PolicyPal ICO Review: The Integration of Insurance and Blockchain

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Startups are always trying to use blockchain technology to improve and disrupt traditional industries. In this case, that industry is insurance. Based in Singapore, PolicyPal is part of the emerging field of ‘insurtech’. It is looking to blockchain technology to improve and innovate upon traditional insurance offerings.

Before it launches its ICO in March 2018, let’s take a look at what this project is all about.

History of PolicyPal and the Team behind It

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PolicyPal was founded in 2016 after its founder and CEO, Val Yap experienced several personal tragedies that exposed gaps in the traditional insurance market. Chief among them was inefficiency in the documentation process. After her mother’s insurance claim post-cancer diagnosis was rejected, her family had to sift through a huge amount of documents to find out why. It turned out that a simple lapse they were unaware of had caused the policy to become void.

The second personal tragedy was the death of her father. Again, she had to go through a tedious and inconvenient process of visiting the physical offices of multiple insurer branches to find out the relevant policy coverage details.

She saw an opportunity in these inefficiencies and founded PolicyPal. At present, her small 14-member Singaporean team includes veterans from the insurance industry as well as the local startup scene.

PolicyPal’s Goals and the Current State of the Insurance Industry

PolicyPal’s goals are two-fold. The first is to increase access to insurance, particularly for the unbanked and lower classes in emerging market economies. According to a 2017 report by Allianz, growth in emerging markets will remain at a much higher level compared to the developed world, with China as the main accelerator.

Boston Consulting Group estimates a compound annual growth rate for life insurance of 8% to 13% through 2020 in Southeast Asia, where PolicyPal is currently targeting. In the non-life insurance segment, it estimates a 7% to 11% growth rate. This is because Asia still remains highly underinsured, and insurtech could be a key component of rectifying this. A 2017 report by UBS, titled ‘Shifting Asia’, says that insurtech could result in cost savings of around $300 billion per year by 2025 in the underpenetrated Asian insurance market.

The bottom line is that when it comes to insurance, Asia is at the forefront of future growth, and insurtech companies are leading the charge. The market opportunity for PolicyPal is there, although it remains to be seen whether they can successfully take advantage of it. It notes that blockchain technology offers two benefits for the insurance industry. The first is its immutability, which will improve documentation and reduce fraud. The second is smart contracts, which will enable automated policy claims, reducing costs and increasing efficiency.

The second goal for PolicyPal is to provide cryptocurrency insurance. With the size of the cryptocurrency market today, combined with the number of high profile hacks on crypto exchanges, there is a clear market need. However, PolicyPal is not the first one to think of this. Major insurers such as XL Catlin, Chubb, and Mitsui Sumitomo Insurance are already selling such insurance.

The PolicyPal Ecosystem

PolicyPal, like many other blockchain projects, has opted to use the Ethereum network to develop its products. However, as stated in its whitepaper, it eventually plans to move to its own blockchain due to the well-known scalability and speed issues with the Ethereum network.

One on end, PolicyPal has partnered with existing insurance providers, which will provide the actual insurance coverage. So far, PolicyPal has claimed to have partnered with 28 major insurance providers including big names such as AIG, Allianz, Zurich, and AIA. PolicyPal will integrate its API with the data of these partnered providers, allowing customers to purchase insurance products directly from the PolicyPal app.

PolicyPal’s Planned Product Lines

At present, PolicyPal has already integrated its API with its insurance provider partners. According to its whitepaper, PolicyPal’s API is already aggregating data from these providers to create customized customer coverage profiles and co-create new insurance products. Some examples of products that PolicyPal has distributed to customers include mosquito-borne disease insurance and retirement life insurance.

To clarify, these products that PolicyPal has distributed to its customers have nothing to do with blockchain. That part is still in development. These products are distributed through PolicyPal’s mobile insurance app. PolicyPal claims that it has about 32,000 users since the app’s launch in January 2017.

Note: PolicyPal is able to sell insurance since it is a Licensed Insurance Broker and Exempted Financial Advisor by the Monetary Authority of Singapore (“MAS”). It is also the first graduate of MAS’ ‘fintech sandbox’ a program designed to encourage innovation and reduce uncertainty in the fintech space.

So what blockchain-related products do PolicyPal plan to launch? In line with its two goals, PolicyPal is planning to launch a blockchain mutual aid insurance product and a cryptocurrency insurance product.

