Why Insurance Needs Blockchain

The insurance industry is in an interesting time.

We’re not saying it’s facing massive disruption. What we foresee is that the market they are selling to now and who they sell to in the future will be very different. The insurance adults buy now is the not the same one their children will as they grow older. Our CEO has a nine year old, it is very likely that she will never buy car insurance in her entire life. This is not an exaggeration. She will probably live in a major city like Singapore where public transit and car sharing services like Uber are readily available. This is supported by the global trend that 70% of the world will live in dense cities by 2040, which is up by 35% from today.

Now let’s think about this for a moment. That is a major revenue stream taken away from insurers. Assuming a driver gets some type of car insurance coverage of $1,000 per year from the time they are 16 to 76, that is 60,000 of revenues eliminated. Multiply that by the billions of people in the addressable market and you can get an idea of this impact.

So what can the insurers do?

They need to think out of the box and find new insurance products for this coming market. If someone talks to a current 20–30 year old consumer, they will point to the following reasons for not wanting insurance:

• Ease of claims: the current model is painful, time consuming, and too intensive
• Relevant pricing: they feel they don’t know what they are paying for and there is no transparency or accountability
• Customer purchasing experience: its not convenient, does not make use of mobile, and is not seamless

A solution to solving the above and building a better product is to use the blockchain to power the product. With a blockchain based system, the entire infrastructure changes as you can issue a policy on to the blockchain and then write a smart contract that allows for real-time claims management. What both do is eliminate a large amount of human and paper costs associated with present models. As a result an insurer can offer short-term or one-off products at a cheaper price but still retain a profit margin. Let’s look at personal injury insurance. I could buy a policy at a decent price and then if I trip somewhere and cut myself, I can walk into a clinic that’s already been verified on the insurer’s blockchain, get treated and file my reimbursement claim all in one swoop. No waiting to go home, photocopy documents, mail them out and wait six months for reimbursement. This is a product I may never have bought before because the price was too much.

There is an insurer I was speaking with and they brought up experimenting with all different products. One idea was to provide insurance in the game Minecraft. Now it wasn’t fully flushed out, but the gist was:

“if we can drastically reduce the cost of issuing and managing policies, we can do all sorts of things.”

Now if I were an insurance company I’d start thinking about this right now. what sorts of products will the future buyer want? Usage based insurance? Microinsurance? Insurance that lasts for only an hour? They key is to define a hypothesis and use the tools available now to test that hypothesis. We are doing that right now with some insurers. Instead of taking years to formulate a full model, we’ve been breaking them down to stages and increasing the scope and reach through each succession.

We’re curious to hear from other insurers and learn what they are thinking or what radical ideas they have in mind.

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