On September 13th, Axa published a press release very noticed about the launch of Fizzy : parametric insurance coupled with a blockchain technology. I remain skeptical about the arguments, especially regarding the blockchain.
The principle is simple! The insurer provides coverage against aircraft delays that triggers automatically without the need for a claim by the insured. It’s a simple product that lends itself well to parametric insurance. However, a nuance, the data made available by air operators or airports are limited, which now forces AXA to limit the exercise only on flights to / from Paris Roissy Charles de Gaulle airport.
The use case approaches so much (not to say almost identical) to the offer proposed by Bajaj Allianz last spring , which we echoed here. There was already talk of Blockchain, and I was already dubious at the time!
The complementary element that Axa brings is the principle of an open blockchain known to all (at least specialists): Ethereum. This makes it possible to use smart contracts, and according to Axa, to secure exchanges and transactions.
Useless technology use?
2 points disturb me in these proposals (Bajaj and Axa).
First of all, there is no need to use a blockchain technology to manage parametric insurance. This type of product, although still not widespread today, is not new and is already working. For example, Swiss Re proposed earlier this year in Taiwan a dedicated parametric solution aquaculture in Typhoons . If it rains more than 480mm for 2 consecutive days, the insurance is triggered, and the loss is automatically settled on the agreed bases.
The concept of parametric insurance (or index based insurance in English) is based on products built ad-hoc with objective and measurable parameters made available by third parties. Thus, during the subscription, the insured person covers himself for a measured risk and for an agreed amount.
At the occurrence of the risk (and if possible with data that are automatically provided to the system, from the weather services in the case of SwissRe), a simple rule engine integrates and interprets the incoming data flow to trigger a automatic transfer to the insured.
In short, IF (rainfall> 480mm AND days> 2) THEN Reimbursement.
In other words, no need for blockchain for that. Nevertheless, it is feasible with the blockchain, but it is a debauchery of useless energy! In the case of Axa or Bajaj, we bet that the objective is more to realize a proof of concept to validate the principles before considering other implementations.
The argument invoked by Axa to justify the use of the blockchain is security.
- On the one hand, parametric insurance is not in itself a lack of security to justify an additional layer
- On the other hand, the blockchain has not proved its lack of risk.
I come back to this last point! The blockchain is, by nature, secure! I will not come back here on the operation, a lot of documentation exists on the internet. However, more precisely, it secures what has entered, but does not prevent in any case, fraudulent maneuvers before entering or leaving the blockchain. Thus, we have seen in recent years theft operations / truanderies around the currency bitcoin, which have put on the straw several large operators of this currency.
The security argument seems so slightly usurped! It’s a marketing attempt to cover what ordinary people do not understand!
The blockchain is for dogs and cats or rare usecases of the blockchain
Make no mistake: I am rather in favor of blockchain technology! On the other hand, I am looking for real cases of use relevant to insurance. To this day, I only see one!
Pros and cons of blockchain
The blockchain has several advantages:
- Decentralization of nodes within a network.
- self-correction if a network node is altered or modified (this is what justifies the security argument)
- Data Encryption
However, several important limitations apply:
- Reduced” scalability”: performance is bad as volumes grow too much
- Operational costs: it is a very energy-intensive technology. (eg power consumption of data centers / computer centers that” mine” bitcoins)
- Difficulty of implementation between multiple actors who must share the same technologies and solutions.
Thus, despite the obvious strengths, the fact remains that the concrete use of the blockchain is complex.
The blockchain is for dogs!
To date, only one use case has caught my attention as a true viable example of the blockchain in insurance. It has been reported in the Market Force report. . This is to use the blockchain in the UK for insurance contracts for dogs and cats (and more generally it could be extended for any animal). All insurers can then share a common risk basis (animals) to ensure that a health expenditure for an animal is subject to only one insurer and thus avoid fraud. This is possible thanks to the blockchain, which simplifies the procedure and makes it faster and more reliable. Volumes are manageable without major performance difficulties, and lower regulation than for individuals makes more in-depth controls necessary.
Beyond this specific example, all the steps mentioned, including that of the B3i consortium that remains to follow, seems to me uses of the blockchain to surf the wave of media buzz, but not always wisely.
Talk about it!
What do you think? Have I missed something essential?
Feel free to send me your comments or remarks. I am curious to improve my understanding on this subject!
If you want an opinion on your projects, contact me , we can meet and talk about!