Decentralized Insurance. Part 2: Self-sovereign risk.
“A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites, countries, or institutions.[1] There is no central administrator or centralized data storage.[2]”
The Internet, as we know it nowadays, uses the concept of Digital Identity pretty much in every place where any service is offered. The consumer identification occurs in various ways, sometimes even when we don’t notice that. The visible ones include a user enrollment or authentication means. The less explicit is when we subscribe to a newsletter or logging in with a third-party authentication tool, like ‘login with Google’ or Facebook.
Most of the browsers (except well-known Brave Browser) already retain a sort of a user’s identity underneath, sometimes combined right into the browser itself, and of course, they are pleased to share it with the interested parties out there.
The excellence of it is that we have more personalized suggestions in return when a service can pick our expectations better based on the metadata from another service. That’s damn convenient, after all.
The drawback is there are tens and tens of images of each one’s identity floating in a wide blue sea of services and vendors, all been distributed, sold and examined without us knowing it.
But what if we could change the paradigm and efficiently decouple the idea of a ‘service’ from ‘identity’ not losing the advantage of it?
Yes, we can!
The approach called self-sovereign identity, and it puts the control and responsibility back in the hands of the individual, giving them the power to control and guard their personal information.
By design, identity is a container that holds metadata explaining the individual. This container must be stored securely, shared upon request, and managed only by an individual. The implementation of where to keep such worthy information might vary, but the Distributed Ledger (Blockchain) looks the most prominent.
The simple implementation case would look like that: several fields containing personal data are stored in Blockchain (i.e., replicated on a massive amount of ‘computers’ around the globe), and encrypted by the person’s private key, making it cryptographically protected from tampering or accessing in any form. External parties can access a piece of this data only upon the key holder’s approval.
Apart from the benefits of an individual, the corporates and businesses are winning even more.
Giving an example, if identity metadata knows enough to calculate the personal risk profile and is used for the risk underwriting, we come to the unique concept of self-sovereign risk.
Self-sovereign risk
Self-sovereign risk is a sub-category or self-sovereign identity; hence inheritance of its advantages: it’s kept guarded by an individual, can be mutually filled, and partially shared by its master.
Mutualization of risk: risk is supplied by multiple parties that are sanctioned by the risk profile owner. The party might be a legal authority, or some organization (the gym? house doctor? you name it), or even an IoT device (a health tracker or your car). The mutual result will have less redundancy in the digital profile and complete in comparison to traditional methods.
Transactional risk: Owners can share or transact a part of their own risk. Upon request, some data is shared with an interested party (insurer or a business partner) if/when the holder wants.
The two above result is somewhat new and crazy use cases. Like, the risk profile might be used as a form of trust for a ‘voting power,’ allowing the holder to take an acting role in the insurance claim resolution or other managing function. Or, letting a parent who carries high trust due to his driving behavior vouching for their kids and cutting down their monthly premium. Or allowing a group of friends to add to a shared risk pool and build up a trusted community with the financial benefit of each participant.
Or, you use your own transactable risk as a form of collateral asset, which gets locked (and possibly even burned) in return for another digital asset.
Finally, there might be a form of DeFi (Decentralized Finance) instrument that generates a substantial profit as a return for the invested risk.
At the very least, the self-sovereign risk will lead to a better/cheaper custom-tailored pricing model for an individual. Additionally, fearless security with no dependence on Google/Facebook/third-party datacenter.
The risk carriers will have a live helicopter view on their customers’ base risk, allowing them to run the financial reports ad-hoc. In fact, customers don’t have to reveal much data for businesses to analyze risks ‘en masse.’ Instead, Blockchain storage can have a zero-knowledge principle embedded, disclosing only ‘conditional’ datasets. All these might be rather a game-changer for the regulatory reporting and Solvency regulation.
