Adeetya Tantia explains what we can expect from the next iteration of the internet, and how it could shake up the insurance industry
Web 3.0 claims to be the new technological panacea that will finally fulfill the promise of the internet as it was envisioned. It focuses on data ownership, immutability, and independence from centralised processors – but is that how the internet will be, given the predominance and resources of Web 2.0 giants such as Amazon, Apple, Meta, Microsoft and Google?
The most exciting Web 3.0 concepts include blockchain, smart contracts, oracles and decentralised autonomous organisations (DAOs). The blockchain is an immutable distributed ledger technology that allows all users of a network to verify a central piece of data; it is organised in blocks and linked via cryptography. Smart contracts are protocols that allow for autonomous execution based
on events or actions. Oracles are gateways that provide a reliable and trustless mechanism for exchanging data between on-chain and off-chain networks. DAOs are organisations encoded by a program that ensures transparency, and are controlled by members such that no external influence is possible.
In Web 2.0, insurance companies use centralised processing and data storage techniques to collect, analyse and verify data in areas such as pricing, reserving, and customer touchpoints (for example selling policies, filing claims and processing payments). Web 3.0 could contribute to the areas of parametric insurance, claims settlement, payments, and collection and verification of customer data.
During the sales process, data sharing can be simplified by providing know-your-customer details that are verified by a separate blockchain system. This would give insurers more confidence in the data of their policyholders and prospective customers, and provide an easy-to-use, frictionless customer experience. It could also be used for property deeds and details, vehicle characteristics and health data. However, it would further increase the information asymmetry in the insurance sales process – the insurer would get verified data, while the insured would only gain convenience and security.
This data sharing between the consumer and insurer could be further extended between insurer and reinsurer, using smart contracts to execute automatically – primarily in treaty insurance. Changes in the insured’s characteristics, such as property changes, could be incorporated into the system via amendments so that data sharing is real-time for both insurer and reinsurer. Such systems would require government or official third-party companies to co-operate with the verification process, providing opportunities for centralisation. They could also help to prevent fraud, especially when there is a single blockchain used by all insurers for pay-outs. This would help to verify claims and find duplicate or fraud cases.
Parametrised insurance pays out claims when a pre-determined condition is met. These conditions can be incorporated into smart contracts, which take a policyholder’s information, determine if the condition has been met via data from oracles, and execute a pay-out. This reduces the friction in the claims process and provides a better experience. Companies such as Etherisc and Axa have already launched platforms to achieve this for crop insurance and flight delay insurance.
DAOs are the new mutuals for insurance. They can provide a way for people to pool their risk by depositing a ‘premium’ in proportion to their exposure. When a claim is made, the DAO makes a collective decision and pays out the same. This provides a transparent and easy way for people to set up their own mutuals without centralised players.
Another emerging concept is digital goods, such as in the ‘metaverse’. Prime properties and space are already being sold for millions of dollars. Using on-chain systems to verify ownership and potential issues would greatly simplify the process and insure interoperability between metaverses and insurers.
Web 3.0 does have its own set of issues, such as high processing power requirements, high energy usage, and the need to educate consumers and make it easy to interact with
its systems. With climate change being a competing priority, moving to a high-energy usage system will be a particular challenge.
New Web 3.0 players will be immense, but their potential to become tech giants will be limited by their own technology. Companies will therefore need to be ‘ambidextrous’ – using the best parts of both Web 2.0 and Web 3.0 infrastructure to better serve customers and simplify processes internally, with the added benefits of in-built trust-based systems. While Web 3.0 is here to stay, Web 2.0’s centralisation of processes, systems and data will not go out of style any time soon.
Adeetya Tantia is student editor