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InsurTech Quebec : the possibilities of the blockchain are endless in insurance

by

Alain Castonguay

23rd of April 2018 11:30

Jonathan Hamel

Even if he admits not to be an insurance professional, Jonathan Hamel is a strong proponent of the chain block (blockchain) and he believes that the possibilities are endless for the use of “smart contracts” in the various transactions where an insurance product is required.

According to Jonathan Hamel, founder of the Academy of Bitcoin and associated researcher at the Montreal economic Institute, 90 % of the articles that are circulating in the media regarding the blockchain, the Bitcoin, and artificial intelligence report of the inaccurate information.

It was pointed out during a recent appearance on the show Tout le monde en parle, where he gave the reply to Michel Nadeau. Mr. Hamel has a recognized expertise in payment technologies and cryptomonnaie such as Bitcoin or Ethereum. He is a member of the advisory committee on technological innovation, created by the financial markets Authority since January 2017.

System inspired by the blockchain

The traceability system designed by Optel to certify the provenance of the drugs is inspired by the blockchain, ” he recalls. In Asia and Africa, this system allows the development of banking services and alternative systems of mobile payment. “The blockchain allows to solve problems which were intractable before. “

This registry is distributed physically on the computers of all the users. The transactions entered in the register are time-stamped and signed cryptographically. This form of encryption is the same as that used in online banking to ensure the security of transactions between the consumer and the merchant.

The main advantage to register these transactions in the register is its character immutable. With an encryption key length of 256 bits, the computing power required to find the password and edit the registry represents a cost astronomical. “You have more chances to find the winning combination of the lottery 6/49 for nine consecutive editions of breaking the code of a key to 256 bits,” he says.

Synchronize information

“The blockchain allows participants to agree on a shared source of truth,” says Mr. Hamel.

Its use allows to solve an old problem in computer science known under the name of ” problem of the generals of the byzantines “. We can now reconcile and synchronize information in a distributed and decentralized. “The blockchain is not a technology in itself, but it is the result of the consensus of the Bitcoin,” he says.

To obtain this consensus, it is necessary that this register is not a central authority, and there must be an advantage to encourage the participants to join in. “There is no need to use the blockhain when the parties trust each other “, he explains.

An intersection of three concepts

The logic of the platform that allowed the creation of the Bitcoin is to provide an intersection where the three concepts occur and are reinforced, ” he says :

1) the theory of games, a concept recognized in finance stipulating that the players of a game, whose rules are known by all, will act to maximize their gains in a rational manner ;

2) the crypto, which allows to identify parties to a transaction in a unique way ;

3) the character of decentralized and distributed registry, which makes it immutable and very resilient to counterfeiting.

“We talk about virtual currency, but in fact, the Bitcoin is rooted in physical reality and mathematical in a way far more real than the present monetary system,” adds Dr. Hamel.

A PDF of nine pages

The entire world of the blockchain and the Bitcoin was launched, thanks to a scientific article published anonymously in 2009, which is in a PDF file of nine pages. “It is an innovation that is huge in economic science, in law, and I would say even in terms of political and social,” says Jonathan Hamel.

Not being an expert in insurance, he tried to show a few cases where the use of the blockchain generates interest, in particular for the fight against counterfeiting. For all luxury products, there will and a great desire to authenticate the provenance.

“There’s a wine producer who uses it since he has found that bottles bearing its trademark are sold in greatest number in China alone, than his entire annual production “, he says.

Issues of identity theft resolved

The problems associated with identity theft, as we saw in the summer of 2017 with the security breach at Equifax, could well be resolved. We might as well send you a confirmation of your identity and salary, which would obviate the need to store information on the systems of such a supplier, ” he explains.

For the moment, you can’t buy a coffee with a fraction of a Bitcoin, because the time of transaction are too long. But the network Lightning works to develop intelligent contracts that will be applicable immediately and will pay the compensation delays. The scriptures will be reconciled at the end of the day and are recorded on the permanent record.

