Etherisc is a platform that allows insurers to build parametric product, and longer-term could support a decentralised insurance value chain.
The hypothesis is thus: insurance has evolved into an inefficient industry focused on profit maximisation rather than being a social good. There is an asymmetry of negotiating power between individuals and corporations, and the company suggests that regulation is a blunt tool for managing this imbalance. There is an opportunity for individuals, companies and associations to lead the digital transformation and build a new model.
Etherisc provides the infrastructure to support this transformation. Short-term, Etherisc facilitates the rapid development of parametric products using smart contracts. Etherisc’s first product was a flight delay app (similar to Axa’s Fizzy), which proved the end-to-end blockchain model. In July 2019, Etherisc launched a Sri Lankan crop insurance product based on a weather index with AON, Oxfam and Sanasa, a local Sri Lanka insurance company.
Longer term, Etherisc sees an opportunity to support a decentralised insurance value chain (sometimes described as a ‘modularised’ value chain). Whilst parametric products shift decision-making authority from the insurer to data (the ‘oracle’), the model could provide the infrastructure to bring different parties together in a risk pooling platform. In this world, there is no need for traditional insurers to be the capital providers – captive cells in Malta could be a first stepping stone to more radical pools of capital such as pension funds.
The business was founded by Christoph Mussenbrock (banking and technology background), Stephan Karpischek (IT consulting) and Renat Khasanshyn (VC).
The platform is free to use and open-source. It is accessible by incumbents and new entrants alike. Rather than seeking funding in the traditional way, Etherisc conducted a Token Generating Event (TGE) in mid 2018 and collected about 8,000 ETH (c.$3.5m at the time), which were subsequently invested in the development of the platform.
THE OXBOW PARTNERS VIEW
|We came across Etherisc as they are speaking alongside us at the Munich Re Symposium on modularisation of the insurance value chain later this month.|
Blockchain vs. parametrics
It’s interesting comparing Etherisc’s ambition (infrastructure for a modularised value chain) with its early activity (parametric insurance). Parametric is currently in focus for insurers and incumbents alike – we have recently covered FloodFlash and Skyline Partners (which has also recently launched a weather derivative product in South Asia), for example. We have also notedthat parametric products could be attractive for some total loss claims in personal lines from both a customer experience and insurer cost perspective.
Blockchain, on the other hand, has gone quiet this year, which is in line with the forecast on our 2017 infographic. This broadly fits our view that incumbents and innovators will have more luck focusing on the business problem rather than the platform technology.
Modularisation of the value chain
The question for discussion at the Munich Re event is whether insurers (or a new generation of ‘end-to-end’ companies) will remain the ‘orchestrators’ of the value chain, or whether the value chain will be broken up into its components with different companies focusing on each link and passing risk on down the chain.
As a general point, we will argue that this is not a binary outcome. The value chain is already hugely fragmented both within elements (e.g. links to data anaytics providers such as RMS) and between them (e.g. facilities that allow for the separation of risk origination and underwriting).
Etherisc could be relevant in either outcome. First, its platform could allow insurers to remain the orchestrators of the industry by giving them access to new data sources and service providers in a way that they cannot do direct due to the burden of integration. This model is already emerging, for example through Guidewire’s partner community.
Alternatively, Etherisc could eliminate the need for a single industry orchestrator if it persuades actors to build apps and risk cells on its infrastructure. The model could work well for captives or mutual (such as P&I Clubs) for example. In this case decision-making power could transfer from insurers to the ‘crowd’ (i.e. other members of the mutual) who determine whether claims are covered. Others working on versions of this proposition are ‘industry startup’ B3i, and (somewhat more leftfield) Teambrella, a company we wrote about in 2016 and described as the “deconstructed tiramisu of insurance”.