Blockchain, which is a more secure form of database because its information is stored and verified across a network of users instead of being stored centrally, is expected to spin off a myriad of new services as it matures. It has applications in digital currency, crowd sales and governance tools.
The technology also holds promise for the development of new insurance products. Among those that hold promise, according to a recent report, is parametrics, in which insurers pay a certain amount upon the occurrence of certain risk triggers, instead of outright coverage for a loss.
Parametrics has applications in natural catastrophes, such as earthquakes. Parametrics entails the use of smart contracts, which adjust claims payouts depending on the extent of the damage of the catastrophe. For instance, a smart contract would adjust disbursement to 20% of the claim to policyholders in the occurrence of a Magnitude 5 earthquake. The amount of claims paid out to policyholders then change as the conditions increase or decrease in severity. This new scheme will require mutually trusted third party administrators (TPA) to adjust the provisions of the smart contracts.
Another spinoff of blockchain is microinsurance, which typically target individuals who live on $1 to $4 per day. It operates on similar principles to regular insurance, except that it does so for low income populations.
One example is Helperbit, a startup in Italy, which uses the Blockchain protocol to allow donors to give digital currencies to underfunded non-profits in remote regions across the globe. The company’s risk assessment platform allows philanthropists to pool their resources while minimizing fraud exposure.
Because Blockchain enables transparent transactions, it builds trust among users by overriding bureaucracies and overcoming geographic limitations, thereby making the delivery of microinsurance appealing to carriers.
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