Insurance giant AXA has scrapped its Fizzy flight delay smart contract platform – one of the first mainstream commercial uses of the technology. The product, launched in September 2017, was based on the Ethereum blockchain and allowed customers to gain automatic flight delay payments via a self-executing element in the insurance policy.
The company told this site that the product did not meet its commercial targets and that there was insufficient demand.
During routine research into how smart contracts were doing in the commercial world it became evident that AXA was no longer operating the system, which had initially covered flights between the US and France.
AXA told this site it had been taken off the market at the end of last year. Fizzy had long been an icon of the wider use of smart contracts in the real world, i.e. outside of purely on-chain use cases.
‘We decided to discontinue the product Fizzy, which offered direct, automatic compensation to policyholders whose flights were delayed. The first product of Fizzy did not reach its commercial targets, notably because the market had not enough appetite for this product yet and we did not find the right distribution channels so far,’ said a company spokesperson.
The company went on to say that the experience had not put them off the technology, and in fact it had helped them to better understand it.
‘Fizzy has always been for us a product developed in a ‘test and learn’ mode, and the result is positive. We have learned a lot from it at different levels,
‘Firstly [in relation to] consumer knowledge: what new features consumers need from insurers and how we can use new technologies to solve pain points of the customers. Secondly on technology: notably through knowledge acquired about Blockchain and more precisely about Ethereum: how to build, fund, audit and operate a smart contract on Ethereum,’ they added.
They concluded by saying that elsewhere in the massive insurance company you could see other examples of automated payout products, such as with their Parametric insurance policies offered via its AXA Climate group.
In a think piece by AXA’s Climate team they state that parametric policies, i.e. that depend on varying external data to meet a threshold that triggers an automated payout, had five main benefits:
‘Because very parametric solution includes an index value(s) derived from independent, third-party data, payouts are triggered automatically when pre-agreed threshold levels are exceeded. That means the policy is not subject to interpretation or conditions or caveats, and the client knows in advance exactly what the payouts would be at each index value.
The second is the speed element. Once a threshold is reached, claims can be paid in days or, at most, weeks. These two attributes, objectivity and speed, are especially meaningful for governments looking for protection against natural catastrophes. There is considerable evidence showing that the overall impact of a natural disaster – both in terms of human suffering and economic damages – is lessened significantly when governments and private investors are confident payouts will be made shortly after a catastrophe occurs.
Also, as blockchains become used more widely, we’ll be able to embed the parametric triggers into the payment system so that payouts are made automatically and potentially in seconds.
The third is that parametric solutions are tailor-made. Each policy covers specific locations/facilities defined by the client, and the individual programme structures – index values, payout formula and coverage limits – are customised to the client’s strategic objectives, risk appetites and budgets.
The fourth is that parametric insurance is available globally. In some cases, it can be challenging to cover a particular risk because it’s located somewhere that is hard to get to or because the local insurance market is not well developed. With global satellites, we have weather data across the Earth; we can develop coverages for wherever they’re needed.
Finally, parametric solutions are cost-efficient. While we need highly skilled people on the front-end to develop the policy, we don’t need appraisers, attorneys or other technical specialists to resolve claims. And because it’s based on objective third-party data, coverage disputes, as well as potentially fraudulent claims, are not an issue.’
And note that last paragraph: ‘we don’t need attorneys or other technical specialists to resolve the claims’.
So, it would seem that AXA has not given up on the approach of having contracts with terms that self-execute and do not need lawyers to get involved with assessing and then executing the payouts.
Do you call these smart contracts? They would probably pass the definition test. How much of this approach will depend on blockchain tech remains to be seen. Of course, as explored before by this site, you don’t have to use blockchain systems to operate a smart contract.
Below is a short video from AXA that explains how Fizzy works. (1 min approx.)
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