Blockchain technology and life insurance
What would you like to know
- Life insurers could start by using cryptocurrency as a substitute for gold.
- Some customers will see both cryptocurrency and whole life as an escape from fractional reserve banking.
- Rising inflation could prompt both insurers and consumers to experiment with more alternatives to the dollar.
In a booming crypto and blockchain technology environment, research such as “Bitcoin and Life Insurance” produces a wide range of content and topics.
Concerns ranging from the likelihood of life insurance companies moving towards acceptance of Bitcoin, to the involvement of major life insurers in purchasing large amounts of Bitcoin, to growing investments by major insurers- life in efforts to prepare to offer investments in Bitcoin (or other cryptocurrency), are all prominent considerations in the life insurance industry.
At the same time, “decentralized finance” (DeFi) – a key part of the Bitcoin and crypto infrastructure – is not only changing the game of finance, but appears to challenge the foundations of the current financial system. Regulators are now scrambling to address potential concerns and major crypto companies are responding in kind to educate regulators.
As the life insurance industry becomes more familiar with Bitcoin, crypto in general, and DeFi, the involvement and impact on the life insurance industry is still in its infancy.
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That being the case, this article will attempt to offer an overview of the current state of affairs related to the impact of Bitcoin and blockchain on the life insurance industry to date.
Next, we’ll take a look at DeFi, first looking at what constitutes modern financial infrastructure and its inherent concerns with currency devaluation, inflation, and centralized control.
Next, we’ll take a more in-depth look at what DeFi really is, and how it can have a huge impact on the current financial system in the United States and abroad.
Finally, we will consider the Bitcoin, Crypto, and DeFi horizon, as it may offer new opportunities for life insurance companies in the space.
The main mutual life insurance company, MassMutual, has a particular interest in Bitcoin. In December 2020, MassMutual bought 100 million bitcoins for its general investment account and acquired a stake in NYDIG, a leading provider of technology and investment solutions, for a Bitcoin fund.
The agreement between MassMutual and NYDIG regarding Bitcoin, was based on what MassMutual sees as the growing involvement of cryptocurrencies in the financial landscape and the demand from financial professionals and their clients to gain exposure to bitcoin.
“MassMutual continues to innovate and lead the pack when it comes to Bitcoin,” said Robert Gutmann, co-founder and CEO of NYDIG.
Other life insurance companies are starting to use blockchain technology, a cryptographically assured form of shared record keeping, to prevent insurance fraud and track records, file claims, etc.
For example, MetLife apparently uses Ethereum blockchain technology to add transparency and efficiency to the life insurance claims process.
There are many other questions related to Bitcoin, crypto and the impact on life insurance companies, such as when will various life insurance companies start accepting Bitcoin (or other crypto) as a medium. of payment. Where companies insuring cryptographic assets.
There are also related issues such as obtaining insurance for crypto. For example, Lloyd’s of London has an insurance policy that protects cryptocurrencies held in online wallets. Finally, there are many estate planning considerations such as taxation, identification and transfer of crypto assets to future generations.
DeFi is a growing ecosystem that makes it possible to make financial products of all kinds, from coins to digital art (NFT), available on a decentralized blockchain network.
The programmable applications and protocols created on the blockchain, first and foremost Ethereum, allow financial transactions to be executed automatically on the blockchain, through “smart contracts” without the need for intermediaries such as banks for brokerage houses .
Unlike a bank or brokerage account, government issued IDs, Social Security numbers, or proof of address are not required in the world of DeFi. DeFi transactions allow buyers, sellers, lenders and borrowers to conduct “peer-to-peer” transactions with only IT systems in place to mediate, thus eliminating the need for a business or institution to initiate a transaction. transaction.
So DeFi is not only changing the finance game but, in my opinion, challenges the current financial system by throwing the whole game board away. What this will mean for DeFi, remains to be seen.
So what would a world be like without traditional banks, and how does this relate to the life insurance industry?
The current financial model: Hub and Spoke
The modern financial infrastructure that most of us are quite familiar with is characterized by a “hub and spoke” model.
Key financial activity centers such as New York and London serve as hubs for the financial industry (banks and brokerage houses) which then influence economic activity at regional shelf level or nerve centers such as Milan or Mumbai .
Economic activity or difficulties then radiate rays to the rest of the economy.
Arguably, this model has worked quite well over the past 100 years; however, a few big issues revealed flaws in the existing code, pun intended.
For example, the relatively recent banking crisis that led to the Great Recession showed that a few problems with the balance sheets of a few large institutions tipped global economies into years of recession.