Machines can buy insurance for themselves!

There is a lot of buzz around cryptocurrencies. It intrigued me, so I did some research. While sifting through various articles and reports, I stumbled upon an interesting use case for cryptocurrency, thought of sharing here.

Coming together of technologies – IoT, Machine Learning, blockchain - is changing every industry and creating new business values. Insurance industry is not immune to this.

There are enough publicly available articles about transformation at GE and then how they created business value by extending the platform – Predix, outside their four walls.  The IoT devices now can diagnose their own state and predict their potential failure, without any human intervention.

Digital transformation does not end just by transforming existing way of doing things, but by continuously creating value from the core assets. If the devices can predict their own state, why can’t they buy insurance automatically? Add blockchain and crypto currency to the mix, it is very much possible.

If you look at the current state, we have three main segments that are transforming insurance industry – connected car, connected home and connected human.

Connected car is creating new business models based on telematics and driver behavior analysis - Usage Based Insurance (UBI)

According to Insurance Telematics Market report by Markets and Markets, a market research firm, the insurance telematics market size is expected to grow from USD 857.2 Million in 2015 to USD 2.21 Billion in 2020, at a Compound Annual Growth Rate (CAGR) of 20.9%

Connected home is next-in-line to disrupt insurance market. At present, home is very much crowded with so many do-it-yourself (DIY) products available.  In addition,  along with traditional players like Honeywell, GE, Siemens and others, Google(Nest, Home) and Amazon (Alexa) are also trying to carve out a space for themselves. The industry will evolve from the current discounted pricing model to an integrated model in the near future.

Connected human – wearables are very much part of life now, and gives valuable data for preventive health measures. New business models are emerging, as wearables can report vitals and emotional surroundings to insurers. Insurers like Aetna and employers are already buying or subsidizing wearables to the policy subscribers. This will make the healthcare predictive, preventive and personalized.

As you can see the insurance sector is already being disrupted by the IoT devices running the show at, cars, homes and daily life of individuals. The sensors, cameras and drones are supplying real time verifiable data, to make accurate risk assessments to process claim.

What's next? By applying blockchain, artificial intelligence and machine learning to IoT devices and integrating with smart contracts and cryptocurrencies, it is possible to take this to next level. Smart "things" can request their own maintenance, and insurance payout can happen automatically.

French insurance giant AXA has already rolled out smart contracts for flights delay insurance. As quoted in Business Insider article -

the purchase is automatically recorded on an Ethereum-based immutable ledger, and a smart contract is created on the blockchain. The smart contract is linked to global air traffic databases, which means that as soon as a delay of over two hours is registered on the ledger, compensation is automatically triggered. Moreover, the customer is told how much they will receive when they first buy the coverage.

Blockchain based programmable  distributed autonomous platforms and crypto currencies will make the automatic execution of insurance contracts possible in the near future.

Conclusion:

Exciting times ahead for the insurance industry. We will see emergence of new players leveraging distributed systems, and traditional players customizing the offering in select segments, without upsetting their revenue stream. The transparency and immutability can help consumer as well, wherein consumer will have the capability to decide what data he or she wants to share to the platform to drive maximum benefits.



Further Read:

https://www.marketsandmarkets.com/PressReleases/insurance-telematics.asp

https://www.forbes.com/sites/sarwantsingh/2017/02/24/the-future-of-car-insurance-digital-predictive-and-usage-based/2/#42972022b1e9

http://www.businessinsider.com/axa-turns-to-smart-contracts-for-flight-delay-insurance-2017-9

https://www.coindesk.com/axa-using-ethereums-blockchain-new-flight-insurance-product/