To Flight Delay and Beyond: My Ethereum Podcast

Topics from Flight Delay to a new product to our overall vision for decentralized insurance were under discussion during this detailed interview.

Is there insurance in the future for your crypto wallet?

Our work at Etherisc to offer this type of parametric insurance was one of the topics in a discussion our co-founder Stephan Karpischek recently had with Evan Van Ness on Episode #14 of an Ethereum Podcast.

Evan first asked Stephan to define parametric insurance for his audience: highly automated, with decisions made by algorithms. The underwriting is done by software, as well as accepting claims and payouts, all of which can be executed by algorithms fed by data.

As we’ve said many times before, with our Flight Delay DApp, if your flight is delayed, you automatically get a payout as soon as your flight lands.

Some key points to remember

Evan and Stephan went through a lot of detail about our mission, vision, and roadmap. Some of the highlights:

The whole insurance process from beginning to end can be implemented in smart contracts.

Our decentralized insurance applications are open-source, free, and accessible for all. Everyone can look at the code, because, after all, no one in his or her right mind should send money to a contract of which you can’t read the code.

Since the first launch, we’ve built this into an “operating system” to develop, deploy, and operate insurance applications on blockchain.

We have set up the Decentralized Insurance foundation in Switzerland to promote and develop decentralized insurance and to support organizations with all the building blocks they need to run their own insurance businesses on blockchain.

Time for the Decentralized Insurance Protocol

The two then talked about our upcoming Token Generating Event for the DIP token.

The DIP token aligns the incentives of all participants in a decentralized insurance ecosystem. It can also work as a staking mechanism. If you want to provide a service for an insurance DApp — for example, as an oracle — you need to stake DIP tokens, and only then you can get compensated for providing data. There are also actuaries and people who make risk models and might need to stake tokens to benefit from their work.

It’s important to understand that a lot of different skills are needed across the value chain. In a traditional economy, it’s the firm that holds those people together, but in the blockchain world, we use tokens for this.

The discussion also covered the other big challenge inherent to our business — the quest to get properly licensed and fully regulated. We talked to dozens of insurance companies before partnering with Atlas in Malta, and we are very thankful and pleased that we can use their license to sell flight delay insurance.

The crypto wallet idea

The vision for our next product is to insure your crypto assets in case the wallet breaks, or there is a software bug, or if someone finds a creative way to empty your wallet. We have proposed a specification for a multi-signature wallet and the key management process. If you adhere to this spec, then your wallet will be eligible for this insurance.

Our goal is to offer this insurance for a yearly premium lower than 1% of assets held in the wallet. This would not only provide a great service to other crypto projects. In our opinion, it will also drive the adoption of crypto. If we can get professional users — custodians and crypto funds who hold crypto on behalf of others — to buy into this idea of risk mitigation, we think that’s a huge thing.

For reinsurance companies, protecting crypto is a new class of risk. If you compare its total risk today with the amount of risk they already have in their books, it looks very small. We know there are large reinsurance companies with billions of dollars of unallocated capital, because there’s not enough risk for them on the market.

How Etherisc makes difference

We see a bright future, because, in addition to our ideas, we have obtained operational costs lower than with traditional insurance companies.

We also do not have the inherent, systemic moral hazard common to the traditional, commercial insurance business. That is, traditional companies have a strong incentive not to pay out claims. This is something we can change. A smart contract doesn’t need to earn money. We can return to mutual and cooperative structures, in which people can create their own risk pools and insure themselves against risk. There is no need for a separate third party to make all the profit by simply holding and managing that pool. Traditionally, the main function of insurance companies will be replaced by smart contracts.

Stephan concluded the interview by encouraging new insurance companies to join the insurance working group, which we chair, in the Enterprise Ethereum Alliance.

Want details? You can listen to the full podcast.