The end result was that the bargaining power of insurance buyers increased. The role of agents was diluted and insurance companies were forced to become more transparent about their premiums and and offer competitive pricing. Today, insurance exchanges are a norm worldwide and one of the enablers of Obamacare in the United States.
Like the disruptive insurance exchanges, decentralized apps on the blockchain hope to solve other gaps that have been either too costly, or inefficient, or simply unprofitable in the insurance industry model.
We look at two applications that will soon be rolled out on the Ethereum blockchain, intended for the uninsured and underserved customer segment, using the model of peer to peer insurance on the decentralized blockchain.
What if you bought insurance and needed it but never made a claim? Many air travellers have been through this experience. A travel insurance policy is an essential pre-requisite for the large segment of air travellers all over the world.
Travel insurance policies cover a wide range of risks from flight delays, lost baggage to overseas hospitalization. While the prospect of hospitalization away from home is a daunting enough incentive to buy travel insurance, only a small percentage of total travellers have actually taken ill and were required to claim medical benefits.
On the other hand, the most common event, flight delays and lost baggage, ends up with fewer claims than experiences. Fliers have to submit claims in a limited window and approval can take days. This is a distraction for frequent business travellers. If evidence such as ticket stubs are lost, claims can be denied. Because the inconvenience is temporary and usually at a moderate cost, most fliers forgo reimbursement they are entitled to, in spite of paying for coverage.
Using the InsurETH application on the Ethereum blockchain, fliers can purchase flight delay insurance through an ether payment transaction. The premium payment is recorded as a smart contract transaction on the Ethereum blockchain. If the event that is, a flight delay occurs, the flier receives the claim amounts as per the terms coded in the contract.
InsurETH’s solution should see massive adoption for two reasons. It tackles head on, the real problem of lost premiums in the travel insurance business due unclaimed travel insurance as well as denials from airlines. It also allows unbundling of travel risks. For example, domestic travellers or short stay globetrotters are are more likely to need only this one coverage can purchase insurance at a lower premium than an umbrella type of policy that is more suited for vacationers.
The Dynamis application which is also under development, offers supplemental unemployment insurance in a peer to peer model. Participants apply to the pool and are accepted based on their social capital status (an example of a social capital indicator can be their online footprint and reputation derived from participation on social media platforms such as Facebook) . Participants themselves evaluate applications and claim payouts or source out to a Human Intelligence Task (HIT) pool paying in ether.
The burden of claim is shifted from the policy holder or participant to a provably honest trustless platform. Social network LinkedIn is used as an oracle to help evaluators verify employment records and approve claims. Approved claims are paid out based on the terms of the contract.
The Dynamis smart contract also offers policyholders benefits similar to self-insured groups and that of mutual insurance companies in the United States. If there are fewer claims (favourable claims experience), the participants can also receive back a portion of their contribution.
The Dynamis website features a detailed white paper, infographics and blog posts expanding on the implementation of DAC insurance company.
A New Wave of Peer to Peer Insurance?
Decentralized apps for peer to peer insurance have several innovative features. The decentralized model is suitable for many self-insured, small groups and niches that may remain in the uninsured segment (the anti-selection or high risk category usually declined by insurance underwriters).
The more attractive proposition is the claims automation by using a decentralized oracle platform. This shifts burden of claim from the insured and the one-sided power of adjudication from insurance company (the process to approve or deny claims or determine claim amount which may be below contract terms).
Decentralized insurance is a very interesting concept and one that has a long history of using available technology to create smart contracts. This is because the 2000 year old insurance is the one place where, in game theory terminology, there is incentive for all stakeholders to be dishonest than otherwise.
We will explore the concept of peer to peer insurance on the blockchain in future articles.