Despite being a natural use for blockchain technology, travel insurance products offered through blockchain are likely to be a number of years away in the United States because insurance is heavily regulated, industry experts say.
Blockchain “will definitely have a place in travel insurance,” said Ryan Brubaker, chief information officer and executive vice president of operations at travel company Seven Corners. “When it comes to opportunities, there are really many areas where blockchain will change the insurance business and the travel insurance business.”
When most people hear “blockchain”, they think of cryptocurrencies such as Bitcoin or Ethereum. And while blockchain is the underlying technology behind cryptocurrency, it is its own technology with many other uses.
At its core, blockchain is an immutable ledger that records transactions and tracks assets, some tangible as cash and some intangible as patents or copyrights. The general ledger is replicated, shared and synchronized, giving all parties access to the same data at the same time, making it a cost-effective way to track assets because it eliminates intermediaries.
For example, the technology can detect a flight delay and automatically send out a payment, without the need for human verification.
Ryan Brubaker
Earlier this year, German blockchain startup launched Etherisc FlightDelay, an insurance product that uses blockchain to automatically issue policies and make payments for flight delays and cancellations with around 80 airlines. Policies can only be purchased, and claims paid out, with cryptocurrency. It is financed through an insurance risk pool supported by investors.
Christoph Mussenbrock, a mathematician, physicist and co-founder of Etherisc, said that flight delays were a natural place to offer a blockchain-based insurance product because data on delays and cancellations are readily available, enabling automatic payments. It also enables Etherisc to avoid higher claims handling costs and achieve savings on data protection costs because the blockchain itself is so secure.
“I think it shows the disruptive power of decentralized insurance – that we can build insurance products at much lower costs than traditional insurance products,” said Mussenbrock.
Other insurance companies have taken note of this. Brubaker called Etherisc’s FlightDelay “a very cool concept, and I love that he does.”
Roadblocks for blockchain adoption
Regulations in the United States, including the need for state-by-state approval, mean that the appearance of blockchains in the US insurance industry is about 10 to 15 years out, Brubaker said.
He said he believes payment for police officers with cryptocurrency will come first, followed by blockchain-supported identification cards that cut out an intermediary confirming that the carrier is insured.
However, the type of insurance FlightDelay offers is already available in the United States through some insurance companies, albeit without the blockchain component.
It’s called “parametric insurance”, which means that “some parameter is broken, and it’s an automatic payment, so you don’t really need a claim adjustment to assess something or look at a receipt or anything like that,” Brubaker said.
For example, Allianz launched SmartBenefits, a proactive payment system for flight and baggage delays, in 2018. Earlier this year, the insurance company said that more than 2 million customers had been covered by SmartBenefits.
However, using blockchain technology to provide parametric insurance can save money and in turn enable insurance companies to pass on some of these savings to consumers.
“I think it’s a great utility, because what you do is track a transaction and then compensate them immediately,” said Norm Rose, Phocuswright’s senior technology and market analyst.
“Air insurance is only as effective as the reward and timeliness of the reward,” Rose said. “There’s a lot of frustration, let’s face it, especially after Covid, of the reimbursement cycle, the change cycle. ledger that then triggers a payment more instantly, it’s going to make the traveler happy. “
This is what Brubaker said he believes the blockchain will bring to the travel insurance industry when it comes to the United States: “Reduced cost-effectiveness and so only satisfied customers.”