First Planned Product: CryptoProtect Service for the Global Market

This is cryptocurrency insurance covering liabilities for data breaches, network security, restoration costs, and hacker theft. PolicyPal says that it is in talks with an ‘AA’ rated global insurer as an underwriter. Eventually, PolicyPal may expand this coverage to include personal crypto wallets. It is also exploring whether premiums will be paid in cryptocurrency or fiat.

Second Planned Product: P2P Mutual Aid Products for Emerging Markets

P2P insurance is when a group of individuals pool their premiums together. It is also known as social insurance. This model allows people to select their own pool members, incentivizing a low-risk outcome for the pool and thus resulting in lower costs. Further, any excess funds in the pool after the coverage period are reimbursed to members.

P2P insurance is basically a risk-sharing platform, and while it is relatively new, PolicyPal is certainly not the first one to think of it. The only difference is that PolicyPal will automate policy underwriting and claims handling through its blockchain. It plans to offer four different types of insurance under this model: agricultural insurance, property insurance, personal accident insurance, and life insurance.

The fee structure for this is a monthly membership fee (denominated in USD), which will be proportional to the maximum coverage amount (also in USD). If a member’s account is depleted, there is a 30 day top up period after which the policy lapses. PolicyPal will take a small percentage of the premiums as administrative fees. This product will not be offered in Singapore, but rather the other emerging economies in Southeast Asia to start.

PolicyPal Development Status and Roadmap

PolicyPal did not start out as a blockchain project, but rather an insurtech project. Hence, its whitepaper and website (for the blockchain project) were only launched in January 2018. In the first quarter of 2018, PolicyPal aims to release a proof of concept for its CryptoProtect insurance and release the alpha version of the PolicyPal Network on the Ethereum testnet.

In the second quarter of 2018, PolicyPal aims to release both its alpha and beta testnet versions in new countries and officially launch its CryptoProtect product. The PolicyPal blockchain itself is only targeted to be released in the third quarter, together with its P2P mutual aid insurance product. Finally, in the fourth quarter of 2018, PolicyPal plans to expand into other countries and develop other new products.

PolicyPal’s Planned ICO

PolicyPal’s ICO is scheduled for March 2018, although the exact date is yet to be released. Out of the total PYPL token supply of one billion, 50% will be available for the token sale. The whitelist was capped at 8,000 but since not all passed the necessary KYC checks the number of people who will participate in the sale will be fewer than 8,000.

The hardcap for the token sale is 23,809 ETH, which at current market prices is worth just under $21 million. However, 17,809 ETH (~$15.7 million) has already been raised from a private presale, leaving 6,000 ETH for the public crowdsale. The private presale investors were likely from two blockchain-related funds: BlockAsset and Fenbushi Capital (which counts Ethereum founder Vitalik Buterin as a partner).

Does PolicyPal Have Questionable Token Economics?

PolicyPal says that every transaction on its blockchain will be subject to fees, quoted in PYPL. The fee amount will vary depending on the complexity of the transaction, similar to how Ethereum operates. However, this model raises some questions on the economics of the PYPL token.

Based on everything we know so far, the only function of the PYPL token is as gas for the blockchain and potentially for paying premiums for its CryptoProtect service. If this is the only function of the PYPL token, then what incentive would people have to hold it? As long as PolicyPal gives people the option to pay in fiat currency, the question of PYPL token demand will remain unresolved. One Reddit user also claims that he was kicked out and banned from PolicyPal’s Telegram chat for raising such questions, but this cannot be confirmed.

What are the Short Term and Long Term Potentials of PolicyPal?

PolicyPal’s Telegram group currently has about 23,000 members. This is fairly sizeable and indicates a decent amount of momentum (although there are very few articles written about it). Overall this is a positive for the short-term potential of the PYPL token, especially given the success of its private pre-sale. Its token sale will most likely reach its desired hardcap.

On the long-term side, however, PolicyPal needs to address the question of its token economics for it to be viable. Since PolicyPal did not start out as a blockchain venture, its current business model only involves fiat currency as the medium of exchange. It will have to figure out a way to integrate its PYPL token into its ecosystem that balances out demand for its token with the likelihood of user adoption. Right now, that question still remains unanswered.

What do you think of PolicyPal? Is its venture into blockchain a solid business decision or is it just riding on the crypto hype wave? Let us know your views in the comments below.

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