Michael Spiar, Member Engagement & Communications Specialist | Saskatchewan Broker, May 2016
Despite being around for several years now, the only thing certain about Bitcoin – an unregulated, global digital currency developed and maintained by the tech community – is that its future is uncertain. The insurance industry could be excused for being more skeptical than most, as a new form of money that exists outside of any government backing and is subject to wild fluctuations in value is the very definition of risk.
Plus, its relatively low adoption worldwide meant that it was easy to ignore and view Bitcoin’s evolution from a distance. We have had our opportunity to sit back and observe. So just where does Bitcoin stand?
Bitcoin was developed during the height of the 2008 global recession, largely as a means of decentralizing the global reliance on banks to process and provide an authoritative record of financial transactions. Leveraging a new data-storage solution known as the blockchain, the community of Bitcoin users itself would lend its computing power to constantly record and confirm financial transactions. With verification by multiple parties instead of one authoritative institution, Bitcoin transactions would be trustworthy and borderless, facilitating democratic e-commerce around the world.
Opportunities for Insurance
One of the clear drawbacks of Bitcoin when compared to national currencies is the lack of insurance. The Canada Deposit Insurance Corporation, for instance, provides insurance for deposits held in Canadian banks and other member institutions for up to $100,000, providing confidence for account holders that their asset is protected. Bitcoin enjoys no such government protection, and users whose digital wallets are hacked have little recourse.
BitGO, a leading digital wallet company, was the first such provider to facilitate insurance for its customers, partnering with XL Group underwriters to provide theft coverage of up to $250,000 USD. BitGO CEO Will O’Brien described the process of developing the policy as “a huge effort” and “not something that is easily attainable.” However, if Bitcoin’s steady growth in user base and transaction volume continues, it is easy to envision a future where everyday P&C insurers – and their brokers – will offer similar Bitcoin policies.
While Bitcoin enjoys steady growth, it has yet to fulfil the original vision of a truly democratic currency that serves the global community equally. One longtime Bitcoin developer, Mike Hearn, recently published a scathing commentary on medium.com declaring that Bitcoin is dead. Among his observations:
- Most of the computing power required to validate transactions is held by a few key players, effectively ceding control of Bitcoin to a privileged few
- Bitcoin’s steady growth has pushed the network nearly to its capacity, resulting in transactions that can take hours rather than seconds to process
- Those who control Bitcoin have refused to increase the system’s capacity
Democracy is often messy, and Bitcoin is not immune from this truth.
If Not Bitcoin, What About the Blockchain?
As mentioned above, Bitcoin is just one application of an underlying technology – the blockchain. It is the blockchain that relies upon community verification, and it may be put to any number of uses. In the fall of 2014, think tank Long Finance published a report highlighting several ways that the blockchain could impact insurance, including:
- To-the-minute tracking for virtually any type of usage-based insurance policy, such as for Uber drivers or Airbnb renters
- Reduced fraud by using the blockchain to confirm a claimant’s identity, claim history and current risk factors, allowing for dynamic and accurate premium adjustments
- The use of verified data from the Internet of Things to detect, adjust and pay out claims automatically, significantly improving the customer experience
The future of Bitcoin, to say nothing of the blockchain, is far from certain, but it should prove to be fascinating, and the insurance broker of tomorrow will have ample opportunity to take advantage of future developments.