Decentralised insurance is less understood but holds as much promise of disruption as the rest of DeFi. To find out more, Rick Huckstep spoke with autonomus.insure founder Joe Corrigan. Watch the video interview in this post.
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What is Decentralised Insurance?
My guess is that you have already heard of DeFi. And that you associate decentralised finance with lending and borrowing?
But, did you also know that there’s also a growing trend in insurance in DeFi.
To be clear, I’m not talking about insurance to protect your crypto assets if you got hacked.
I’m talking about using blockchain technology to rewrite the rule book when it comes to actually providing insurance for home, car, life or health insurance.
The idea is that crypto holders, and that could be you or me, pool our ethereum or some other crypto asset into an insurance risk pool.
That means that you or I could get a share of insurance premiums that have not been spent on claims.
Here’s The Thing: whilst financial services platforms like Maker and Compound account for the lion’s share of the total value locked into the entire DeFi ecosystem, the decentralised insurance networks like Nexus Mutual, Insure and Etherisc are also steadily their presence.
To give you a sense of the size of the DeFi space, at the end of last year there was around $250 billion in total value locked in the DeFi ecosystem.
However this year that has fallen to below $100 billion, largely due to the macroeconomic uncertainties driven by post-covid lockdowns and the war in Ukraine.
However, there’s still good reason to be bullish about decentralised insurance.
Your Fat Margin
On the one hand, the insurance industry is ripe for disruption. Remember when Jeff Bezos said “your fat margin is my opportunity”. He could have been talking about insurance.
On the other, it is one of the most unpopular industries as well as one of the most profitable for the risk takers like Warren Buffett.
It’s a area of emerging technology that I’ve been working in since 2015. Back then, all of 7 years ago, the big promise for insurance was peer 2 peer insurance.
It didn’t take off, but the concepts can be seen in today’s decentralised insurance - such as
- automated and personalised risk pricing,
- smart contracts for paying claims,
- policy holders keep the unspent profits instead of them going to shareholders.
In a decentralised insurance model, the operation is democratised. Everyone in the syndicate gets a vote and a say.
It’s not only fairer to the policy holders, the insurance company has significantly lower overheads and the cost of insurance is reduced.
Now, to be clear, these are early days and the insurance industry is still a $5 trillion super tanker. If it was a country, it would be the third largest economy in the world!
It’s not going to get knocked off course easily and…
…it has remained largely unchanged since the 17th century.
To help me understand it better, I spoke the founder of a startup in this space. Joe Corrigan is the CEO and founder of autonomus.insure - an AI powered DeFi insurance startup.
Further Reading
Rick Huckstep
Rick Huckstep
Rick Huckstep
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