Random Thoughts: Insurance and Bitcoin

Share this post:

A few week ago I saw an article online about the 16 trends the venture capitalists Andreessen Horowitz (of Netscape fame) are closely watching. #14 was insurance (!), #9 was Bitcoin. Time for some random thoughts on the combination of the two.

  • Let’s start with some fundamentals on Bitcoin, or rather cryptocurrencies in general. As an economist, I find the “currency” moniker a bit strange here, as currencies need to fulfill three criteria [1]: they need to be a medium of exchange, a unit of accounting and a means to store value. Bitcoin is definitely the first, could be the second but fails at the third – it is much too volatile to be able to store value. That might change, but some economists argue that it would need institutional effort.
  • As a medium of exchange, it has an advantage over ‘real’ money: it is really easy to transfer. For a country like the U.S. which still in parts has a rather antediluvian financial interchange system (sorry, couldn’t resist the dig – in Europe we’ve been paying wirelessly for a few decades now) that is a big thing, and the first insurer I read about that actually accepts payments in Bitcoin is American Century Life.[2]
  • Another often cited advantage is the anonymity of payments. In my view for insurance, that’s really a downside, as you do want to be sure the right person is paying the right premium for the right coverage.
  • Is implementing a Bitcoin interface to the legacy payment system worth the effort for insurers? For U.S. insurers I’d say probably, for others I have my doubts. For one, I am not convinced in the longevity of the system, especially once the limit has been reached, and on the other hand I am not sure how many users of the system there actually are/would be. Just anecdotally: my wife has been in business for three years now and not once has anybody asked to make the purchase in Bitcoin. Sample of 1, I know, but cryptocurrencies might be one of those areas where the echo chamber of the blogosphere magnifies the real effect.
  • On the question of longevity, check out Tim Harford gazing into the crystal ball.[3]


[1] Full disclosure: While I do have a graduate degree in economics, that was a. a long time ago and b. currency theory wasn’t exactly my favorite subject Winking smile

[2] Re: Storage of value, it is interesting to note that American Century Life doesn’t actually hold the Bitcoins but converts to USD right away.

[3] If economics is a foreign language to you but you are curious, I recommend Tim’s ‘Undercover Economist’ books.

Insurance Leader, IBM Institute for Business Value

More InsurTech stories

How early insurance blockchain adopters are driving practical value

As we roll into 2019, with renewed optimism and expectations, I like to reflect and look back at the year that was for blockchain in the insurance industry. Most reported efforts in the last two years were driven by industry innovators looking to learn about how to work with the technology. I worked with a […]

Continue reading

Fighting insurance fraud with blockchain

From my work in the fraud space, I see that the bad guys are always one step ahead of the good guys by exploiting gaps in the system. Insurance companies are investing heavily in subscribing to fraud intelligence, but they continue not to share intelligence to their peers, providers and agents to expand the observation […]

Continue reading

Random Thoughts: The Blockchain

For those who are not sure what a blockchain is: simply put, it is a distributed electronic ledger based on cryptographic principles. While is was developed as the ledger for the cryptocurrency Bitcoin, it is really separate from any currency – for example, it can be used as a ledger to notarize land transactions. [1] […]

Continue reading