The internet of value

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It’s an open-source distributed ledger. Put simply, if the World Wide Web is an internet of information, blockchain is an internet of value.

And what would the dominance of a technology that enables disintermediation mean for insurance?

http://viagrasamplesgenericinusa.accountant click here Democratised trust
A recent PwC report found that only 27% of people trust their insurer. By enabling transactions without the need for a third party, blockchain holds the key to what Deloitte describes as “democratised trust”. Actually, what it does is remove the issue of trust from the equation entirely.

Paradoxically, the new technology may take the insurance industry back in time.  twitter icon

Paradoxically, the new technology may take the insurance industry back in time – democratised trust implies a re-emergence of mutual pooling. It could foster a collaborative economy where individuals manage their risk more directly, while the disintermediated established insurers are gradually pushed towards a managerial or advisory role overseeing these mutual pools.

The decentralisation process would be accelerated by automated pay-out based on smart contracts built within the blockchain. To function, smart contracts need to be utterly unambiguous. Life insurance – with the binary simplicity of life and death – is a clear case for the smart contract.

But, before we get carried away with hash values and autonomous organisations, it’s worth remembering that, above all else, the value of new technology depends on its consumer application. The average customer doesn’t care about blockchain in terms of its technical intricacies. But if these translate into real-life benefits – such as removing added stress by triggering automatic pay-out after a bereavement – then there may be a strong case for application.

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Insurance of the future might look radically different. In time, blockchain could enable truly personalised insurance solutions based on individual actions rather than statistical averages.

The financial services industry is certainly interested – and invested – in the technology. 45 major financial companies, from Bank of America to Ping An, are now members of a consortium led by blockchain company R3 CEV. The impetus now is no longer proselytising about its potential scope, but rather testing workable, relevant applications.

From a global perspective, emerging economies are perhaps most likely to lead in adoption. In line with the Daily Fintech thesis of “First the Rest then the West”, innovation will most probably be driven by the billions emerging into a global middle class, whose technological clean slate means they can leapfrog into digital adoption with greater ease.

Within the industry itself, it is likely that the first experiments with the technology will take place in car-related insurance, where the risk is common and easily scalable. Auto insurance is already around ten years ahead with its use of telematics, in comparison with the much slower adoption of wearables in health and life insurance.

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Blockchain could be big. Very big.

But, as is the case with any major new technology, the problem is not a technological one. It is political. The ledger’s decentralised nature challenges the traditional dynamics of power.

As the leaders behind ThoughtWorks Fintech Lab have articulated, “All forms of explicit, concentrated power are susceptible to compromise or corruption.” And indeed, the financial heavyweights are weighing in before Bitcoin bites; Bank of England have recently developed their own digital currency, RSCoin.

Is this an attempt to reinforce the centralisation of power in what is essentially becoming a battle between blockchain vigilantes and the established pillars of finance?