Exploring the CyberMiles ecosystem: Insurance on the blockchain

Disrupting a mammoth industry through decentralization, a #CMusecase

Blockchain is a distributed, non-time-critical (read: Proof-of-Work) system that needs the entire chain history to validate anything. It can be challenging trying to find a practical use case for it outside Bitcoin, which I find awkward for daily use in any device with limited memory or processing capabilities, without a centralized entity to ease the burden. So what does that have to do with the insurance industry? Just consider the number of middle men and amount of overhead that are, technically, not wholly necessary to the process. Which leads me to how the current industry environment is set for disruption. That’s right, my friends, where there is bureaucracy there is opportunity. Because blockchain technology can stop crime, it can stop theft, and, crucially, it can stop fraud.

Talking the (TED) talk and walking the walk

Disrupting an Industry That Affects Us All
Let’s talk insurance on a base level. Insurance is essentially a pool of money, which is collected via premiums. Premiums are what is charged to you — i.e. the consumer — or the insured. We, the insured, are charged generally very high premiums, owing not only to factors/variables based on our age, demographics, even driving history, etc. However, our premiums pay for a lot more than a “pool” of money. The insurance process, or “humanchain” shall we say, goes a little something like this:

  • Insured persons (e.g. you and me)
  • Agencies (retail insurance — sales agents, account managers, etc.)
  • Brokerages/direct insurance companies (wholesale insurance — lawyers, underwriters/brokers, claims department, etc.)
  • Insurance companies (claims adjusters, actuaries, underwriters, etc.)

Now, how does purchasing an insurance policy work today? Let’s use business insurance as an example, say, to cover a commercial building, with a premium of $100,000. The insured person pays his or her agent $100,000. The agency, in turn, takes a 15 percent commission. Now the agency (retail) pays the broker (wholesale) $85,000 for the policy. The broker then turns around and scrapes another 10 percent commission off this policy. With a 10 percent commission ($8,500) in hand, the broker pays the insurance company $76,500 for the policy premium.

  • $100,000 — 15 percent ($15,000 agency commission)
  • $85,000 — 10 percent ($8,500 brokerage commission)
  • $76,500 ultimately paid to the insurance company

The insurance company then takes the money, splitting it up in different ways. Some goes to the insurance pool, to investments, to shareholders, etc. Now remember, this is just the insurance buying process. You can see how many hands already are touching the pot for something that can be, more or less, automated via the blockchain.

Dealing with Lawyers, Processing Claims
The claims process has a very similar, if not simple, structure given how many people it involves, lawyers included. Re: workers compensation, for instance, there was recently a cap lifted on lawyer fees during settlements. Previously, lawyers could make only a certain maximum percentage on the total payout of the workers compensation claim. Now, with this cap lifted, the premiums have begun to rise due to— or in anticipation of — lawyers who drag their feet in court to prolong the processing of claims. This is just the landscape of workers compensation claims. A significant portion of your factored premium actually goes to lawyers—from the lawyer you may hire to file your claim to the lawyer the insurance company may enlist to fight your claim.

Thanks to smart contracts, however, much of this process can be automated, reducing the administrative costs of big insurance and lowering premiums. Startups like Oscar have learned, of course, that this is not easy, and most of the administrative costs are there for reasons that are not obvious. There is therefore a bright future for blockchain in the insurance industry, not only for early adopters, but for everyone on a global scale who want the burden of high premiums and collecting claims eased.

Finding Out the Hard Way
Companies not utilizing decentralized methods are getting hit left and right. Zelle users are finding out the hard way that there’s no fraud protection. Fraud is an ever-present issue affecting payments, exacerbated by trends such as the development of contactless card payments and the reduction of PIN authentication in order to provide a more frictionless customer experience. When an NFC card is lost or stolen, thieves act very quickly, far quicker than the standard card-blocking process. And with this type of payment method, the fraud rate is doubled compared to contact mode. (P.S. This is something to beware of in the crypto space, too. I mean, how is Coinbase handling fraud?)

The beauty of blockchain though is that it enables new types of insurance organizations, such as peer-to-peer co-ops. The smart contracts allows strangers to build trust without centralized insurance companies. (A notable, pre-blockchain era example is Lemonade, and others exist around the world.) Driven by a greater number of individuals and organizations, blockchains will be better equipped to enable this type of economic progress.

The CyberMiles Solution
The chief technical challenge for smart contract-based insurance is how to bring off-chain events, such as accidents, major diagnoses, death, etc. into the contract. This is the Oracle problem, but fortunately we have a solution for it.

Applications today can use the CyberMiles blockchain to manage financial and other transactions. This “Transaction as a Service” (TaaS) is a much more advanced ledger than the current financial systems that companies use today. How so?

  • The CyberMiles Token (CMT) can be used as a settlement currency, and eliminates expensive settlement charges from banks.
  • CyberMiles’ “Smart Business Contracts” can automate many aspects of business interactions that are done by humans today, including (but not limited to) loan and insurance policies, escrow accounts, and supply chain financing.
  • The CyberMiles blockchain enables companies to work seamlessly with suppliers, financiers and collaborators outside the organization, sharing the same ledger and agreeing to the same Smart Business Contracts.

Finally, one of our validator nodes, LiMaGo, is developing an insurance token for airlines — a unique aspect of a startup that is viewing the travel space differently in our blockchain 3.0 era. With 2019 almost upon us, the sky’s definitely the limit.

If you have use cases (e.g. DApps and side chain ideas) for the CyberMiles blockchain, please email business@cybermiles.io for collaboration/ investment opportunities.