Last night saw the second event in a series of evening seminars being held by Chain-Finance, a research and information platform that covers the use of blockchain technology in various financial sectors, as well some examples of current use cases or research in the relevant area. This time round, the focus was on the possibilities offered by blockchain technology in the insurance market.
In attendance were a variety of professionals from software developers and investors to individuals from the financial industry, including insurers. The evening was very fast paced, with 12 speakers presenting on topics covering the state of the current insurance industry, benefits of blockchain technology the insurance market could harness, what insurance might look like in the near future, examples of products being developed and offered, and investment opportunities.
Whilst each presentation had a different focus, one key feature that was repeated by a number of people working in the insurance industry was that the technology being used currently is out of date and much in need of renovating. Gary Nuttall, Distlytics Limited, commented that much of the work at Lloyds insurance market is still paper based, with the image of the business remaining unchanged for decades; an upgrade is needed. Despite this, Nuttall did warn against using blockchain technology as a panacea for every potential problem; there may be areas where different solutions are more fitting and some of the possibilities that blockchain enables – such as trustless crowdfunding – would not be particularly feasible in cases that involved billions of dollars or very complex agreements.
One of the main topics mentioned was how using a blockchain would benefit insurance markets. In particular, the transparency of the technology was noted as being a key factor in its favour. Another vital feature, which is mentioned in almost every application of blockchain technology, was the trustless nature of the system. Using ‘trusted’ third parties in the insurance industry, as many others, may be seen as reliable but, as Z/Yen’s Michael Mainelli pointed out, in reality, not all third parties are in fact trustworthy and their presence can often create a monopoly and subsequent abuse of power. The ability of a blockchain to eliminate fraud and its decentralized nature are two features that make it very attractive for use in insurance.
Other benefits that blockchain technology would naturally bring to the insurance market were mentioned as being the immutability of the system, along with the potential savings that would occur by transferring the current system to an automated one, cutting overheads and waste. Additionally it would have the potential to open up the insurance market to people who don’t currently have access to it.
Ethereum’s George Hallam spoke about the ability of the Ethereum blockchain to create smart contracts, which he posed would be beneficial for insurance cases which relied on ‘if-then’ statements as the terms or the policy could be transferred easily into code. This possibility is one that could reduce some of the unnecessary expense in the insurance market again by removing overheads and automating the current old fashioned systems.
Following this presentation, Chain-Finance writer and blockchain enthusiast Sara Feenan examined what insurance, specifically motor insurance, might look like in the future. Leading on from the idea of automatic payouts that smart contracts could facilitate, Feenan discussed the possibility of purchasing a car (a driverless car) and being able to purchase insurance for it before it had even driven itself to your location. The insurance could be linked to a smart system which monitors climate conditions, the users driving style, past history of claims and more to create a deal specified to the individual customer in a fraction of the time it takes today. Using blockchain technology, and linking in to the idea of smart contracts, Feenan described a system where there would be no claim settlement times as smart contracts would execute automatically and remove the hassle for policy holders in addition to eliminating fraud and also opening up the possibility of peer-to-peer funding of insurance.
Paul Ferris, ObjectChain, spoke briefly on how blockchain based identity could enhance insurance services. In his succinct speech, Ferris described how a person’s identity is not fixed; it changes depending on the situation, and that the current model for dealing with companies requires customers to give various pieces of personal information when they sign up for a service, which then raises the possibility of that information being stolen or simply going out of date as an individual’s circumstances change. By using a blockchain based identity, with the customer holding all their own information, all parties involved would benefit: companies would have access to one central, reliable and current set of information that the customer would hold which would reduce their liability of handling personal data and would remove the attractive ‘honeypot’ target of information that hackers are currently attacking companies to access. The customer would benefit by having the ownership of their data back under their control and less work to do notifying companies of changes as the one central set of data would be the only place to require editing.
In his talk, Coinsilium’s Eddy Travia discussed whether it was time to invest in companies which focussed on blockchain insurance. Describing the number of emails he received daily from startups and the fact that investment in this area had already started, Travia concluded that it would indeed be a possibility to invest. Backing up this were a number of speakers who came from companies that are already working with blockchain technology to enhance areas of the insurance market. Lee Bacon, a partner at Clyde & Co., stated that the company was involved as a service provider to the insurance market so the need was definitely there. In an interesting talk that raised many questions, Bacon discussed disintermediation and the breakdown in communication due to the numerous webs and chains of information which could be mitigated using technology. Interesting points raised included who would be legally responsible for DAOs, and with the increased communication between insurance providers and consumers, how much of a duty providers had to warn their customers of potential risks – and then the customers’ responsibility to act on that information. Legal status was also highlighted by Adam Vaziri of Chain-Finance as he noted that pace of regulation is lagging behind the rate that the technology is progressing and that views on the technology are fragmented.
The use of blockchain technology in health insurance was also covered in two of the presentations. Both Vitality and Sweatcoin are both leveraging blockchain technology to benefit health in the insurance market. Using Vitality and Sweatcoin, the physical activity of users is monitored via a smartphone app. Undertaking exercise is incentivised by offering rewards. Vitality has an up-front discount and offers health insurance to users, who can then earn free coffee, cinema tickets, bonuses towards holidays etc. by exercising, with the idea that having healthy users will result in lower payouts and longer healthcare plans, mutually benefitting both the insurance provider and the customer. Similarly Sweatcoin users earn currency when they are physically moving, which is then used to positively promote insurance. As the users are active and the app is distributed via smartphones, Sweatcoin can be used to promote health insurance with a low cost and high retention rate. It also protects privacy as personal data need not be distributed. Currently the Sweatcoin app is only available to iPhone users.
Other examples for the use of blockchain technology in areas such as flight insurance were given but overall the consensus was that the insurance market had not fully realised the potential of blockchain technology, and the time was ripe to explore these benefits.