Discussion around decentralized insurance is covering new territory. Can insurance risk be tokenized?
With the conclusion of the second Decentralized Insurance Developer Conference (D1Conf) October 29, 2018, it is clear that the conversation is no longer focused simply around how decentralization and blockchain technology can impact the insurance industry.
Nowadays, the emphasis has moved on to services and products. This time around, blockchain and insurance experts from the globe gathered in Prague to share their experiences launching new decentralized insurance services, with some even reaching emerging markets worldwide.
With the success surrounding blockchain-based insurance, several speakers at the conference turned their attention towards the future. What else can be achieved with decentralized insurance?
Tokenization of risk
Theo Freybote of tenSigma noted an area of insurance that might benefit from blockchain — tokenizing insurance risks. In his presentation, Theo highlighted three issues with the current issuance process:
- Issuance costs are high.
- Minimum issuance volume is significant.
- Generally, high barriers to entry.
“The market remains behind its true potential, because the issuance process was designed a long time ago. It was designed for an era of analog technology.” — Theo Freybote, tenSigma
Innovation outpacing regulation
A panel moderated by Renat Khasanshyn of Etherisc further discussed the challenges involved with tokenizing risk. The panelists included Hugo Wegbrans of Aon, Risto Rossar of Black Insurance, Nicholas Curmi of Ganado, plus Theo.
One of the major hurdles highlighted by the panel was the need for regulation to catch up with the technology. Some regulations have existed for over 100 years, and these regulations differ from region to region.
“The key issue here is regulation. Unfortunately, innovation always outpaces regulation by a long way. Until we start seeing concrete opportunities, and they come to fruition, there will always be these regulatory issues that need to be looked at. Whether it comes from the EU or the US, regulation needs to catch up.” — Nicholas Curmi, Ganado
To begin the process of updating regulations, the panel agreed that working alongside incumbents and supplementing hundreds of years of insurance experience with expertise in the blockchain technology, would be an ideal approach.
“We should be looking into combining the two and making sure that we start making pace using your experience, skills, and knowledge to marry with our experience with insurance. We know what kind of roadblocks there are, but we shouldn’t be naive in how quickly that can go.” — Hugo Wegbrans, Aon
By cooperating with incumbents in the insurance industry, creating blockchain-based insurance services, which target existing or even new markets, becomes more tenable.
“There is not much risk underwritten on the chain yet, so we have to look for incumbents who want to work with us. If we work with incumbents, the question is why would the incumbents want to use us as a financing tool? Are we cheaper? Do we give them access to a different customer group? The more we think about it, the more interesting ideas come to mind.” — Theo Freybote, tenSigma
With regards to introducing the tokenization of risks, a traditional process may be required to make the first step.
“Most likely I think, we need to do some real-paper agreement in addition to tokens. If that somehow creates the first token, then we probably can get other people to invest into that pool. We need to do this step by step.” — Risto Rossar, Black Insurance
While we’ve yet to see any major development towards the tokenization of risk, insurance and blockchain experts alike agree that it can be achieved. One thing is certain — cooperation, not disruption, using the blockchain technology would seem to offer the path of the least resistance.