Blockchain Is Changing Insurance Markets Inside And Out

All around the world, and throughout almost every industry, analysts have been puzzling over how the cryptocurrency revolution could eventually come to shape their businesses. That's an important area of investigation, but it also reflects the fact that the wider world may be missing the point. In reality, it is not cryptocurrencies that stand to turn the business world on its ear, but the technology that makes them work: blockchain.

Savvy investors should have already noticed that some of the biggest corporations on Earth have been dumping billions of dollars of research and development dollars into the technology, with no signs of slowing down. That's happening alongside about $1.3 billion in venture capital going to blockchain startups in this year alone. The heat in the space guarantees that we're about to see an explosion in blockchain development that will have wide-ranging effects. The global insurance industry, in particular, is already showing the signs of a makeover-in-progress due to the technology, but it's also seeing a rise in external competition because of it. Here's what's happening and why it matters.

Insurance: Certainty In In Uncertain Industry

The insurance industry, at its core, is all about risk. Insurance companies use various statistical measures and algorithms to forecast risk and to offer products that serve consumers but also turn a profit. That profit motive often leads to policy conditions that consumers find complex and confusing and has done much to erode public trust in the industry. The complexity leads many to believe that insurers are looking for ways to deny liability in as many instances as possible and to pad their own bottom lines at the expense of the consumer. At last count, only a bare plurality of consumers (in the United States at least) trust insurance companies, which represents a real and growing threat to the industry.

That's exactly where the blockchain may be able to have the greatest impact on insurance companies. Take, for example, Axa SA AXAHY, a French multinational insurance group, and its new Fizzy blockchain-based insurance offering. It offers consumers automated, parametric insurance policies that cover airline flight delays. Each policy is added to the platform's blockchain ledger as a smart contract, and the system monitors global flight data in real time. Any delay of two hours or more on a covered flight triggers an automatic payout. That eliminates the human element and removes the concept of trust from the equation. Variations of that exact deployment could form the basis for all next-generation insurance offerings.

Eliminating The Middleman

Blockchain technology, while showing great promise as a tool for the insurers themselves, is also threatening to usurp them altogether. That's because more and more individuals are beginning to turn to peer-to-peer (P2P) insurance as a means of lowering costs and eliminating the insurance companies from the equation. Already, P2P insurers like Lemonade are attracting plenty of consumer attention, by offering a fixed-commission model that removes the profit motive. They're even working towards translating their insurance policies into understandable English.

There are, however, companies that want to go even further. Right now, recent startup Teambrella is operating a blockchain-based P2P insurance market that covers users' auto insurance and pet insurance deductibles. The idea, if it works, will put payout decisions directly into the hands of the individual members, and a majority vote wins. That means all involved have equal incentive to guard against fraud and to pay claims in an equitable fashion. That exact model could be expanded into full auto insurance and other property policies, and the transparency provided through the blockchain should produce insurance pools that could undercut even today's cheapest auto policies and fundamentally change the property insurance markets.

The Race Is On

Blockchain development in the insurance markets is moving forward on several fronts, and with several goals. Legacy insurers are pursuing the technology to offer more exacting, automated products that sidestep the industry's trust deficit, while outsiders are aiming to use blockchain technology to bypass legacy insurers and take over whole markets. For both, it's a race against time. Whichever side perfects their models first could become heir to the new insurance paradigm for the 21st century. For the legacy insurers to win, they'll be forced to reorient their strategies to be more customer-friendly than they've ever been. If the outsiders win, it'll mean lower costs and unprecedented transparency. In either case, consumers are the primary beneficiary. If both sides end up learning from one another, however, the market at large might serve as a perfect demonstration of blockchain as a revolutionary force – and that will be good for everyone, no matter which side they're on.

The right combo of insurance can keep you covered, and keep some money in your bank account. The best insurance isn't always about the cheapest price. We did our research and talked to over 100 companies to find you the best coverage. Check out what we discovered in Benzinga's Insurance Resources and Tools.

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