Brokers have been urged to develop a basic understanding of programming as smart contracts spread through the insurance industry.

Smart contracts operate in conjunction with blockchain technology, using decentralised ledger networks, software that automates contract formation and digital currency payments. Blockchain cuts costs because users process transactions themselves.

Adelaide University law academic Mark Giancaspro, who will address the Australian Insurance Law Association’s annual conference next month, says intermediaries will need programming skills to explain how to convert human functions into code.

He believes intermediaries’ roles will change, but not be eliminated. The technology will help the industry, not replace it.

The idea of computers writing contracts and agreeing terms with less human intervention is only scary because it’s different, Dr Giancaspro says. He predicts smart contracts will be used for large-scale insurance policies, but it requires a major culture shift and infrastructure investment before they become more common.

Smart contracts are hard to alter once terms and conditions have been accepted, he warns.

“It’s near impossible to rectify errors. The insurance industry is built on risk allocation, so if you get that wrong, the industry could be undermined.”

Insurers must consider the risk management implications of the technology, he says, and liability issues need to be determined for cases of computer failure.

“Is the computer an agent of the insurer? If so, is the insurer liable?”