For today’s episode we are going to Paris with Laurent Benichou, director of R&D at AXA. Laurent will introduce a famous blockchain case study called Fizzy, AXA’s blockchain flight delay insurance policy.
Blockchain in two minutes
A blockchain is a fully distributed database. This means it has no single point of failure and no central managing authority.
Blockchain’s technical characteristics, such as its immutability and cryptographic verification, create numerous convenient features including fast and easy payments, smart contracts and the ability to indefinitely store information.
Fizzy is a fully automated flight delay insurance policy that runs on the Ethereum blockchain and allows customers to get indemnified as soon as they arrive to their destination. The process is fully automated, with a smart contract deciding whether customers are eligible for indemnification. This means no action is required by eligible customers to claim their indemnity.
AXA fully supported Laurent’s idea. Deploying Fizzy, which began development in late 2015, was easy from an internal point of view. This is because AXA is aware of customer pain points regarding flight delay insurance:
- Coverage exclusions reduce customer satisfaction as they can lead to cases where the policyholder is unaware whether they are covered or not.
- Customers do not know when they will be compensated.
- Customers have to provide proof of delay. This is a cumbersome process involving contacting the airline to provide proof and sending it over to the insurer.
AXA was excited to create a product that efficiently deals with these challenges. Fizzy is very transparent with no claim forms, proof of delay or other paperwork involved. These issues are all automatically dealt by Fizzy, which notifies the customer that the policy has been purchased successfully, that it is stored on the blockchain and that compensation has been completed. In that way, AXA tries to create trust between itself and its policyholders.
If you would like to find out more about the process behind launching Fizzy, Laurent has written a blog post which you can find here.
Fizzy’s value proposition
Fizzy’s value proposition for AXA revolves around rebuilding trust in the insurance system.
Despite AXA being a party to the transaction, Fizzy will reinforce trust by ensuring total transparency in making policy payouts. As Laurent puts it, “it’s not the insurer, it’s the smart contract on the blockchain” that will decide whether the policyholder is eligible for indemnification.
This means that unlike traditional flight delay policies, where not every eligible policyholder asks for their indemnity due to the cumbersome process, Fizzy guarantees that every eligible policyholder will be compensated. Laurent is confident that customers will be willing to pay more for that guarantee, a necessary condition as paying every eligible customer means the price will need to be adjusted to retain margins.
Having said that, Laurent is keeping the same margin for Fizzy as for other products (and perhaps even a lower margin for the first years). Fizzy is more about increasing customer-centricity than directly improving AXA’s profit line. In that way, AXA can build trust between themselves and their customers.
We cannot but notice how both Laurent and Stefan from Etherisc (which we covered in a previous episode and provides its own flight delay blockchain product) stress the importance of customer-centricity and using blockchain to rebuild trust in the insurance industry.
If you want to find out more about blockchain’s potential to create trust, you should check out our episode (Blockchain vs. the Insurance Trust Deficit) on blockchain and the insurance trust deficit.
2. Learning exercise
Another benefit of Fizzy is that it helped AXA better understand blockchain. Laurent tells us launching Fizzy helped the team develop a better understanding of how mature the technology is and how to successfully use it for other products.
3. Cost reduction?
Unlike other blockchain products, cost reduction is not a priority for Fizzy. Fizzy is all about creating trust and putting the customer in the driving seat. However, we can see how the lack of paperwork makes life easier for every party involved.
As with any new technology, developing Fizzy came with its own set of challenges:
One of the challenges in launching a blockchain product is building a business case. A lot of important aspects, such as projected revenue and cost efficiencies involve educated guessing.
While it was clear that Fizzy could help resolve customer pain points, it also involved a leap of faith. Fizzy’s revenue potential was less clear and Laurent had to do a precise business plan to convince his managers. AXA management understood Fizzy is a completely new product that involves educating customers and distributors and revenue will not be immediate.
Regulations add another layer of complexity. Unlike other R&D projects, in which the development team completes the project and then passes it to another team so that it gets industrialized, finding the correct regulatory framework was a challenge for Fizzy.
