Once upon a time insurance was conceived as a mutual fund shared by people as a safety net that helped them to protect themselves against unavoidable accidents or disasters. One such group were shipping magnates who formed a coalition to care for each other in the case of a shipwreck or loss, by spreading premiums and payouts as needed.
This is a very different concept from the modern insurance business where it is very much a grudge payment, sometimes enforceable under law, such as motor insurance. Insurance companies are fully commercial, looking to maximize profits for the shareholders. At times, the profit margin would appear to be of more importance than the value given to the consumer, who can find themselves faced with a David-and-Goliath-like struggle for fairness.
Stephan Karpischek, founder and CEO of Etherisc, likes to use the term ‘Provable Fairness’ where the outcome of the insurance claim is based on the terms accepted.
“The modern insurance model is bound up in layers of intermediaries, all of whom are looking to take a fee.” he says. “Whereas in fact, the cumbersome allocation of terms and conditions could be more simply managed in smart contracts. Using blockchain and smart contracts we can totally disrupt the insurance model in the morning.”
Karpischek’s ideas are revolutionary and simple. He has attracted considerable pushback but also much interest from the industry.
“There is a lot of value that we can bring to the insurance model.” he explains. “Using blockchain technology we can offer transparency, we can more quickly verify and validate claims, and we can execute confirmed payouts in real time.
“Then there are the benefits for the overall industry. Regulators can watch in real time how insurance companies are operating and ensure that they maintain liquidity and are solvent using prudent operating margins. And finally, we can return trust to the consumers as everything is again transparent and immutable.”
One of the first projects launched last year by Etherisc is flight delay insurance. “We wanted a simple use case.” says Karpischek. “We were fortunate enough to be backed at Atlas, an insurance company who liked our ideas and moreover would allow us operate under their insurance licence.”
The flight delay insurance product has some 100 policy holders and has already paid out in seven cases. The concept is simple: a consumer purchases the flight delay product, and under the terms, once a flight is covered by the product and is deemed as delayed, a smart contract is executed and the consumer receives payment.
It does not require third party mediation. There is no need to return home and file reports and fill out forms. There is no need for the insurance company to collect evidence to validate the claim. It all happens in the smart contract. The result? A good experience for the consumer and possibly greater trust for the insurance company. And the insurance company fulfills its obligations with minimal effort, time, and cost.
Etherisc is expecting to open its token generating event in April. “Setting up an insurance company with all the correct licences is a very expensive business.” explains Karpischek. “We have teams of people with different ideas in the pipeline. We need resources to execute on these ideas. We want to rethink the world of insurance.”