Decentralized Digital Asset Insurance Disrupting Traditional Insurer Solutions

The Intelligent Insurer #63: Centralized insurance providers cannot address digital asset investor needs

The digital asset industry has witnessed exponential growth recently. However, digital asset insurance has lagged. The primary reason for this lack of growth has been the barriers traditional or centralized insurance solutions providers face. From regulatory licensing to a lack of portfolio diversification, traditional insurers cannot cope with the demands of the modern digital asset investor.

Decentralized solutions are increasingly stepping into this space and addressing investor needs. In this latest edition of the Intelligent Insurer, we’ll take a look at the hurdles traditional insurers are facing in the digital asset space and how decentralization is the key to insurance growth. But first, here are some exciting updates from our development team.

Insured Finance software development update

We’re pleased to announce that our platform audit process is complete. We tested our platform using Slither and MythX, the automated smart contract auditing tools. We will now fix a major issue found in the audit process concerning the token bridge burn. When a token is bridged and then burned in the new network, the token is sent back to the previous network instead of being burnt. We expect to eliminate this bug promptly.

We continue to develop the backend voting process in the coming week. Development of features within the voting escalation function, where a vote is escalated to all INFI members when a lack of consensus exists, and the reward mechanism is in progress. We’re also finalizing the design and functionality of features governing smart contract failure coverage.

Our highest priority task for the upcoming weeks is creating a wallet for mainnet deployment. We’re close to launching our next-generation digital asset insurance solution. Our commitment to security will ensure our community members have a seamless experience on our platform.

Risks and uncertainty hamper traditional insurers

On the surface, offering digital asset insurance seems like a simple task for traditional insurers. They have complex underwriting processes in place and the experience to handle novel assets. However, a deeper analysis of the picture offers a different take. For starters, traditional insurance companies depend on portfolio investments to turn a profit, instead of focusing on generating profits from underwriting.

Typically, an insurer does not earn a profit on the premiums their customers pay. Over time, claims payouts create a loss that the insurer seeks to overcome through their investment portfolios. The result is that insurers are highly risk-averse to anything that could jeopardize their thin margins.

The cryptocurrency and DeFi worlds are relatively new, despite their popularity. The volatility and exchange risk present in these markets make them a no-go for traditional insurers. Add to this the persistent myth that cryptocurrencies such as Bitcoin attract criminals, and it’s easy to see why traditional insurers have been letting digital asset investors down.

The relatively new nature of these frontier markets also creates a lack of relevant data to power underwriting processes. Simply put, insurers have no precedent to draw from when evaluating risk. They are not experts in the industry and seek to minimize risks across their portfolio. The lack of regulatory clarity also affects insurers in multiple ways.

For starters, cryptocurrencies are treated as a digital asset, not currencies, creating portfolio implications for insurers. They’re bound by investment mandates to invest a small portion of their assets in risky asset classes. Crypto and DeFi are currently viewed as two of the riskiest asset classes out there, making them a no-go for many insurers.

Additionally, governments are still wading through the intricacies of regulating digital assets and insurers have no means of understanding their fallback options should the market turn against them. For instance, reinsurers will currently avoid backing a traditional insurer’s crypto portfolio due to lack of clarity in insurance regulations as it concerns digital assets.

Thus, digital asset investors are out in the cold when it comes to insurance. However, decentralized, peer-to-peer solutions have been stepping up of late. These novel solutions might just be the best choice for the new-age investor.

Decentralized insurance plugging the gap

Traditional insurers are hefty organizations. While this gives them considerable cash reserves to fall back on, they’re hampered by the organizational mandates they must adhere to. Thus, risk minimization becomes more important than product and services. These hurdles do not exist in the peer-to-peer marketplace.

Much like how online peer-to-peer lending has disrupted the traditional bank loan arena, peer-to-peer insurance solutions on the blockchain are disrupting traditional insurance. Digital asset investors can connect with users who are familiar with the space and understand the risks involved. The network works together to ensure contract terms are fulfilled.

The result is a marketplace that combines high levels of trust with flexibility. For instance, a digital asset investor can seek insurance for their NFT portfolio and draw a separate policy for their crypto holdings. Based on the risk inherent in a DeFi platform, the investor can draw multiple policies from interested peers.

While digital asset investors get to protect their holdings, decentralized insurance platforms also open new avenues for individuals to monetize their activity in the DeFi and crypto space. A person can become an investor by amassing a portfolio that insures multiple scenarios, earning a premium in the process.

Such investors will have to pay attention to the risks inherent in every project and demand adequate premiums. As such, this degree of analysis might be challenging. However, this scenario is much better than the centralized version that offers no protection to anybody. Decentralized digital asset insurance isn’t without its flaws.

Much like DeFi projects, these platforms are susceptible to hacks and intrusions. However, as technology improves there is undoubtedly a scenario where peer-driven insurance expands beyond digital assets and disrupts traditional asset insurance. Mainstream insurers have not woken up to the opportunity brewing on the blockchain, and these conditions offer smart investors a chance to capitalize on a promising industry.

The digital asset insurance opportunity for investors

Investors can leverage these novel digital asset insurance platforms to both protect their portfolio of assets and earn dividends in the form of premiums by insuring other assets. Currently, there is no reinsurance use case. However, as the decentralized insurance space expands, these scenarios will undoubtedly emerge.

The bottom line is that digital asset insurance adds value to the marketplace in multiple ways. Like the broader cryptocurrency and DeFi industry, digital asset insurance platforms such as Insured Finance are set to disrupt the way the world views insurance.

About Insured Finance

Insured Finance is a decentralized, peer-to-peer insurance marketplace. Users can request customized insurance on a wide variety of digital assets, thereby ensuring full protection. Those fulfilling requests can earn premiums and earn a competitive return on their capital. Claims are fully collateralized and settled instantly.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store