Global insurance company AXA has launched one of the first ever commercial applications of self-executing smart contract technology, aimed at the consumer insurance market. The smart insurance contract, which is based on the Ethereum blockchain and covers flight delays, is called Fizzy and is openly available on flights between the US and Paris, France.
Fizzy is an automated, digitised and consumer-friendly form of parametric insurance - where, instead of offering coverage that needs to be triggered by claims for any losses incurred in an event, payouts are automatically triggered by pre-agreed thresholds.
For instance, a two-hour flight delay will result in the automatic payout of €100 to consumers who have purchased the product at €5.
Parametric insurance pays using a proxy for loss, rather than responding to a specific instance of loss.
For a business, this proxy could be a specific event (say a hurricane - as opposed to the damage it causes), or when a parameter (such as an index, meter or clock) hits a pre-determined threshold. The parameter correlates to the losses – either directly (such as damage to buildings or crop losses) or indirectly (consumer/business interruption). This allows for a wide range of risks to be covered. Data available to map risks and estimate losses has increased exponentially in recent years.
While Fizzy is targeted at the relatively wealthy traveller flying between France and the US, the underlying mechanism and technology offers a user-friendly and easily distributed insurance product.
Change the parameters, and we could be talking about smallholder farmers whipping out their smartphones to purchase insurance for specific weather events (eg. a certain level of rainfall) that threaten to wipe out their earnings from a harvest.