What are the key features of a smart insurance policy and how can it be used in insurance?
As part of the build of Blocksure OS, Blocksure have developed the idea of a smart insurance policy. Below we will define some of the main concepts of the smart policy, but let’s start by looking at the definitions of it’s two main constituents.
Insurance policy — “A contract whereby an insurer promises to pay the insured a sum of money or some other benefit upon the happening of one or more uncertain events in exchange for the payment of a premium. There must be uncertainty as to whether the relevant event(s) may happen at all or, if they will occur (eg death) as to their timing” — Lloyds of London.
Smart Contract — “Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses.” — Wikipedia
Smart policy overview
A smart policy is a combination of natural language text and software. Some of the software runs on the blockchain (known as a smart contract) and some on the policyholder’s device. It’s true form is electronic but it can also be printed for the policyholder if required.
The policyholder directly interacts with the policy via its natural language interface. The policy that the policyholder sees is populated by the fields of the underlying smart contract, via it’s API. The ways in which the policyholder can interact with the policy are controlled by code that runs on the blockchain. The code and the data are shared and verified by all participants in the blockchain in real-time.
Key features of the smart policy
- Authoritative: The smart policy is the only authoritative source of data about the policy for both the insurer and the insured. It is the golden source and guarantees contract certainty. Any copies of it are not guaranteed to contain the most up to date and accurate information.
- Operationally transparent and immutable: The inner workings of the smart contract are transparent to all parties involved and cannot be modified. This means that participants will all be aware of the effect of interacting with the contract in certain ways.
- It does not imply that a policy is immutable, but it does mean that the ways in which it can be modified are. Also, private information of the parties involved is restricted and not available to everyone.
- Event-driven: Like a lot of blockchain applications the smart policy relies on external actors to tell it about the outside world, these events are processed by the behaviour defined in the code of the smart contract.
- Multifaceted: Each person (e.g. policyholder, broker, insurer, regulator, lawyer, re-insurer, managing agent) that interacts with an insurance contract is interested in different aspects of the policy. They require different views over the data and behaviour contained within and this is provided by the Blocksure API layer.
Smart policy details
- Defines the currency of the contract which is to be used in premiums and claims amounts.
- Defines the premium schedule and policy duration which are measured in block-time. The timestamp of a block is accurate to within at least a few minutes, which is good enough for most insurance products. This is shown to the reader as a period of time.
- Contains a set of parties (customer, broker, insurer, etc.) who sign the contract with a digital signature.
- A reference to the policyholder’s on-ledger identity. A customer is able to prove their identity to the insurer using their sovereign identity provider of choice (e.g. uport.me)
- Contains a hash (a digital fingerprint) of attachments to the policy. This allows us to verify that any given text policy matches what was shown to the customer when the policy was created.
- Contains a reference to the entity at risk (e.g. car, mobile phone, house). Ideally this would be an item that was already registered (see www.provenance.com) on the ledger, perhaps by its manufacturer, seller or owner.
- Defines the level of cover, for certain events (e.g. £100,000 for legal costs, £20,000 for theft of car).
- A globally unique identifier for the policy.
- A set of claims. Each new claim is validated against the properties of the policy.
- A TOBA (Terms of Business Agreement) reference. This is a contract that defines the range of policies that can be sold by a broker on behalf of the insurer.
The smart policy is designed to make the business as usual process for brokers and insurers as frictionless as possible, requiring little to no human intervention. Speed and cost of issue are greatly improved. This is one of the key innovations created by Blocksure and forms the basis of our service offering to the industry.