The rapidly developing blockchain technology has been attempting for several years to transform the classical monetary system. The first financial institutions that entered the tide of change were, of course, banks. The final picture of monetary technology synthesis is still vague, but for ‘younger brothers’ of banks and credit societies — that are insurance companies — the benefits of implementing blockchain seem quite clear so far. The founders of fintech company Worldcore, which issued WRC token and launched an global cryptocurrency exchange recently, explain the fact.
Today, the insurance market has grown into a global network of economic relations with a turnover in 2017 of US$4.2 trillion and payments of US$2.6 trillion.
Despite the industry offering dozens of types of insurance, its problems remain the same:
- how to avoid fraud by client;
- how to calculate the insurance premium correctly to, on the one hand, avoid operating at a loss in the event of adverse circumstances, and on the other hand, avoid narrowing the revenue base which may scare potential clients with a high premium;
- how to find a successful insurance product, staying one step ahead of the client’s needs.
The nascent blockchain industry could not pass by a large insurance and reinsurance market of about 5% of the gross world product. Already at the beginning of the ICO boom back in 2017, InsureX, later renamed to iXledger, entered the market, embracing the B2B offer for insurance companies to simplify the process of customer interaction through a distributed registry and events operation based on smart contracts. And after a successful ICO, together with a renowned reinsurance market player Gen Re Corp., it’s still designing the concept of effective implementation of blockchain systems into insurance, at the moment being, in fact, the only working blockchain project in the industry.
This experience, which seemed isolated at the end of 2017, was then adopted by other insurers. Today, there is a galaxy of ICOs for crowdfunding insurance products and reducing the transaction costs of finding insurance and reinsurance business partners. These projects are Etherisc, Kasko2Go, Black, Vernam. However, it is impossible to call these products a full-fledged implementation of blockchain technology into insurance, since these are conventional CRM-systems with data storage not in cloud but in blockchain, just designed for the insurance industry.
“Insurance is an excellent niche for using blockchain in the service environment around us,” says Alexey Nasonov, Head of fintech company Worldcore.
“Every insurer’s curse, that is KYC, is being solved now by a multi-level system of data exchange between insurance companies. As for individuals, they are traditionally shielded by personal data protection laws that hide the client history from insurance companies, so it can only be made available at the request of a court or investigation. However, the global insurance blockchain can make all the data instantly available, and encrypted (to prevent their downloading by unauthorized sources) simultaneously. In the insurance contract, you simply need to include the requirement of passing the encryption keys to the insurer, and that’s it.”
The benefits the insurance industry gets when implementing distributed registries and using smart contracts are quite obvious. First, free access to contracts will allow the world to have information about the insured person or property just on the will of the interested party to the contract. The number of encryption keys defined by the contract will enable to delineate the levels of access to data, and the smart contract will determine the terms of validity and the essential terms of insurance policy. As a result, the client receives an automatic insurance compensation or insurance support, since the validity of the event for which it is paid, as well as the right to receive compensation, is confirmed by the continuity of records in an insurer’s (or consortium of insurers’) blockchain.
Second, keeping both the client’s insurance history and information about the integrity of the insured, which can not be forged, will reduce the risks of underwriting and will cut the overall cost of insurance. To do this, the policyholder only needs to give his consent to store such data, then to encrypt them with his or her key and provide insurers on request. And the guarantee from counterfeits will be an insurer’s signature under each record and the impossibility to erase anything in blockchain records. And the information about this policyholder can easily be extended to usage-based insuranceframework, where the policyholder’s behavior is the input parameter of complex scoring models that calculate the size of insurance premium.
Third, the convenient packaging of purchased insurance portfolios for the reinsurance market may be the issuing of certain tokens of primary insurance companies. At the same time, the number of redeemable tokens means the level of risk assumed by this reinsurer.
Nevertheless, despite all the obvious advantages, at the moment, the number of ICO projects in the insurance sector is small.
“The main problem of implementing blockchain into insurance business lies not in the field of technology,” explains Worldcore’s CEO Alexei Nasonov, “but in the sphere of human relations. Traditionally, insurance is a very conservative business with really delicate information held by underwriters. Its publication in the blockchain, even in encrypted form, is a reputational risk for the insurer. All these high-profile cryptocurrency exchange breaches and data thefts in recent months proved this twice. Compare, for example, iXledger’s whitebook in 2017 during its ICO, when it was still InsureX, and now. Currently, the company already declares two levels of data security: low in the Ethereum blockchain, where technical data about transactions and smart contracts are stored, and high one, that is dedicated personal information OrientDB-based storages.”
The general opinion of industry experts, and most importantly, the cautious reaction of the ICO market to new insurance projects, show that with all convenience of using blockchain, insurers are not very much inclined to quickly implement a new platform. One should expect a massive use of blockchain data storage only after distributed registry systems suiting insurers and regulators from the point of view of data storage security are designed.