[Financial Microscope] Stablecoins Enter Insurance... From Payments to Automated Payouts

Potential to Streamline the Insurance Value Chain

Comprehensive Regulatory Reforms Needed for Solvency and Consumer Protection

"Infrastructure Alone Is Not Enough Without Thorough Preparation"

The insurance industry is preparing to incorporate stablecoins throughout the insurance value chain, including premium payments and claims payouts. While the integration of blockchain and smart contracts can accelerate fund settlements and automate the claims process, concerns remain that the regulatory framework - such as the scope of permitted payment methods, eligible asset classes under the Insurance Business Act, and consumer protections - is still insufficient.

According to the insurance industry on August 5, Kyobo Life recently completed proof-of-concept (PoC) testing for insurance premium collection and claim payout technologies based on Korean won stablecoin, in partnership with blockchain infrastructure provider EQBR. The process demonstrated seamless automatic premium payments using won-backed stablecoins stored in a digital wallet, with transaction records instantly reflected in the existing insurance system. The company also verified the feasibility of making claim payouts directly to digital wallets.

The insurance sector's interest in stablecoins is not solely about enabling a new method of premium payment. Insurance transactions often involve the movement of funds among policyholders, insurance companies, insurance brokers, and reinsurers. When such payments pass through intermediary banks and conventional payment networks, settlements can be delayed or incur additional costs. By leveraging stablecoins—operating 24/7 on the blockchain—in these processes, fund transfer times can be shortened and transactions can be tracked in real time.

The applications expand even further when combined with smart contracts. For example, external data like flight operation or weather information can be imported to the blockchain; if preset conditions are met—such as a flight being delayed beyond a certain period or rainfall falling below a threshold—a smart contract can initiate claims payment automatically. This automation means that neither the policyholder needs to file a claim nor the insurer needs to perform manual loss assessment; claims payouts can be triggered objectively, helping reduce both payout times and operational costs. In particular, this approach holds significant potential for index-based insurance products where compensation criteria can be clearly quantified.

Experiments with applying stablecoins to premium settlements began overseas. In March, global insurance broker Aon conducted a proof-of-concept with digital asset infrastructure firm Coinbase and Paxos, settling insurance premiums for policies they had joined using dollar-backed stablecoins. Coinbase utilized the Ethereum-based USDC, while Paxos used the Solana-based PYUSD. On this, Kang Yunji, a researcher at the Korea Insurance Research Institute, explained, "The initiative aimed to leverage digital asset expertise in insurance work to expand customer options for premium payment and settlement," adding, "The project verified not only the speed and flexibility of premium settlement but also the integrity of fund transfers to assess whether stablecoins could be applied to real-world services."

The Expanding Use Cases of Stablecoins ... Regulatory Challenges Ahead

In the insurance industry, stablecoins can be used for a wide range of purposes, from payment and settlement to claims assessment and payout, and even capital raising and risk underwriting. As these applications move further along the insurance value chain, their impact on insurers' solvency and consumer protection grows, making the need for comprehensive regulatory reforms all the more urgent.

Currently, regulations in Korea do not clearly specify whether insurance premiums and claims can be exchanged using stablecoins. While the Insurance Business Act does not explicitly restrict premiums and claim payouts to the Korean won, stablecoins are neither recognized as legal tender nor as foreign currency, making their use as a payment method legally ambiguous. In addition, there are insufficient standards for whether insurers can hold or manage stablecoins as assets, and how to evaluate them for purposes such as calculating reserves and the new risk-based capital system (K-ICS).

Additional challenges remain regarding automatic claims payouts. The legal framework currently presumes explanation and documentation for essential steps such as notification of the insurance event, loss assessment, and claims calculation. Whether a smart contract, which transfers insurance payouts based on external data reaching preset criteria without human intervention, can be recognized as a legitimate claims procedure may require separate legal interpretations or legislative amendments.

Other risks remain as well, such as the possibility of stablecoins losing their peg to legal tender (depegging risk) and the credit risk of issuers. While the blockchain allows transaction records to be traced, the actual composition and soundness of reserve assets (kept off-chain, such as bank deposits and treasury bonds) cannot be automatically confirmed. In particular, potential code errors and hacking risks with smart contracts could undermine trust in claims payouts.

Jo Younghyun, a research fellow at the Korea Insurance Research Institute, said, "Insurers should monitor regulatory developments in major jurisdictions—such as the U.S. Genius Act or Japan's Payment Services Act—as they prepare scenarios for domestic legislative directions regarding stablecoin legalization." He added, "Especially, it is important to communicate with regulatory authorities regarding the types of payment methods and asset classes permitted under the Insurance Business Act." He continued, "The programmability and transparency of stablecoins have the potential to increase the efficiency of the insurance value chain and enable the development of innovative products. Since the digital asset ecosystem is an area where technology and governance capabilities converge, insurance companies lacking thorough preparation may find it difficult to actively participate, even if relevant infrastructure becomes available."

This content was produced with the assistance of AI translation services.