During Bitcoin Wednesday’s Special Edition on 13 April, 2014, Michiel Berende, founder of RISKebiz will talk about the application of Blockchain technology in inclusive finance. In this case, he will explain the field of microinsurance where he has many years of experience.
Opportunities for Blockchain Technology in Microinsurance
Microinsurance faces a number of challenges like, for example, in claims processes. An insurer cannot be viable if the cost of insurance claims exceed funds (e.g. in a risk pool) that are available from insurance premiums. For microinsurance this situation poses particular challenges that are different from those faced by traditional insurance companies.
Efficiency in claims administration is a particular challenge. Microinsurers must handle high volumes of small claims. They also need to control fraud, but must balance this factor carefully against the costs of doing so. If a low-income household has to make an insurance claim, they have to be able to depend upon a fast and simple claims process. Issuing policies, collecting premiums and monitoring a central reserve pose similar problems. If the costs of these processes is too high a microinsurance product cannot be viable. These issues are the reason why insurance penetration rates in emerging economies throughout the world remain very low.
Michiel’s solution is to automate many of these processes, from premium collection, policy issuance, claims payments to monitoring of a central reserve, with something called a blockchain-based risk pool — basically with smart contracts and other blockchain applications. Weather index insurance is a perfect fit for smart contracts due to its relatively objective parameters. Smart contracts can automatically enforce legal agreements and execute commercial transactions in a way that reduces transaction costs by eliminating intermediaries.
Michiel Berende began his career as an underwriter and process manager for Dutch insurer Interpolis. In this role he supported the DHAN Foundation in 2004 in their search for microinsurance technology in India. This experience inspired him to resign his corporate job and to move to India where he helped establish a microinsurance knowledge center for the Tata – Dhan Academy. In 2006 he joined the CGAP Working Group on Microinsurance, which today is known worldwide as the Microinsurance Network. Beginning in 2007 Michiel served as a freelance consultant for the Microinsurance Network, PharmAccess Foundation, ILO, GIZ, IADB, Achmea, and many others. He has conducted projects in Asia, Latin America and Africa and has written and published many articles on microinsurance and technology.