Improving Insurance

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8 min read

Filing an insurance claim is overwhelming and confusing. The payout takes time to complete while the insurance company has to investigate the validity of the claim. If a fire burns down a family home, they will have to file a claim with their insurance company. However, they may not have proof of what was lost or how much those things were worth. I always do a video walkthrough when I move to a new place detailing the possessions and the value, but I frequently forget to update it when I get new furniture or electronics. My dad has been in his house for 35 years, and I know he hasn’t updated his. Most people don’t even think to do the video recording in the first place.

So then the insurance agency has to try to decipher what they can pay out and replace and what they cannot to prevent fraudulent cases. To do this, they have to go based on good faith that the person filing the claim is telling the truth. That is currently the way the industry works – the insurer is required to trust that they are being told the truth by the person looking to take out insurance. This is an issue when natural disasters hit, and volunteers remove furniture and other debris, making it harder for homeowners to prove to the insurance agency the damage to their belongings.

Applying the blockchain to the insurance industry can help add transparency, maintain the record of evidence in claims, introduce smart contracts in claims payouts and help with fraud detection, which is not good for the Frank Gallaghers (scam artists) of the world.

Auto Insurance

Now imagine buying a used car with a blockchain-based reporting system. The vehicle manufacturer, parts supplier, original seller, repair shop, insurer, and driver could all act as nodes on the blockchain. This results in a detailed vehicle history report because all of the individual parts being held accountable. If there was an issue with the muffler, you would be able to pinpoint who provided the faulty part. This would help save money in product recall by contacting only individuals with defective parts instead of issuing a blanket recall.

Traditional insurance companies currently reduce premiums for cars that have tracking devices that are referred to as “telematics devices.”

After September 2014 cars are required to have a black box onboard computer that tracks your data. The new versions monitor 15 different variables and have been used in high-profile investigations. Despite this data being helpful for your mechanic and insurance companies it also infringes on your privacy. Tesla’s Model 3 has an internal-facing camera. GM’s Cadillac CT6 has a steering-column mounted camera that monitors the driver for signs of distraction. Supposedly these cameras don’t capture or store video. Some of the data from these sensors never leaves the car, but BMW, General Motors, Nissan, Tesla, and Toyota are selling vehicles with data connections that allow for a detailed report of car and driver. Similar to medical data, permissioned blockchains can enable people to control their personal data and decide whether or not they wish to sell it.

Smart Contracts for Claims

Smart contracts can make reimbursements claims quicker which will save insurers time and money. Since there are so many types of insurance, the blockchain will affect each differently. Billions of dollars of life insurance benefits go unclaimed either because the beneficiaries didn’t know they were listed as beneficiaries or because they are overwhelmed with all the paperwork that has to be done when someone dies. Often the companies and government agencies you deal with will not properly shut down the accounts, and you will have to double check their work. When my mom passed away the social security office killed off my dad in the system instead. It was like a Monty Python scene where I had to take him into the office and show them “he’s not dead yet”!

Imagine if when the person dies a smart contract from their life insurance company automatically contact the beneficiary. Once the beneficiary responds and signs the appropriate paperwork the money is disbursed. Policyholders, beneficiaries, hospitals, funeral homes, and life insurance companies would all act as nodes on a blockchain, ensuring that an error like social security “killing my father in the computer” doesn’t happen because the other nodes reject the incorrect information.

Peer-to-Peer Insurance

If you have home insurance with a large company that provides national coverage and you are in the midwest, you might be at risk for increased premiums because your insurance company also insures homes in Florida. These high-risk homes located in flood planes that are likely to be hit by hurricanes may affect your premiums to help cover those payouts- even though nothing happened to your house.

This is causing an interesting change in the insurance industry: peer-to-peer insurance. This is where a group of individuals agree to pay for other individual’s claims spreading the risk across the group with the intention of a large company taking a cut.

There is a non-blockchain version called Friendsurance in Germany and Australia that connects customers with the same type of insurance. If no claims are made by the customer or any of their connections they get the pre-agreed maximum cashback.

Blockchain versions of this model are VouchForMe and MediShares.

VouchForMe

VouchForMe formerly known as InsurePal uses social proof endorsements to cut down costs of insurance premiums. They have started with car insurance and plan to branch into other aspects of insurance. VochForMe has a token built on top of the Ethereum blockchain.

Their goal is for diligent & responsible people stop paying for the bad drivers and reduce the frequency of claims. The logic is you aren’t going to file a fraudulent claim if the people in your network have to pay the deductible.

It’s an interesting concept, but I’m not sure how much I believe in this platform as most of my friends or past real estate clients have failed to write me a Yelp review- something that costs them nothing. Requiring people to put money on their claim that someone is a good driver might be too much more for today’s short attention span client pool, or it could work because people also get a monetary reward if they are correct.

Medishares

Medishares is based on the Ethereum blockchain and is a decentralized, open-source mutual aid marketplace. Important to note they are different than the similarly named Christian insurance sharing group, Medi Share without the “s.”

Many of the backers from Medishares are from a Chinese investment fund.  This is supposed to be a global platform so it will be interesting to see the ease of acceptance in a place like the USA vs. India or China. For every new user, MDS burns a token. 10% of the fee will be burned by the Platform, while 90% will be held by the Platform as reserve capital. Users who find fraudulent activity can report it and gain rewards. This helps to leverage the power of risk assessment and reduce conspired fraud

I understand these token-based systems are going to try and gain adaptation in the private sector before people might go for it large scale, but it’s going to be really hard to get an industry on board that has a lot of money and power from keeping ridiculous markups on supplies and procedures.

Final Thoughts?

I personally think there are too many tokens and the confusion deters people from entering the space because it adds too many new steps involving exchanges and learning multiple wallets. What are your thoughts on the blockchain’s influence on insurance? Throw it down in the comments hit like subscribe and the bell for notifications.


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