Elsewhen CPO talks DeSure Development in the Insurance Space

Insurance brands weighing up the sector's future need only glance at what's happening in Decentralised Finance, or DeFi, to forecast the seismic disruption ahead. The 'total valued locked' in DeFi currently stands at around $230 billion – a tenfold increase since the start of 2021. With this kind of explosive growth to its name, DeFi, which came about due to advances in blockchain-based technology, has the potential to disrupt the global financial order. 

The situation is strikingly similar in insurance. As Edmund Situmorang, chief technology officer of global insurtech Prodigi, noted on a recent conference panel, blockchain is "unavoidable and inevitable for all of us". It's only a matter of time before some model of "DeSure" (decentralised insurance) arrives to challenge legacy players with unparalleled levels of efficiency and speed.

Here are three insights to help insurance brands navigate the DeSure storm. 

DeSure will drive hyper-personalised policies.

DeSure has the potential to streamline the insurance sector with benefits such as efficient claims management, reduced fraud and customer empowerment. Juniper Research agrees, forecasting that blockchain-based insurance will revolutionise claims administration – saving $10bn in costs globally by 2024 (up from $1.1bn in 2021).

Blockchain and insurance have a natural affinity because both involve interaction around contracts and related data. For example, it's possible to have the personal history of an insured person attached to a blockchain-smart contract, so insurers can see the history of claims and offer hyper-bespoke solutions in kind. Blockchain contenders such as bitcoin-enabled P2P insurers Teambrella and Dynamis already provide a blueprint, allowing customers to secure policies that reflect their risk profile.

DeSure could morph into a self-service sector

In terms of underwriting, DeSure tech and third-party data could facilitate software contracts that can self-execute, self-regulate and self-settle. Structures like DAOs (decentralised autonomous organisations) can govern contracts that self execute on the blockchain without a central authority because all of the activity around insurance and claims can be run on-chain and automated. This means that the whole claims process, including governance, could become a piece of self-executing software.

Imagine a scenario where an AI-enabled self-driving car is involved in a minor accident. Because the car carries its blockchain-enabled insurance policy digitally, which absorbs data from onboard sensors, dashcams and telematics devices, the car could provide all the relevant data to an underwriting logic on chain that instantly approves the claim. The car then drives itself to an auto repair centre, gets repaired, and settles via insurance. Similarly, DeSure could allow AI/5G/IoT-enabled products, from fridges to smart TVs, to handle the entire chain of claims communication, removing the need for an insurance intermediary.

In situations where insurance takes care of itself, DeSure insurers need to pivot away from product sales and emphasise customer experience. This approach means seamless UI, compelling customer journeys and natural language interfaces underpinned by state-of-the-art technology. In terms of ROI, customer satisfaction will be the key consideration.

Perhaps this shift will also allow insurance companies to differentiate via social purpose. Insurance unicorn Lemonade, for example, has formed a coalition that offers blockchain-based climate insurance to smallholding farmers in developing markets.

DeSure could minimise fraud and help rebuild trust

In the UK, the value of detected fraudulent claims is around £1.1bn a year. While any software-based solution carries risk, blockchain-based smart contracts are an opportunity to combat this endemic problem. Bringing a renewed level of transparency to the field, how they store and safeguard sensitive information reduces the potential for fraudulent claims and, longer-term, helps to reframe the culture of distrust that permeates the traditional insurance sector.

The DeSure approach to insurtech enables innovation

With increased efficiency, the DeSure model will free up resources for innovation, including the idea of insuring ‘alternative’ financial assets emerging out of crypto and DeFi. 

One small project incumbent insurers could get going with right away is using blockchain technology to develop insurance for hot wallets – destinations where people store their cryptocurrencies. This is a niche area that Lloyd’s syndicate Atrium has already entered into, in partnership with Coincover, to protect against cryptocurrency theft.

Those who remain unconvinced of the DeSure model need only look at the innovation already underway at the nexus of insurance and DeFi. Unslashed Finance, for example, covers risks such as smart contract failures and exchange hacks, with around $500m in insured assets. Meanwhile, iTrust Finance, a DAO,  seeks to manage the risk of participating in DeFi protocols via an intuitive platform.

The road ahead

In fairness to the insurance industry, any progression with DeSure-style modernisation may be hampered by high levels of entrenched regulation. But firms mustn't allow perceived barriers to excuse their current level of inertia.

The clear and present danger is that complacent or slow-moving brands will be brushed aside by blockchain-based insuretech challengers. All that's needed is somebody to provide capital, assume the risk, and the rest to be automated. One thing is for sure – there is plenty of liquidity in the crypto ecosystem, ready to back the next industry disrupter. As a result, the field is wide open to whoever decides to act first. 

About the author: Leon Gauhman is the co-founder and CPO/CSO at digital transformation consultancy Elsewhen, the Digital Product Consultancy that has a client list including Spotify, Google, Microsoft and Mastercard. Gauhman also writes for a number of industry publications including Sifted, Venturebeat, City AM and Fintech Futures. I love using my experience in engineering and product to invest in promising early stage founders.