The pandemic ravaged the economy in many ways across the world. Many people lost their jobs as others closed their businesses. Lost income means limited access to the essentials of comfortable living, such as insurance. In the US alone, more than 28.9 million non-elderly individuals have no insurance coverage. 73% are uninsured because the average cost of coverage is pretty high.

Industry experts are looking at microinsurance as an alternative to traditional insurance for families who can’t afford the current market. But could this be possible in the blockchain space? Gregor Arn, CEO at Verso; Marco Mirabella, CEO at Ensuro; and William Herkelrath, Managing Director at Chainlink Labs, joined us in a recent interview to share a more in-depth insight into microinsurance.

What is Microinsurance?

Microinsurance covers many small items not included in traditional insurance. For instance, it can cover a specific health need, a one-day trip, or a one-time event. “So, in that regard, I guess we are considering microinsurance to be the utilization of blockchain technology, utilization of all technologies that have come out over the last 5, 10 years, such that it’s now far less expensive to offer such insurance to communities around the world,” says William. This allows consumers to buy policies that are more in line with what they can afford.

Gregor proceeds to say, “ a lot of microinsurance products are not the insurances you use for annual coverage. They are more on-demand.”

The difference between microinsurance and traditional insurance

The main difference between these types of insurance is the number of people they reach. Microinsurance has the potential to reach more people because of the underlying technology. But, also, they differ in how companies distribute them. For instance, service providers offer microinsurance policies directly to consumers as opposed to leveraging brokers.  “It’s just not cost-effective to distribute microinsurance through your brokers,” says Gregor.

Microinsurance in a decentralized framework

Companies like Ensuro are at the forefront of making microinsurance a reality for many people by providing a decentralized capital for parametric insurance risk and parametric insurance. This model fits well in microinsurance because the number of premiums and capital involved are very low.

But how does this parametric model work? It all boils down to claim assessment, the most critical part of the insurance process. Parametric insurance products give you a preset payout.  In that case, the capital gets released once the insured risk happens. That means no adjusters go to a specific location to assess the impact of the risk.

“So, we are taking this concept over here and we are combining the ability from the blockchain to collect capital from different liquidity providers,” says Marco. Interestingly, most of these investors, whether retail or institutional, channel the capital to microinsurance products through smart contracts. The money goes into a liquidity pool for underwriting capacity, creating risk models, and distributing the risk models.

Microinsurance is here to overhaul the industry

As time goes by, so do consumer needs change. For instance, the average consumer in a remote village in Saskatchewan or at the heart of Taiwan wants to access insurance policies on-demand. But, most importantly, the process should be as flawless and straightforward as possible. These are the needs that microinsurance under blockchain technology are looking to solve. So, it’s an exciting space to watch as it evolves. Join us in the next episodes of our podcast shows to stay updated on what is happening in the DeFi and CeFi world.

About Human and Machine

Human and Machine break down complex emerging technologies in a simpler language and concept for the average consumer. Hikaru, the “boring machine” host, and Tlahui, “the average human” make the technical seem regular by blending easy-to-interact with personalities and humor to the show. The Human and Machine podcast interviews managing directors, CEOs, and co-founders of various DeFi projects across the world.

About Ensuro

Ensuro is bringing blockchain innovation to the microinsurance world through smart contracts. Ensuro will be the world’s first fully-fledged decentralized insurer to bring the DeFi revolution to the industry. The company is anticipating a license from the Bermuda Monetary Authority to start collecting capital from multiple investors and make microinsurance a reality.

About Chainlink Labs

Chainlink Labs is a leading service provider for decentralized oracle networks. The firm’s solution offers tamper-proof inputs, outputs, and general computation to facilitate advanced smart contracts on the blockchain.

About Verso Finance

Verso is already operational, offering a decentralized financial product marketplace for linking DeFi to traditional Finance. The Verso ecosystem operates in the regulated financial service industry. The company leverages proprietary smart contracts to facilitate the movement of specific money flow between financial institutions, merchant service providers, and their customers.

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