There is no doubt that blockchain has all it needs to fundamentally change the way we process payments and handle contractual relationships. The growing acceptance of emerging models in the insurance sector e.g. (such as usage-based insurance, peer-to-peer insurance, blockchain-based insurance and assurance models) strongly indicates the inclination of millennials and generation Z towards digitized, modern alternatives to traditional models.
More and more insurers are trying to catch up with the trends and advance their offerings. However, the most important question that comes with the potential application of blockchain and smart contracts is: Do we even need insurance companies as intermediaries?
Smart Contracts Changing the Face of Insurance?
There is no doubt that blockchain has all it needs to fundamentally change the way we process payments. However, it seems that’s not all this contradictory and still undervalued technology has to offer.
The growing acceptance of emerging models in the insurance sector e.g. (such as usage-based insurance, peer-to-peer insurance, blockchain-based insurance and assurance models) strongly indicates the inclination of millennials and generation Z to handle contractual relationships differently. More and more insurers are trying to catch up with the trends and advance their offerings. However, the most important question that comes with the potential application of blockchain and smart contracts is: Do we even need insurance companies as intermediaries?
A step back: What is a smart contract?
Smart contracts on the Ethereum blockchain are self-executing contracts, governed by the explicit terms and conditions coded within them. These digital agreements can facilitate the exchange of money, content, shares, property, or anything of value and provide opportunities for use in any field that relies on data to drive transactions. Among other essential advantages such as autonomy, speed of execution, transparency, anti-manipulation protection, these automated contracts can eliminate the need for a vast chain of middlemen and thus reduce costs, time, and bureaucratic efforts.
Blockchain alternatives to traditional insurance
Although the topic of implementing smart contracts in the sector might seem too futuristic, there are blockchain companies that have already started working in this direction.
Let’s take a look at a few examples.
- Etherisc Decentralized Insurance
Etherisc is a free, open-source, open-access platform for decentralized insurance that provides a technical protocol and application layers where all service providers in the industry can operate. Those include insurance companies, insurtech startups, license holders, risk modelers to claim settlement specialists, identity providers and financiers of the back-end reinsurance. In September 2016, the company launched a flight-delay parametric insurance application for passengers. The Flight Delay DApp demonstrated the benefits of decentralized insurance by providing flight- delay policies to attendees of Ethereum's Devcon2 conference held in Shanghai, China.
- Dentacoin Assurance
Dentacoin Assurance is the first dental assurance plan, based on smart contracts that are signed directly between patients and dentists. It entitles patients to life-long preventive care against affordable monthly premiums in the Dentacoin (DCN) cryptocurrency. Patients are obliged to visit the dentist regularly, pay their monthly fees and maintain proper at-home hygiene through the Dentacare App to help them with developing and maintaining good oral hygiene habits. Dentists, on the other hand, agree to cover preventive services and occurring treatments while simultaneously earn regular income and build solid patient relations. The model is developed by the same-named Dutch foundation that strives to shift the focus from acute treatment to conscious prevention through various applications and a designated currency, already accepted for payments in 25+ countries.
- Nexus Mutual
Nexus Mutual is another model using the Ethereum blockchain to help people share risk together without the need for an insurance company. At the moment it is more focused on technical risks such as covering potential bugs in smart contract code. In the future, the developers plan to offer crypto wallet cover, as well as more standard products, like earthquake cover. The primary use of blockchain is to ensure the common pool of funds is not controlled by any one individual but held in the smart contracts instead, and this means the funds can only be used under certain conditions. Like members voting to approve a claim.
Meanwhile, MetLife, the sixth largest insurance company in the world, uses Ethereum to transform life insurance. LumenLab, the MetLife subsidiary based in Singapore, is working with other companies to launch Lifechain, a smart contract platform aimed to automate the application for life insurance. The goal of Lifechain is to optimize this process by determining on a scheduled basis if the deceased was protected by an insurance policy. In this way, the platform automatically submits a refund request.
So… Are insurance companies going to win or lose by the emergence of blockchain-based solutions? Hard to say but one thing is for sure: Blockchain is a technology of the crowd and as such, its wider application is set to bring numerous benefits to the end user.