AXA, one of the largest insurers in the world, has put up on the Internet the first so-called parametric insurance contract that compensates airline passengers automatically for flight delays of more than two hours.
Technology underlying Bitcoin to pay claims automatically
In September, AXA went live with a website where airline passengers between the United States and Paris in either direction can buy insurance on-line that will automatically pay them the policy’s indemnity if their flight is delayed for more than two hours.
While the new product called “Fizzy” is in a test phase presently, AXA see it as a harbinger of new insurance products using blockchain technology that makes the contract transparent, secure, and self-executing.
How does Fizzy work?
A traveler with an airline ticket can buy flight delay insurance on the Fizzy platform. The insured puts in their ticket number and consents for AXA to verify their seat on the flight. Once verified the insured pays the premium, say $5.00, with a credit card. The insurance purchase is recorded in a tamper-proof blockchain network. The insurance contract contained in the blockchain network is equally tamper-proof and operates as a smart contract. It can automatically perform the terms of the contract upon the happening of a particular event, in this case the arrival of the flight with a delay of more than two hours.
This Fizzy smart contract is connected to global air traffic databases and monitors flights with insureds who have purchased Fizzy’s flight delay insurance. If an insured’s flight arrives more than two hours late, the smart contract’s programming initiates a credit for the agreed compensation, $100.00, automatically to the insured’s credit card.
The payment is made immediately when the flight delay registers and without the insured having to make any claim with AXA. AXA delegates the compensation decision to the independent blockchain network that operates independently of the insurer thus increasing the insureds confidence in the certainty of the payment under the policy.
Parametric insurance transactions
AXA labels Fizzy as “parametric insurance”—insurance that automatically pays when an event trigger occurs. Parametric insurance with smart blockchain contracts is a developing insurtech area that holds the promise for self-executing insurance contracts: Contracts covering a wider variety of risks at costs that would otherwise not warrant any product development.