Innovation and Economic Growth, Privacy and Security and Artificial Intelligence

Article Snapshot


Michael B. Abramowicz


Wake Forest Law Review, Vol. 50, pp. 671-709, 2015


So far, technology has not enabled disruption of the traditional insurance industry. However, cryptocurrencies like Bitcoin could support new decentralized insurance systems that bypass regulation.

Policy Relevance

A system of insurance supported by cryptocurrency would be difficult to regulate.

Main Points

  • In the next half century, an upstart business model could use technology to radically disrupt the insurance industry, avoiding regulatory restrictions and costs to offer insurance at lower rates.
  • Unregulated competition can test whether the traditional regulations are really beneficial; disruption of a regulated industry is most likely:
    • When the new unregulated business model is legal;
    • When existing regulation entails high costs;
    • When provision of the new service is decentralized and hard to control.
  • Cryptocurrency could enable an insurance company in one jurisdiction to offer insurance to those in other jurisdictions; third-party escrow agents could oversee the insurer's spending to block the insurer from absconding with the funds.
  • Alternatively, smart contracts and cryptocurrencies could be used to offer insurance without the involvement of an insurance company.
    • Participants would pay premiums into a fund using a cryptocurrency.
    • A decentralized peer-to-peer mechanism could determine whether a loss had occurred.
    • Periodically, the fund could be distributed to participants, with the amount of the payout depending on how much the participant had contributed and estimates of the risk of loss.
  • This cryptoinsurance system would be similar to a type of mutual insurance historically known as “La Crema.”
    • Each household in a village would annually declare the value of its property.
    • If a house burns, the homeowners would receive a payout of the amount they declared, so that those who made larger payments would receive more in the event of loss.
  • Traditional insurance regulation might be beneficial, as it is designed as consumer protection; for example, cryptoinsurance might undermine laws barring genetic discrimination.
    • Cryptoinsurance would be hard to regulate directly.
    • Regulators could confiscate payments to buyers of cryptoinsurance.
    • Regulators could require the purchase of traditional insurance rather than cryptoinsurance.
  • In the long run, market forces rather than the government will decide whether radical financial disruption is beneficial.

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