Smart Vows

Smart Vows will allow new players to offer risk coverages and take a significant share of the insurance market.

Some companies make vows to their clients and default. Insurers have done this in the past and consequently a regulatory framework was once needed and eventually created. According to a Wikipedia entry, the purpose of regulatory insurance law is to protect consumers by (mainly): “Monitoring and preserving the financial solvency of insurance companies” and “Controlling market conduct and preventing unfair trade practice”. In simple terms, the rules of the game the insurers must meet are: don’t be evil and don’t make promises you can’t keep.

Leveraging technology that exists today, it is possible to enforce these agreed rules, encouraging the entry of new market players to offer trustworthy vows without the need of traditional controls. We call these reliable promises Smart Vows and believe that, in the near future, a new set of centralizad and decentralized organizations will start designing and offering them transforming part of the insurance industry.

Smart Vows would fit as a subset of Smart Contracts bounded to conditional expressions involving future events . An example of one Smart Vow look something like this: Organization O vows that IF “Authority A states your home H burns”, THEN “will pay you X amount of USD”. For this example to work as a Smart Vow, it would require few things to be in place: 1. A trusted source of information (Authority) responsible for heralding new events (This can be a prediction market or a reputable institution) 2. A transparent Proof Of Funds (POF) mechanism, which is essential for the establishment of trust among policy holders (an Ethereum contract can hold an amount of assets equal or greater that to the sum of all coverage limits) 3. Availability of information for scrutiny and performance analysis 4. An identity system that facilitates the association of a specific policy with the property ownership.

Security of the system.

Cryptography will enable the encryption and source authentication of new events notifications. Honesty of Authorities will be motivated by establishing coverage limits. This means that the reputation of Authority A has to be economically more valuable than the aggregated amount of coverage limits associated with a single event. The validation of policy conditions (vow logic) can be programmed into an open source Ethereum contract that will, besides the validation process, automate the claim payment process.