InsurTech-Blockchain Briefing #6: NexusMutual (incl. Interview)
NexusMutual calls itself a “peer-to-peer discretionary mutual entity on the Ethereum blockchain”.
According to their founder, they plan to bring the mutual ethos back to insurance by creating aligned incentives through smart contract code on the Ethereum blockchain.
I had the chance to have a quick interview with their founder Hugh Karp:
Why do people in the insurance industry need to pay attention to Blockchain?
Hugh: At its core blockchain is an efficient way of gaining a common understanding between many parties and allowing them to easily interact with each other. The insurance industry has many parties, a long value chain and spends an unbelievable amount of time reconciling between parties so there is clear common ground here. Additionally, the fundamental purpose of insurance is about people sharing risk together, it’s about creating a large network with a common goal. Blockchain has the ability to coordinate that network in an efficient way.
How will Blockchain change the insurance industry?
Hugh: I see two main impacts blockchain will have. Firstly, inside the regulated insurance entity permissioned blockchains can extract large swathes of cost by simply removing duplication of effort and archaic practices that haven’t changed for decades. Perhaps controversially I don’t believe a blockchain is absolutely needed in this situation but it does provide an efficient solution. Secondly, there is the much more disruptive potential of blockchain to replace the insurance entity with code via decentralisation, essentially allowing individuals to interact directly with each other to share risk. This would be performed on a public blockchain like Ethereum.
The insurance industry has many parties, a long value chain and spends an unbelievable amount of time reconciling between parties so there is clear common ground here.
What do you think is necessary for Blockchain to be adopted in the insurance industry? What do you see as the most promising use cases for Blockchain in insurance?
Hugh: Inside the existing insurers it’s all about coordination and the network. Blockchain doesn’t make sense if you just use it by yourself, you need other external parties to make it truly worthwhile. Therefore coordination and willingness to work with each other is key. Only time will tell if the industry can execute on it. As an example B3i is really promising but coordinating large groups of companies that are actually competitors will always be difficult.
On the decentralised side, this is less about adoption by the current industry as it’s more of a potential threat. I think it is a credible threat but it will take a while to establish itself. Decentralised solutions actually have a great opportunity to address underserved markets that the existing industry has difficulty accessing. As an example, in countries where regulation is not as robust the trust layer that blockchain provides has more value to the consumer than in a highly regulated market where trust is adequately provided by layers of regulation and law. Microinsurance is a great opportunity here, probably using parametric triggers to start with.
Please tell us something about Nexus Mutual. What is the idea behind it and what is your vision? What technologies are you using?
Hugh: Nexus Mutual is firmly on the decentralised side, our ambitious goal is to be an alternative risk carrier for the insurance industry by replacing the insurance entity with code. We are using a combination of automation and incentive structures to facilitate all the functions required to share risk together. As an example, we have an incentivised voting mechanic that means all members of the mutual will vote on the validity of each other’s claims in true mutual style.
On the product side, while our platform is built to be product agnostic we will start with a single product, Smart Contract Cover. This would pay-out claims if there has been “unintended code usage” on any Ethereum smart contract. Think of the The DAO hack and the two Parity multi-sig wallet issues as events that would be covered. We believe Smart Contract Security is a critical issue for the Ethereum community and while lots of focus on security audits and formal verification is great, code can never be guaranteed 100% secure. We are aiming to provide a safety net for that risk.
In terms of technology we are firmly building on public Ethereum, the developer community is second to none and while the technology needs to develop we are confident the right people are working on it and can deliver.
Decentralised solutions actually have a great opportunity to address underserved markets that the existing industry has difficulty accessing.
What is your advice for companies wanting to start with blockchain?
Hugh: Dive in and get started. Build a PoC and understand how it works. The technology requires a change in mindset to understand its full potential so get a small budget and just start with something. It will give you a solid base to get approval for the more ambitious projects
What are your favourite resources/websites to stay on top of innovation things in the insurance space?
Hugh: Twitter is my go to resource as it easily puts everything in one place and time is my biggest challenge right now.
