tl;dr: the insurance industry sits protected by regulatory moats and distribution moats. They have nothing to fear, right? Depends on your timeframe. Here comes deInsurance.
I saw a commercial recently for the newest iPhone.
The feature they were highlighting was the capability for people to take “slow-motion selfies,” or what they deemed “Slofies.”
I thought, “so, they took the slow-motion feature that has been on the camera for a few years now and just made it so that you can do it on the front-facing camera?”
Don’t get me wrong.
I am old enough that I have moments when I marvel at how much handset tech has evolved since I got my first cell phone when I lived in Japan in 1997.
Yet, at the same time, I couldn’t help but wonder if this was really innovation (didn’t feel like it) and if the product is so advanced that these marginal features are the best they can do?
Interestingly enough, the commercial immediately before this (I was watching a football game with my son and daughter) was for a truck that had a new way of opening the tailgate. Two similar stories, back-to-back.
It felt a bit sad.
Sl0w Motion Innovation
This feeling, however, stood in stark contrast to how I felt after getting off a call with the founder of Nexus Mutual, Hugh Karp, and a leading insurance industry analyst.
Today, Nexus Mutual is the world’s leading (really, only) decentralized provider of insurance policies on smart contracts.
The $800 million that is “locked up” in Decentralized Finance (DeFi) are, for the most part, put into smart contracts.
As we have seen over the last few years, smart contracts are not bulletproof…and they may never be. The “DAO hack” is the most famous, but there have been others such as the Parity hack.
There are others and there will be more.
While “code is law” is great, there’s a downside which is, “if the code has a bug in it, it’s not easy to patch it, which makes it vulnerable to exploits.”
That’s unlikely to change. Humans write code (for now) and humans are fallible.
HOWEVER…and this is my favorite part of it (disclosure: I have a tiny amount of NXM tokens), a core fundamental tenet of open-source code is that anyone can inspect it.
This is true with smart contracts.
Any contract that is put “on chain” can be reviewed by anyone else.
This is the gasoline that makes the Nexus Mutual engine run.
Anyone who has reviewed the code can stake their NXM tokens for or against a given smart contract.
By putting your money where your mouth is, you are in effect saying “yes, I think this code is strong and not likely to get hacked. Plus, I’m so confident of it, that I’m willing to put my own money up against it.”
You can take the other side of the bet as well.
The amount and number of stakers on other side is what leads to the real-time pricing of a policy on a given smart contract. The more people who say that a contract is secure, the lower the price.
In return for the stake, a portion of the premium is paid out to those who backed it. Unless the smart contract is hacked. Then, they are the ones who lose their money because it is used to pay off the policy holder.
There’s a lot more to it than that (here’s a more in-depth write-up), but the idea of decentralizing risk and reward across all of the members of the mutual isn’t new. It’s just new for HOW it is being done.
The HOW is significant because of the number of people who can participate (basically anyone) and the products that can be cost-effectively offered (almost anything).
Today, Nexus Mutual only covers smart contracts and that’s likely to be the focus area for a few years to come.
As it should be.
One day, however, they will start offering insurance products that compete with those offered by traditional incumbent insurance companies.
Because of their cost structure and the fact that the benefits are returned to the members, it will take a very small amount of market share…initially.
Slowly, slowly, slowly…then suddenly markets where insurance providers are entrenched will become unstable.
It may take 20 years and it may not be Nexus Mutual per se, but the cost advantages and revenue sharing benefits that come from a decentralized, member-owned insurance mutual will ultimately be a disruptor.
Big insurance companies don’t even know (or probably care) about Nexus Mutual today.
I feel like I am watching a slow-motion movie of blockchain-based software eating the insurance industry.
That is what genuine innovation looks like to me.