Peer-to-peer insurance: insured becomes the insurer

7 February 2017 (Last Updated February 7th, 2017 05:19)

There is a wave of disruption overtaking the financial world, with digital tokens like bitcoin threatening the monopoly of banks and other financial institutions.

Peer-to-peer insurance: insured becomes the insurer

There is a wave of disruption overtaking the financial world, with digital tokens like bitcoin threatening the monopoly of banks and other financial institutions. An in-depth look at the blockchain technology underlying these native web tokens reveals use cases that traverse the mere storage and transfer of financial value. Programmable blockchain tokens have the potential to shift control within the insurance industry from a band of large centralized organizations to multiple distributed small pools.

Consider a version of how this new system of decentralized autonomous providers would work. Imagine a group of 100 people who come together to create an insurance group with a coverage plan that is clearly stated a priori and programmed into a smart contract. To stay insured, each member pays a capped premium periodically, which gives them a share of voting power within the pool. In the event of a submitted claim, all members will have access to an online forum to inspect evidence - photos, videos, doctor’s report, test results—and discuss the merits of each claim before placing their vote on a particular reimbursement schedule.  

This proposed setup, although simplistic, would substantially reduce costs associated with traditional insurance, including administration, office equipment, salaries and dividends to shareholders, effectively increasing the amount payable to the insured members. However, despite its potential, there are nuanced technical issues barring this scheme, like preventing spam claims and mitigating systemic risks in an efficient manner. When these and other edge case failure points are resolved, there’ll be one more option for people who are not currently satisfied by their insurance providers.

Peer-to-peer insurance will be a game-changer in developing countries where the healthcare infrastructure is not robust enough to support insurance services. Using blockchain technology, residents of rural areas can easily tap into a global risk mitigation system with a smartphone. Smart contracts will further ensure that funds are spent in designated healthcare facilities which could fundamentally control the proliferation of treatable diseases globally.