Trust through decentralization

One of the fundamental features of decentralized insurance is the elimination of intermediaries and improved trust. Through the use of blockchain technology, smart contracts enable automated execution of contracts and compensation if certain conditions are met. This eliminates the need to trust centralized institutions such as insurance companies and gives the user control over their assets.

Benefits for consumers

Decentralized insurance also offers a number of benefits to consumers. One key aspect is the reduction in administrative costs and commissions due to the automation of processes. In addition, the transparency of the blockchain allows for better risk assessment processes, as well as making insurance services more accessible and adaptable to each customer’s needs.

Innovation and the future of insurance

Innovation in decentralized insurance continues to evolve. From developing new types of insurance products to expanding the use of smart contracts for more complex scenarios, the possibilities are constantly expanding. This evolving landscape is driving the industry to new horizons, opening the door to innovations that improve asset protection and provide greater certainty for all participants.

The decentralization of insurance on blockchain is not just a change in technology, but a paradigm shift in protection. It reflects a desire for greater transparency, efficiency and autonomy. And perhaps most importantly, it is designed to provide us, the users, with protection and trust in a world where security is becoming the key to success and stability.

Decentralized insurance on blockchain is just the beginning of this exciting journey into the future of protection.

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Blockchain can open up new opportunities in insurance, solve some of these problems and significantly modernize the industry:

• The efficiency of blockchain solutions will make the industry decentralized, transparent and more secure, reducing the processing time of requests and the cost of interactions and monetary transactions;
• The reduction of intermediaries and full transparency of public platforms will significantly speed up business processes, reduce their cost and increase confidence in the system and the industry as a whole;
• Smart contracts will automate document flow, insurance payments, reduce fraud risks, the amount of poor quality data (errors, inaccuracies, gaps) and improve the quality of customer service;
• New types of insurance will emerge: parametric (precision) insurance, peer-to-peer (P2P) insurance, microinsurance and others.

Fraud prevention

Issue. The survey, showed that 95% of insurers use various technologies to fight fraud, due to which they lose more than 80 billion dollars annually. And it’s not just a problem for insurance companies: the average American family loses between $400 and $700 in increased premiums each year due to fraud.

Much of the fraud is due to the sheer complexity and inefficiency of information sharing between different market participants, with each party using its own database and being slow to share information with other companies. As a consequence, when insurance claims move from insurer to insurer and reinsurer, the companies transmit minimal data along with the document. This creates opportunities for criminals to submit multiple claims to different insurers for a single loss.

Blockchain solution. Fraud can be addressed with an industry-wide centralized information repository that will have algorithms to detect chronic offenders, repeat claims, data inconsistencies and other signs of fraud. Similar solutions are already in place in other sectors, such as credit bureaus and real estate multiple listing services (MLSs).

Early successes (case studies):

Everledger. A distributed ledger that records diamond transaction histories for each individual stone, producer, intermediary and buyer. Among other things, the platform allows the verification of information on current and previous insurance claims. This helps to detect, prevent and counteract fraud.

OpenIDL (Open Insurance Data Link). A network built on IBM Blockchain that provides efficient, secure and permission-based statistical data collection and sharing. Offers a secure and reliable blockchain environment for storing and selectively exchanging data (policy, premium and claims) with the American Association of Insurance Services (AAIS) as an advisory organization and authorized statistical agent.

Claims management and processing

Issue. Health care insurance is a prime example of how errors and inefficiencies in the claims process lead to unnecessary and often excessive costs that are ultimately reflected in higher premiums and increased costs of health care services.

For example, Change Healthcare’s 2019 report found that 9% of healthcare insurance claims receive a denial that is followed by an appeal. Each appeal response results in a cost of $118 per claim or $8.6 billion in total administrative costs. Insurers offset these costs by increasing the cost of insurance services.

Blockchain solution. The technology enables a single version of the claims document to be created, managed and populated automatically. Thanks to this, it is possible to achieve effective management of relations with the service provider, increase their transparency, speed and flexibility.

First successes (cases):

Insurwave. Platform for marine vessel insurance. Uses smart contracts to accompany all documents related to the support of ship and cargo insurance processes. Insurwave was developed by Guardtime with the participation of EY, AP Møller-Maersk, Microsoft and insurance industry leaders XL Catlin, Willis Towers Watson, ACORD and MS Amlin.

Customer Identification

Issue. Brokers, insurers, reinsurers, banks and others involved in insurance transactions must comply with KYC (Know Your Customer) requirements for all their counterparties. This is a personal identification procedure involving the collection of personal data about the customer, their assets, health, social status and verification of their identity, which requires time, money and manpower.

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In the insurance industry, the KYC procedure must comply with the global anti-money laundering standards put forward by the Financial Action Task Force (FATF) and the International Monetary Fund (IMF), as well as local legislation, if any. There are no separate rules and standards for the KYC procedure in insurance, but it usually takes place in three stages:

Customer Identification Program (CIP). The minimum verification under CIP includes verification of first and last name, date of birth, address and identification number. It requires the user to provide several paper and/or digital documents: passport, driver’s license, social security card, electricity and other utility bills.

