonade have been testing blockchain-based fraud detection tools, with promising results. Allianz has explored blockchain for the captive insurance market, reducing fraud by ensuring tamper-proof records.

Claims processing is another area ripe for improvement. Right now, many claims still require endless back-and-forth between insurers, repair shops, medical providers, and policyholders. A blockchain-powered claims system could cut through that red tape, ensuring all relevant parties have instant access to the same, verified information. That means faster payouts, fewer disputes, and a smoother experience for everyone involved. Lemonade (in coalition with other insurance companies) uses blockchain to provide crop insurance to subsistence farmers in Africa. In 2023, the company provided compensation to 7,000 insured farmers in Kenya.

And then there’s reinsurance. It’s no secret that coordinating between insurers and reinsurers can be a mess, with outdated processes leading to delays and miscalculations. Blockchain could simplify this by creating a shared, secure record of policies and claims, cutting down errors and speeding up settlements.

The Bottom Line

At the end of the day, blockchain isn’t a magic wand that will fix everything overnight. But it does offer real, tangible benefits—if insurers can find a way to work through the growing pains. The key is to start small, focus on real-world applications, and build from there.

We’ve seen industries shift before. Remember when online banking felt like a risky experiment? Or when people thought mobile payments would never take off?

Change happens slowly, then all at once. Blockchain in insurance may feel like a long shot now, but give it time. The companies that embrace blockchain early won’t just stay competitive—they’ll set the standard for the industry’s future.