The Fizzy team had to connect with numerous entities within AXA to get Fizzy up and running. For example, it had to find out which entity within AXA had the proper licence to sell Fizzy and which entity can get Fizzy reinsured.
The regulatory complexity might come as a surprise as it is easy to see why regulators would love Fizzy: it provides great customer value in the form of clarity and certainty. While French regulators are supportive of Fizzy, what they also want is to ensure it functions in a way that does not endanger the airline and insurance industries. For example, the policyholder should not be indemnified more than the loss suffered. An excessive payout would incentivise people to delay flights.
3. The technology
Another challenge Fizzy faced was the technology. While in theory it is easy to work out the system architecture, providing the full automation of Fizzy was quite complex. Automation, from purchasing the policy to payout, is a continuous linear process that should not stop at any point. However, existing legacy technology means this was not always the case. For example, a server might turn off at night because that worked for previous products.
Laurent informs us that with a good technical team, this is a challenge anyone can manage.
It is arguable that Fizzy could have launched using existing technologies, such as a central database working in combination with a series of APIs. Such an implementation would work with most aspects of Fizzy’s customer-centric layout, such as automatic claims and payouts. However, it would miss the opportunity to add further trust in the relationship between insurer and policyholder by having the smart contract, instead of the insurer, decide whether the customer gets indemnified.
Additionally, while Fizzy is currently limited to euros, Laurent is hopeful that in the future people will be able to pay in Bitcoin and Ether. When customers pay in Ether the smart contract will not only decide that a customer gets indemnified, it will also make the payment to the customer’s Ether wallet. This will make Fizzy even faster and add further trust to the transaction.
Fizzy launched on September 2017, starting out with just a few routes from Paris Charles de Gaulle airport to the US before expanding to Italy. This was not enough to make Fizzy immediately profitable and Laurent is currently looking at creating partnerships.
Potential partners include online travel agencies, airports and travel apps. Fizzy made the first test with a partner this summer. This helped scale the product, which has already sold around 11,000 policies, making Fizzy the top user of the Ethereum network. We’re glad to see Fizzy giving the CryptoKitties a good run for their money!
Fizzy in the Ethereum community
With Ethereum being a public blockchain, Fizzy is in constant interaction with the Ethereum community. Due to AXA’s size, it was impossible for Laurent to fulfil all community standards right from the outset, such as publishing Fizzy’s smart contract. Despite that, the Ethereum community welcomed Fizzy and has provided Laurent with invaluable feedback on improving Fizzy. The positive relationship between Fizzy and the community stems from the fact Fizzy has the right objectives. It works on a public blockchain, published its smart contract in June and made known its data provider, FlightStats.
Laurent has an ambitious schedule set for Fizzy:
- Add more routes. Fizzy currently covers 16% of worldwide routes. Laurent aims to reach 70% to 80% by the end of the year.
- Expand to more countries. Laurent plans to expand Fizzy beyond France and Italy, aiming to open throughout Europe and in Asian countries.
- Opening a partner portal. Selling B2B is a key aspect of Fizzy so an efficient partner portal is necessary. At the moment Fizzy has an API which allows people with technical expertise to access Fizzy but Laurent aims to make accessing Fizzy easier.
- Allowing people to pay in Ether and Bitcoin.
- Improve Fizzy’s oracle.
- Interact more with the Ethereum community. The community has numerous valuable proposals for Fizzy and Laurent wants to use this feedback to improve his product.
- After establishing a strong presence in the flight delay sector, Laurent sees the potential to expand in other areas, such as weather and agriculture.
Laurent gave us a great overview of Fizzy and how blockchain can rebuild trust in the insurance industry.
If you liked this episode please do review it on iTunes. If you have any comments or suggestions on how we could improve, please don’t hesitate to add a comment below. If you’d like to ask Laurent a question, feel free to add a comment below and we’ll get him over to our site to answer your questions.
Merci beaucoup Laurent!