Customer Due Diligence (CDD). The due diligence should identify and validate the customer’s purposes/actions and assess the risk of money laundering and/or terrorist financing. Depending on the perceived risk, the verification may follow one of three scenarios: Simplified Customer Due Diligence (SDD), Basic Customer Due Diligence (CDD) and Enhanced Customer Due Diligence (EDD).

Ongoing User Monitoring. A program for continuous monitoring that keeps track of the current data, user status and compliance of the current risk level with the insurance contract. In some cases, a Suspicious Activity Report (SAR) may be required after a routine check if the user has broken the law, is behaving inappropriately, or is exhibiting strange (atypical) activity.

Blockchain solution. Insurers can create or utilize an existing blockchain solution for KYC, where all documents are recorded in a distribution registry and encrypted using cryptography. The documents would only be accessed using encryption keys (public and one-time private) that are available to the client. Using these keys, the client will grant access to the documents for a limited time sufficient to verify them.

This approach will allow users to retain full control over their data, which is important to comply with a number of privacy and data protection legislation. For example, the rules of the European “General Data Protection Regulation” (GDPR). In addition, the move to blockchain will reduce the time and cost of KYC checks.

First successes (case studies):

PwC and Z/Yen prototype. A solution to speed up the user identification process. The network keeps a record of customer documents and evidence of verification by the authority that issued them. Accelerates the procedure and enables the client to retain control over personal data.

IBM Blockchain Trusted Identity. Hyperledger Indy DLT-based platform for identity authentication in accordance with Decentralized Identity Foundation (DIF) and World Wide Web (W3C) standards.

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The idea of creating codified insurance options for the crypto industry has become particularly relevant recently. Repeatedly, we have witnessed the collapse of crypto businesses due to hacks, flaws in the code, and human negligence. All these factors are holding back the development of cryptocurrencies and blockchain, and discouraging new entrants from adopting the technology.

At the same time, according to the forecasts of Juniper Research, a well-known British analytical company, which is known for its research on cryptocurrencies, the revenues of the insurance technology industry may soon soar to 235 billion dollars, which is 34% more than the figures of 2016 (175 billion dollars). According to experts, driving the growth of insurancetech revenues will be the application of smart contracts, which will push the industry towards growth. A fertile ground for the development of insurtech will undoubtedly be the sprawling, new and huge cryptocurrency market, which also needs to insure accounts, transactions, and hedge risks from exchange rate volatility. The insurance industry is inevitably moving into the crypto-economy because this area needs risk protection.

In the process of forming a decentralized blockchain ecosystem for secure and easily executable b2b interactions, the Jincor project plans to introduce its own unique developments for insuring cryptocurrency accounts and transactions to provide users with the ability to secure their crypto assets. History shows that such risks are more than real, accordingly, a product that allows to manage these risks is highly demanded.

The peculiarities of the cryptocurrency model are that one has to deal with crypto-economic risks, cryptocurrency liquidity and a decentralized management model. Hence, in order to develop insurance capabilities within Jincor’s decentralized ecosystem, we were faced with the need to implement the business logic of insurance transactions on smart contracts in a decentralized environment.

What will decentralized insurance in the Jincor ecosystem look like?

Insurance smart contracts will be implemented within Jincor’s transparent blockchain ecosystem, being one of its constituent parts.

From a financial jurisprudence perspective, Jincor cryptocurrency accounts can be considered as deposit funds that can be insured.

The Jincor platform intends to offer members 3 types of insurance options:

• Insurance of crypto assets in deposit accounts;
• transaction insurance;
• risk hedging.

Insurance services within the b2b blockchain ecosystem will be implemented by large banks and insurance organizations, as the practice of p2p insurance does not meet the demands of the corporate platform, as insurance amounts in the b2b sphere, often represent huge amounts of money. Transactions with insurance companies will be concluded within the blockchain ecosystem, using Jincor’s template-based smart contracts.

When a foreseen insured event occurs (hacking of a service, corporate email, etc.), the ecosystem member organization will be able to apply to the insurance company and receive the amount of the insurance payment, if the insurance case proceedings do not reveal evidence tampering. The counterparties will be able to appeal the results of the insurance proceedings through a decentralized arbitration hearing process. This procedure is described in one of our previous articles.

In addition to standard insurance situations (hacking, theft), the blockchain ecosystem should provide for the possibility of insurance against fluctuations in the value of market assets, or hedging cryptocurrency risks. Usually, hedging is done to insure against sudden changes in market conditions and the most common type of hedging is futures contracts.

Derivatives (derivatives) based on cryptocurrencies are in demand now more than ever, and their development is only accelerating as many companies and individuals bet on the long-term prospects of cryptocurrencies, hoping that their value will continue to grow.

However, within a secure environment, holders of cryptoassets should be able to protect their investments without going into fiat. Financial instruments such as futures and options will provide users of the Jincor ecosystem with opportunities to hedge risk, as well as help stabilize the exchange rate. Executives at many cryptocurrency companies are already looking for ways to insure crypto assets and blockchain insurance can help them do just that.

Jincor is a holistic ecosystem where participants are able to utilize all modern blockchain developments without any special technical knowledge. On the Jincor platform, organizations can easily make cryptocurrency b2b payments, establish contacts, enter into smart contracts, automate their business processes, insure cryptoassets and, if necessary, use the decentralized arbitrage option.

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