While it's a natural use case for blockchain technology, a blockchain-powered travel insurance product could be years away in the U.S. because insurance is regulated that way, industry experts say.
Blockchain "definitely has a place in travel insurance," said Ryan Brubaker, chief information officer and executive vice president of travel insurance company Seven Corners. "So there are many areas where blockchain will change the insurance business and travel insurance."
When most people hear “blockchain,” they think of cryptocurrencies like Bitcoin or Ethereum. And while blockchain is the technology behind cryptocurrencies, it's a technology that has many other uses in itself.
Essentially, a blockchain is an immutable ledger that records transactions and tracks assets, some of which are cash and others intangible, such as patents or copyrights. The directory is backed up, shared and synchronized, allowing all parties to access the same information at the same time, making it a convenient way to track assets as it cuts out middlemen.
For example, technology can detect flight delays and automatically send payments without the need for human verification.
Earlier this year, German blockchain startup Eterisk launched FlightDelay, an insurance product that uses blockchain to issue policies directly to 80 airlines and pay for flight delays and cancellations. Policies can be purchased and claims paid only in cryptocurrencies. Funding is provided through an investor-backed insurance risk pool.
According to Christoph Mussenbrock, an accountant, physicist and founder of Eterisk, flight delays are a natural place to offer blockchain-based insurance products that enable automatic payments because data on flight delays and cancellations is available. It also allows Etherisc to avoid higher complaint handling fees and save on data protection costs as the blockchain itself is more secure.
“I think it shows the disruptive power of decentralized insurance. we can create insurance products at a much lower cost than traditional insurance products,” Mussenbrock said.
Other insurance companies have noticed this. Brubaker called Etherisc's FlightDelay "a great concept, and I'm glad it came to fruition."
U.S. regulations, including government approvals, mean blockchain is 10 to 15 years away from the U.S. insurance industry, Brubaker said.
It envisages that cryptocurrency policy payments will come first using blockchain-based identity cards that bypass the middleman, ensuring bearer coverage.
However, the type of insurance offered by FlightDelay is already available from many insurance companies in the US, albeit without the blockchain component.
It's called "parameter insurance," which means "some parameters are broken and it's an automatic payment, so you don't need a claims adjuster to look at anything or look at invoices or anything like that," Brubaker says. :
For example, in 2018, Allianz introduced the SmartBenefits payment system for flight delays and baggage. Earlier this year, the insurer said more than 2 million customers were covered by SmartBenefits.
But using blockchain technology for parametric insurance could save money and, in turn, allow insurance companies to pass some of the savings on to consumers.
"I think it's a great use case because you're tracking transactions and clearing them immediately," said Norm Rose, business technology and market analyst at FocusRite.
"Airline insurance is just as important as the prize and the timing of the prize," Rose said. “Let's face it, there were a lot of disappointments, especially after Vivid, the billing cycle, the exchange cycle. And to top it all off, there's a lot of disruption in the travel ecosystem right now. You go to get your insurance, and then a setup at the shared register triggers instant payments, which makes travelers happy.”
When Brubaker arrives in the US, he believes blockchain will bring “less profitability and therefore only satisfied customers” to the travel insurance industry.