LenderBot is a proof-of-concept micro-insurance platform that uses the bitcoin blockchain for insuring all sorts of things. Most notably, products and services in the sharing economy, such as AirBnB stays and Uber rides.
Professional services firm Deloitte, Blockchain technology startup Stratumn, and next-generation insurance platform LemonWay have come together to demonstrate the potential of several new applications and services that use the blockchain, all aimed at the insurance market.
Micro-insurance could be added to purchases, rentals, and service contracts through a variety of methods, such as while texting, using a smartphone app, or during a shopping cart checkout process. All of these could allow for simple options to be agreed upon by multiple parties, with the output recorded on the bitcoin blockchain for immutability and easy access.
“Deloitte has developed in partnership with Stratumn and LemonWay, a prototype capable of offering a customized micro-insurance tailored to the needs, practices and profiles of younger generations. This insurance of the ‘sharing economy’, based on Blockchain technology, will ensure the new services of ecosystems that make up the lives of new generations.”
- Deloitte (translated)
While businesses could offer such policies with their product or service, individuals could offer them to each other while lending something, like their lawnmower to a neighbor.
Simply replacing the retail store-offered “service plan” on high-dollar items such as electronics could be a great use case for LenderBot insurance. However, the large and growing sharing economy is in particular need of better insurance options that are flexible to meet their non-standard format.
“The sharing economy has disrupted a variety of industries and increasingly the very idea of ownership is becoming more fluid among younger people, thanks to the spread of the internet and various sharing platforms. By integrating with social platforms and notarizing transactions on a public blockchain, insurance companies can provide a better user experience that is suited to the age of the sharing economy.”
The need for sharing economy insurance is growing fast. In a recent announcement John M. Huff, president of the National Association of Insurance Commissioners (NAIC), warned consumers against insurance risks in the sharing economy.
"Sharing a home, car or even personal items with a complete stranger reflects a new level of trust between buyers and sellers,” Huff warns.
“When using companies like Uber and Airbnb, or lesser-known options such as Poshmark and TaskRabbit, failing to understand the insurance implications of these transactions can be costly.”
- John M. Huff, National Association of Insurance Commissioners (NAIC) President
Meanwhile, the size of the sharing economy is set to explode. PricewaterhouseCoopers (PwC) recently released new research into the European sharing economy. PwC economist, Rob Vaughan, stated that “Our view is that growth in the sharing economy is only just beginning. By 2025, we estimate that many areas of the sharing economy will rival the size of their traditional counterparts.”
How large could it get? Estimates from PwC put the eventual size of the sharing economy at or somewhere above twenty times what it is today, if you include all the various business types they have identified.
“Total transactions for Europe’s five most prominent sharing economy sectors – collaborative finance, peer-to-peer accommodation, peer-to-peer transportation, on-demand household services and on-demand professional services – could see a 20-fold increase to €570 billion by 2025, up from just €28 billion today.”
Risk awareness, and traditionally complex insurance products, have both contributed to an under-insured economy.
In a separate PwC report, the CEO of DriveNow at BMW, Richard Steinberg, explained how insurers will face challenges educating people of the risks they are taking on when peer-renting. “There are major issues around people who don’t understand the risks they’re taking on. So this is a real area for attention by the insurers,” he said.
DriveNow is a joint venture between BMW and European car rental company, Sixt, that provides carsharing services in several European cities.
"The biggest challenge all of us have in the shared economy is insurance. And insurance — whether it’s your house, your car, your driver — is really a fragmented market. They don’t know how to deal with people occasionally using their asset."
- Richard Steinberg, DriveNow CEO
Before the recent partnership was made, Stratumn examined the use of Bitcoins Blockchain in Micro-insurance. Founded in 2015, Stratum is a Platform as a Service (PaaS) startup that offers a way for businesses to focus on building blockchain applications quickly and easily.
While the Paris-based start-up is new to the insurance arena, it had received US$600,000 in April to complete a blockchain development platform already before the LenderBot partnership came along.
The company described micro-insurance enrollment as a four-step process: The ‘policy’ is initially proposed, or offered, to the buyer. It’s then reviewed by the buyer and agreed upon. The contract is then signed and notarized on the bitcoin blockchain, sending all parties a copy.
Finally, a digital token is issued, such as a counterparty coin or one that Stratumn designs for the job, which is sent to one or both parties as an asset that can be held, traded, or redeemed.
“Steps in the process are cryptographically linked together, notarized to the Blockchain, and visible to all parties involved,” states the LenderBot announcement from Stratumn. “The blockchain, independent of central authorities, guarantees a stability and immutability of information which to this day had never been attained.”
Adding Deloitte’s global expertise and LemonWay’s experience in offering small insurance products, the process could be streamlined even further. In one example described in Stratumn’s announcement, Facebook was used as a third party identity provider.
“Here we rely on the identification provided by Facebook and LemonWay to create a three-way contract between insured parties and the insurer.”
- Richard Caetano, Stratumn CEO
“This transfer of confidence is reinforced by the use of cryptography and timestamped data in the blockchain,” Caetano explained. “This guarantees data protection and traceability of every step in the subscription of the insurance contract.”
A LenderBot would be created and made available on Facebook for use through its Messenger chat app, and all contracts from that LenderBot would rely on Facebook’s profiles for identification. The lender and borrower would then be able to agree on the terms of a plan and digitally sign the agreement directly by interacting with the bot, which acts as a third party.
Currently, there is no mention if and when LenderBot will be available for public use. "Innovation cycles around blockchain technology for players in the financial industry is currently around 24 months,” offered Caetano, “from the initial prototype to applications being put into production.”