Fear, hate, or love: an insurance story on blockchain

by | Oct 20, 2018 | Blogposts | 0 comments

Blockchain made countless headlines in 2017 and continues to do so this year. But how exactly does it influence the insurance industry? Nia Escobar is the Startup Community Managerof InsurLab Germany and got to the bottom of this question for the Digital Hub Initiative’s blog.

Last November, Etherisc won InsurLab Germany’s Insurance Shaper of the Year Pitch Award in series A+ at conference EXECInsurtech in Cologne. Following up, she talked to Christoph Mussenbrock – co-founder and architecture manager of German startup Etherisc. Considered one of the most prominent insurtechs in Europe and running completely on the blockchain, Christoph Mussenbrock describes the impact and possibilities of blockchain in the insurance industry.
Dominated by multi-trillion corporations and regulated by cumbersome institutions, the insurance industry has a reputation difficult to disguise. From outdated customer support to paper-based systems, digitization has slowly made its way into the brick and mortar companies.
Since its creation in 2008 by Satoshi Nakamoto, blockchain has open new pathways to create value for customers, incumbents, and brokers.
Blockchain is a decentralized and distributed ledger operating on a peer-to-peer basis, essentially offering network verification for any transaction or information exchange. Despite its bad reputation from the ‘cryptocurrencies madness’, the technology has proven to be valuable for verified payments, secure protocols and data storage, including identity, medical information, and much more.
Let’s start with the basics. What is Etherisc?
Christoph Mussenbrock: We’re a new decentralized insurance platform, which means we’re providing a way for insurance projects to enter the insurance space. We have seen that many interesting insurance startups are struggling to enter the insurance space because the barriers are too high. With Etherisc, we are trying to change this situation by making the insurance space decentralized, which means smaller barriers, easier access, faster time to market, and of course, access to the regulatory framework, capital, and established companies.
Transparency and safety are words used to describe blockchain applications, but how safe are these platforms in real life?
The blockchain provides a high standard of security if used in the right way. The base infrastructure and technology has the highest security standard worldwide. But of course, you need to use this technology in the right way. Blockchain can be a safe environment to build applications for customers and internally for communications, protocols, or documents that more than one person has to use because it’s verified by all members, and tracks every single movement and revision.
But not everything is perfect. What do you think are the biggest limitations when it comes to applying blockchain in our industry?
Definitely the adoption of blockchain by the public. We are in a moment similar to when the Internet came out and had a low adoption rate. The difference is that right now we have this extremely developed technology and extraordinary business development cases. Unfortunately, due to the low user base, we face many limitations.
What do you think are the biggest benefits of applying blockchain technology to insurance?
Considering the size and the market cap of insurance, I think using blockchain will allow the industry to develop transparent practices, be fairer and provide easier access to insurance products. This access is relevant for customers, as to service providers, insurtech startups, and middlemen, like brokers. The barriers will definitely become smaller.
Could you give us an example of how this works?
At Etherisc we have built a live decentralized insurance product related to flight delays on a public blockchain, where filling out the policy takes minutes and in the event of a delay, our customers receive the payout immediately. The Flight Delay Dapp is the first decentralized insurance application issuing policies and paying out valid claims completely autonomously.
Blockchain applications in Germany, especially in the insurance industry, seem to be growing as we speak. Why do you think this is happening?
I think it’s because people are more sensitive to transparency and fairness. I believe we need innovation in this field because I’ve seen plenty of teams with interesting ideas for new insurance products with AI, Big Data and other technology. However, these teams struggle to materialize their ideas due to the high barriers I mentioned before. The need to experience transparency and fairness open the possibility to open new products to customers with reduced market-ready time, lower initial capital and technical requirements, and within the regulatory infrastructure.
Do you think all traditional insurers can use blockchain? When does it work and when doesn’t it?
We think that the question must be turned around. The correct question is: what role will companies play in the blockchain economy? You can use blockchain internally and I know insurance companies are already using these options to reduce costs, communicate better, and update their systems. The biggest potential I see lays with ‘full-stack insurtechs’, where the complete value chain is developed using blockchain as the platform.
Could you predict the future in blockchain insurance?
I would say that in the next five to ten years we will see a developed economy on the blockchain, allowing users to buy insurance products and much more. Right now, the user experience is too long and painful, and that will be an exciting change that will have great implications.
What about cryptocurrencies in the insurance industry?
They also have difficulties to overcome. Cryptocurrencies are known for their high-volatility, and this complicates their application since insurance companies require a stable monetary base. There are very interesting projects trying to tackle these issues, like stable coins, and we see that these will play a relevant role in the insurance industry.
People either love, fear, or hate blockchain. What’s your perspective?
I think most incumbents and corporates see the potential benefits, but they still have to find and understand their role in this space. I’d encourage people to experiment, read, and be informed. When someone is serious about blockchain, they see the potential so there’s no fear.
If you could send a message to incumbents, what would it be?
Enter the space, be open, experiment, and don’t’ try to hide.
And to customers?
Start working with blockchain and cryptocurrencies to get yourself familiar with the concepts and platforms. For example, have a gaming approach and invest 50 euros in this space to venture yourself and you will see this space grow.