Decentralized Insurance Trends Upwards

The Etherisc ecosystem grows to over 20 decentralized insurance applications in the pipeline.

Decentralized insurance in a nutshell

Stephan Karpischek, a co-founder of Etherisc, presented at the Crypto Summit 2018 held in Zurich on 28 March 2018. He spoke about decentralized insurance, as well as Etherisc’s involvement in the growing trend.

“A decentralized insurance application consists of smart contracts,” began Stephan as he explained the basics of smart contracts using Etherisc’s Flight Delay DApp as an example.

One of the first insurance policies issued by Flight Delay

“You pay a small premium into a smart contract,” he said. “As soon as your flight is delayed, you automatically get a payout. There is no claims process whatsoever.”

Apart from the real-time payout, decentralized insurance has a few more benefits. Decentralized insurance is developed by groups of small sovereign individuals, not by central intermediaries. This lowers the premiums for insurance to “almost a zero-sum game as smart contracts do not need to earn money.”

“As a customer, you know you will get your money,” explained Stephan. “You don’t have to deal with an insurance company and their profit margins, which is a conflict of interest.”

Stephan Karpischek at Crypto Summit 2018 (Image credit)

“Insurance companies benefit from not paying out claims. Smart contracts do not care about that.” — Stephan Karpischek, Etherisc

The Etherisc Decentralized Insurance Platform also enables developers to deploy new insurance products much faster and at a lower cost.

Decentralized insurance applications are fully transparent and freely accessible to anyone. This ensures provably fair insurance contracts, as anyone can just look at the smart contracts and the transactions on blockchain to audit the system.

Replacing traditional insurance with smart contracts

To get a better understanding of how smart contracts relate to insurance, Stephan gave an overview of the decentralized insurance protocol (DIP). “The DIP has a token, which aligns the incentive of all participants who are working together to develop, provide, and deploy an insurance business.”

An insurance company replaced by smart contracts on blockchain

“Insurance products are put together by sovereign individuals,” explained Stephan. “Their incentives to benefit from these insurance products are aligned by the DIP token.”

This can then be complemented with an additional security token for tokenizing risk. “In order to fund an insurance product, risk and risk capital can be tokenized,” said Stephan. “This then becomes a decentralized version of a reinsurance company and opens the insurance market to individual investors.”

In 2016, Etherisc published a white paper, analyzing the insights gained from a hackathon that aimed at outlining a strategy for a blockchain-based reinsurance market. The white paper has extensive coverage on using tokens as Insurance Linked Securities.

Beyond flight delay insurance

After the successful launch of the Flight Delay DApp, Etherisc is now looking towards other forms of insurance. The organization has expanded its first product into an ecosystem, which now serves as a pipeline of decentralized insurance products built by third parties.

A pipeline for decentralized insurance applications by third-party developers

“We want to enable a large range of different insurance businesses,” said Stephan. “We now have a pipeline of about 25 products.”

He highlighted some insurance applications in the pipeline, including weather-based crop insurance and hurricane insurance. In the crypto space, he brought up Etherisc’s work towards insurance for crypto-based lending, as well as insurance for multisignature wallets.

With the continued growth of decentralized insurance applications, Etherisc will be conducting a DIP token generating event. Registrations are still open.

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