fidentiaX is in the developmental phase of creating a blockchain-backed market for tradeable insurance policies. By basing this on blockchain technology it hopes to disrupt the insurance status quo – by empowering policyholders to monetise policies. fidentiaX will focus on building its operations within Asia before executing an global expansion strategy. In Asia, its key countries are Hong Kong, Japan, Korea, Malaysia and Singapore.
With its base in Singapore, fidentiaX will promote its concept by setting up the ‘fidentiaX Open Source Foundation’ (fSOF). The Foundation’s obkective will be to promote the embracing of blockchain technology by the insurance industry.
The tradeable insurance opportunity
In 2016 alone, the OECD estimated the market size for insurance premiums in the 40 OECD reporting countries as being >US$3.8 trillion. The expectation is that Asia will be the fastest-growing market for life insurance, with an estimated real annual compounded growth rate of >10%.
But the tradable insurance market possesses many inefficiencies. These include:
- lack of awareness: in general policyholders are unaware that policies are tradeable assets which could be sold in the open market (in 2015, out of the US$112 billion worth of policies surrendered in the U.S., 250K policies worth US$57B had the potential for resale).
- no recognizable marketplaces: the lack of any makes it challenging (if not impossible) for sellers and buyers to connect
- dependency on third parties: on the rare occasions when sellers and buyers connect, both parties often need to place trust in a ‘middleman’ to complete the transaction.
The fidentiaX marketplace and how it might work
fidentiaX’s marketplace have a membership-model. It will promote an ecosystem focusing on key stakeholders. It intends to provide the following services:
- policy ledger: this will break traditional reliance on intermediaries, by creating a digital ledger for policyholders
- trustless marketplace: the platform for buyers and sellers to connect and trade policies via a blockchain.
How might this work? Consider the following steps:
- List: Policyholders looking to extract value from tradeable insurance policies will submit the policies to the fidentiaX blockchain-powered platform, thereby gaining access to buyers on the platform; buyers can then browse and select policies which meet their investment objectives
- Offer: interested buyers will complete relevant documentation and deposit funds on the platform; sellers will receive notification that funds are secure; the relevant documentation will communicate between both parties
- Submit: the seller, armed with the assurance that funds are in-place, approaches the insurance company to effect the transfer of policy to the new owner; this will deliver to the seller documentary proof that policy has transferred
- Complete: sellers upload this documentary proof of the transfer onto fidentiaX blockchain whereupon verification occurs; After this verification, the documentation goes to the buyer and the funds releases to the seller (which occurs simultaneously).
What does this mean?
Insurance policies are notoriously opaque at the best of times. Insurance policy issuance and redemption is even more so. In general, the insurance industry has successfully perpetuated the separation of customers from the value of what those customers buy, except on the issuer’s specific terms. Put another way, it is as if the bank issues a mortgage and then tells you when and to whom you can sell your home.
Whether fidentiaX can succeed is open to question (there are others eyeing the same broad opportunity). It is far too early to tell. What attracts are the twin notions of eliminating middlemen (the estate agents for insurance policies) and opening up an electronic, blockchain-based ‘arena’ (marketplace) where sellers can find buyers. In the insurance industry this would be revolutionary.
As Darwin Bayston, President and CEO of LISA (the Life Insurance Settlement Association ) wrote in 2015: “The number and amount of lapsed life insurance policies by U.S. seniors over age 65 is astounding: more than 250,000 policies with a combined face value of more than $57B are lapsed and surrendered back to life carriers each year. The average face value of those policies is approximately $225,000. And that only includes universal and variable life policies that most people think are best-suited for life settlements. If term life is added, which often includes policies that are also attractive for life settlements, and ordinary life policies, the total exceeds $112B.”
And that is in the USA alone.