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Ep.38 – ‘Mutualisation’ of insurance through blockchain – insights from VouchForMe
In this week’s episode we get an insight into how blockchain can enable ‘mutualisation’ and learn about social insurance from VouchForMe. Our guest is Matt Peterman, Founder, VouchForMe and InsurePal. Matt’s experience spans private equity and fraud detection in the insurance industry. It was roughly 3 years ago that Matt realized that ‘mutualisation’ in insurance was gone – this realization led to Matt co-founding InsurePal.
Breaking down the jargon
What is blockchain?
“Blockchain is a mechanism where we can send information and money at the same time through non-centralized institutions.”
Matt provides the example of Ethereum by highlighting that instead of sending money through Swift, people can now send money through a network for 25,000 miners (who form the Ethereum network) in a P2P (peer-to-peer) manner.
What is Ethereum?
“Ethereum is a software of the future (economy.)”
Matt makes a profound statement that Ethereum is ‘a software’ and not ‘the software’ i.e. it is still early days in the blockchain/crypto world and only time will tell which software (public blockchain) prevails and reaches mass adoption.
In this light, a recent article published on CoinDesk sheds some light onto why public blockchains are yet not suitable for enterprise needs. There are indications that the technology needs time to mature to become enterprise grade.
Permissioned blockchain v/s Ethereum (public blockchain)
Matt highlights that the Ethereum network is secured by over 25,000 nodes whereas a permissioned blockchain network implemented by a consortium might have as few as 4 or 5 nodes securing the network.
A node may be thought of as a point where information is confirmed, stored and validated.
The notion of ‘mutualisation’
From an underwriter’s perspective
From his experience in fraud detection, Matt recalls that there is a lot of opportunistic fraud and premium leakage in the insurance industry today. The Association of British Insurers concluded that there is one insurance scam roughly each minute!
At the point of underwriting, there are numerous scams such as prospective policyholders claiming they have a garage for their car, when, in-fact they do not. Insurance companies today are trying to fight fraud by using big data or by trying to link customer provided data with other data-points including social media (Facebook, Google etc.)
A mindset problem
Matt points out that people think of insurance as a necessary evil. In some cases, insurance companies are thought of as government-sponsored entities which can be ‘used’ to obtain money from time to time!
As Matt suggests, most people forget that these malicious activities increase the cost of claims which in-turn increases the premium charged to the end customers. In the UK alone (for FY 2016), insurance fraud cost the industry $1.3 billion and the industry spent $200 million trying to combat fraud. The origins of insurance can be traced back to Edward Lloyd’s coffeehouse where parties agreed to share risk (which reduces fraud) and it is this notion that VouchForMe is trying to bring back using blockchain.
‘VouchForMe’
The notion of 3rdparty underwriting
Traditional underwriting involves pricing using data ma...
View all episodes
By Walid Al Saqqaf - Blockchain insuranceIn this week’s episode we get an insight into how blockchain can enable ‘mutualisation’ and learn about social insurance from VouchForMe. Our guest is Matt Peterman, Founder, VouchForMe and InsurePal. Matt’s experience spans private equity and fraud detection in the insurance industry. It was roughly 3 years ago that Matt realized that ‘mutualisation’ in insurance was gone – this realization led to Matt co-founding InsurePal.
Breaking down the jargon
What is blockchain?
“Blockchain is a mechanism where we can send information and money at the same time through non-centralized institutions.”
Matt provides the example of Ethereum by highlighting that instead of sending money through Swift, people can now send money through a network for 25,000 miners (who form the Ethereum network) in a P2P (peer-to-peer) manner.
What is Ethereum?
“Ethereum is a software of the future (economy.)”
Matt makes a profound statement that Ethereum is ‘a software’ and not ‘the software’ i.e. it is still early days in the blockchain/crypto world and only time will tell which software (public blockchain) prevails and reaches mass adoption.
In this light, a recent article published on CoinDesk sheds some light onto why public blockchains are yet not suitable for enterprise needs. There are indications that the technology needs time to mature to become enterprise grade.
Permissioned blockchain v/s Ethereum (public blockchain)
Matt highlights that the Ethereum network is secured by over 25,000 nodes whereas a permissioned blockchain network implemented by a consortium might have as few as 4 or 5 nodes securing the network.
A node may be thought of as a point where information is confirmed, stored and validated.
The notion of ‘mutualisation’
From an underwriter’s perspective
From his experience in fraud detection, Matt recalls that there is a lot of opportunistic fraud and premium leakage in the insurance industry today. The Association of British Insurers concluded that there is one insurance scam roughly each minute!
At the point of underwriting, there are numerous scams such as prospective policyholders claiming they have a garage for their car, when, in-fact they do not. Insurance companies today are trying to fight fraud by using big data or by trying to link customer provided data with other data-points including social media (Facebook, Google etc.)
A mindset problem
Matt points out that people think of insurance as a necessary evil. In some cases, insurance companies are thought of as government-sponsored entities which can be ‘used’ to obtain money from time to time!
As Matt suggests, most people forget that these malicious activities increase the cost of claims which in-turn increases the premium charged to the end customers. In the UK alone (for FY 2016), insurance fraud cost the industry $1.3 billion and the industry spent $200 million trying to combat fraud. The origins of insurance can be traced back to Edward Lloyd’s coffeehouse where parties agreed to share risk (which reduces fraud) and it is this notion that VouchForMe is trying to bring back using blockchain.
‘VouchForMe’
The notion of 3rdparty underwriting
Traditional underwriting involves pricing using data ma...