Noelle Acheson is a 10-year veteran of company analysis, corporate finance and fund management, and a member of CoinDesk’s product team.
The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday, exclusively to our subscribers.
As summer draws to a sultry close in the northern hemisphere, we should all spare a thought for those whose holidays were marred by lost luggage, hotel complications and very strange weather.
However, one bane of the frequent traveller – delayed flights – could soon have had its day, and blockchain could play a leading role. That’s because this past week, French insurance giant AXA unveiled a test run of a blockchain platform designed to manage flight insurance.
Amusingly called “Fizzy,” the product is a network of smart contracts linked to a platform based on ethereum that will scan data sources for information on delayed flights. If those flights match an outstanding insurance policy, a pay-out is automatically triggered.
While the initial test is limited in scope – for now it only covers direct flights between Paris Charles de Gaulle and the U.S. – its significance is potentially huge.
On the radar
Travel insurance is not a new concept – policies guaranteeing compensation for cancellations, lost luggage, etc., date back to the late 1800s. But, boosted by terrorism and extreme climate, it has enjoyed spectacular growth over the past few years, a trend that is generally expected to continue.
That said, the sector itself has not kept pace with innovations in the travel industry, and – in spite of a surge of insurtech startups aiming to disrupt the way insurance operates – mainstream policies are structured and executed in much the same way as 50 years ago.
This project, however, breaks ground, not only in the technology used, but also in its focus and market approach.
While a handful of independent blockchain startups have taken a run at flight insurance, Fizzy is the first such project to be launched by an incumbent, and the first to make it to the mainstream market.
Currently in beta with limited route coverage, AXA plans to roll the scheme out internationally next year.
Fizzy is also an early working example of an emerging sub-genre of “parametric insurance” – rather than compensate for loss, it originates a pre-established pay-out based on a triggering event.
Traditionally limited to large-company catastrophe bonds, parametric insurance has the potential to streamline risk management, lower costs and increase customer satisfaction by removing uncertainty.
This could be where blockchain technology has its most significant impact on the insurance sector. Executed on technology platforms, parametric policies can “go small,” cover a wider range of eventualities and reach a much broader audience.
But why blockchain? Why couldn’t a distributed database work? Because of the underlying issue of trust, often absent from personal insurance.
As most of us unfortunately know, getting an insurer to transfer compensation is often a frustrating battle. A blockchain platform can remove the need to save receipts, submit paperwork and request pay-out authorization. It can also remove the required leap of faith that the issuer will honor the trigger, since the embedded conditions cannot be modified.
Although the first mainstream test is focused on flights, it could be expanded to cover other types of transport. It could also end up both fragmenting and streamlining areas such as home and health coverage.
If a police record of theft is uploaded, an X-ray is performed, smart car sensors detect an incident or hurricane-induced floods reach a certain level, a pay-out is automatic.
In this light, the name that AXA chose for the service is surprisingly appropriate. In fizzy drinks, small bubbles transform a liquid substance into a more cheerful experience. In insurance, small parametric contracts could end up transforming how we interact with the sector – starting with personal insurance, but possibly spilling over into corporate and life policies.
More accessible coverage for customers, lower costs along with a broader market for issuers and the emergence of a new type of financial security… This small blockchain-based travel insurance experiment is giving us a glimpse of what the insurance business could look like in 10 years’ time.
Airplane tail image via Shutterstock