Our inaugural InsurTech Summit NYC on June 16 featured leading VCs, emerging companies of all stages, as well as other key stakeholders. Below are key takeaways from the second panel, Crypto, Smart Contracts and Blockchain—Execution and Innovation.
McDermott Partner Alexandra Scheibe led a panel of founders and investors that covered smart contracts and crypto-based insurtech products, making a case for the implementation and leverage of smart contracts, tokenization, cryptocurrency and blockchain in the insurance space. This insightful discussion addressed the role of smart contracts in the future of insurtech from the perspective of true innovators and market leaders.
DeFi and Smart Contracts have a place in the future of insurance.
During the panel on Crypto, Smart Contracts and Blockchain, panelists discussed a wide range of applications for these burgeoning technologies in the InsurTech industry. The session began with the panelists level-setting with the crowd on the definitions of concepts, such as blockchain, decentralized finance and smart contracts. The panel went on to talk about new product solutions to meet the blossoming consumer demand. Finally, the panel provided valuable insights on what market participants in InsurTech—but not blockchain—should know moving forward.
1. Blockchain Plays Multiple Roles in the Insurance Industry
The panelists explained that there are at least three types of relationships between blockchain and insurance: insurance with blockchain, insurance on blockchain and insurance for blockchain. Insurance with blockchain refers to blockchain’s ability to facilitate existing insurance systems through client and information management. One example of this is the optimization of sharing health records between providers and insurers, leveraging blockchain to do so in a manner that is faster and more secure.
Insurance on blockchain refers to the use of certain blockchain features, such as smart contracts, to replace inefficiencies in the insurance industry. For example, smart contracts can be used to automatically disburse payment to motorists who have been in an accident rather than relying on a claims adjuster to review even the simplest of claims.
Finally, insurance for blockchain refers to risk policies that may be written for investors wishing to hedge against volatility in the cryptocurrency market.
2. Crypto-Native Underwriting Emerges
Certain investors in the crypto industry have demonstrated a preference for their insurance policies to be “crypto-native,” which may refer to insurance that is written and reviewable on the blockchain and/or insurance that pays premiums in cryptocurrency. Crypto investors may prefer for their insurance policies to reside on the blockchain because of its immutability and transparency. Investors may also prefer to match exposure in crypto to insurance in crypto, minimizing risks posed by fluctuating exchange rates.
3. Tokenization Facilitates Secondary Market Activity
Tokenization is the process of transforming ownerships and rights of particular assets into a digital form. By tokenizing, one can transform indivisible assets into token forms. In the lens of insurance products, tokenization will facilitate secondary market trading. Tokens are secure because they reside on the immutable blockchain, which sets a solid baseline infrastructure for dynamic insurance markets.
4. Decentralized Insurance is a Future Driver in the Industry
Decentralized insurance protocol is a way in which independent service providers can assess the risks of transactions without having to rely on centralized parties. Decentralized insurance protocols are permissionless mechanisms that can be used to price and service risk for insurance products.
5. Entrance of Large, Traditional Insurers Are Soon to Come
The panelists unanimously predict more offerings by traditional insurers in this space over the next two to three years. Traditional insurers may have been hesitant to enter in the past because of regulatory uncertainty. However, as the industry matures and regulatory agencies such as the US Securities and Exchange Commission continue to provide guidelines, traditional insurers are preparing to meet the demand for blockchain insurance solutions from their younger clientele.