Like zombies

Jonathan Hamel indicates that the notarized documents could be recorded in such a decentralised register. A good portion of the transactions handled by notaries could be automated.

“When I meet people in the legal community, I tell them that notaries are like zombies : they are dead and they don’t know it yet “, lance-t-il.

One rule and the problem of the evidence of the creation of a document. The author of the document can him add a footprint cryptographic. This hash is then appended to a transaction recorded in the register.

“What I want is to prove that I was the creator of the document at some specific time. (…) It then remains to prove that I am the holder of the private key which gave me access to the registry, ” he said.

Jonathan Hamel reminds us that this ultimate level of confidence is not useful for all transactions, but it certainly is for notarial acts.

Reduce the compensation delays

The compensation delays associated with a transaction would be greatly reduced by the use of the blockchain. “Again, the possibilities are endless. Any company that has had to make a transfer abroad knows the importance of this period. The provider waits for the payment confirmation before we deliver the cargo as promised. A lot of time and money are lost because of the friction in the system, ” he says.

The movement of the values is facilitated, even for large amounts, and always without consideration, which is innovative. “Even in 2017, it has transferred 40 000 Bitcoins, with a value of 325 million US dollars (M$), for a transaction fee of $ 1.35 per, and with a safety almost absolute “, he says.

Eliminate the middlemen

The technology of intelligent contracts, associated with Ethereum, is a more advanced version of Bitcoin. This is the script of a transaction that is triggered by an event any. Its content is transparent, predictable and unchanging. Once it has been published, you can no longer change it.

Ethereum offers a platform that looks like Amazon Web Services or Microsoft Azure. Its currency is used to pay for the enforcement of contracts, for example, a real estate transaction. “We rule all of the middle part, that of the intermediaries that have to validate the financing, for example, or notariser the transaction,” says Mr. Hamel.

All of these contracts only work with the cryptomonnaie. “If you need a counterparty to complete the transaction, the blockchain is useless and is no more efficient than any other system,” he says.

Contracts smart

These intelligent contracts can be used to address the problems of fraud associated with humanitarian aid, cited there as an example. It is possible to define in advance the rules that are required to free up funds and buy drugs or food. “The cryptomonnaie, it becomes the Internet of money,” he says.

This innovation becomes the missing piece of the puzzle that was missing in the collaborative economy.. We may monetize certain activities, e.g. to pay a minimum amount to read an article reserved to subscribers in the website of a newspaper. The same logic would be applicable to better compensate artists whose music is listened to in streaming.

For the movement of values, one already notes that the Bitcoin will dominate the market. There still persists a certain degree of uncertainty, platforms for intelligent contracts, because it is not yet known if Ethereum will succeed to dominate this segment. Mr. Hamel reminds us that it happened the same thing with the beginnings of the Internet, where Netscape, Altavista and Yahoo have dominated the search query before the emergence of Google.

Data warehousing

We saw the development of systems for the storage of data, such as FileCoin or IPFS, which distribute the information on thousands of computers around the world. We can write the same proof of work, combined with the blockchain by renting the disk space of users to drop off the encrypted data.

In health insurance, as we see in auto insurance, the consumer could give access to his biometric data and location-based issues of various applications. One could grant him a reduction of the premium based on the reduced risk, since it pays attention to his health by running or biking. This form of contract can be combined with other rewards to the customer, and the information is highly confidential, would thus never stored in the insurer.

The premium of an insurance policy for an entrepreneur on a business trip may also be adjusted thanks to geolocation tools, attesting to the duration of his stay in such a place.

Not yet in Quebec

The mechanism for the legal recognition of records in the registry of the blockchain does not exist yet in Quebec, but it is present in some jurisdictions in the United States, particularly in the states of Wyoming, Texas and Arizona, ” he continued. The registration of the contracts may be validated by auditing companies.

Some professions will disappear, while others réinventeront, ” he continues, giving the example of the bailiff. Currently, this officer of justice provides the eyes of the actors of the legal world. In a world where communication processes are automated, the bailiff could be the one that validates the existence of the conditions provided for the initiation of a contract.

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