By: David Randall, Ph.D.
(David Randall is Executive Director and Resident Scholar with the American Research and Policy Institute in Washington, DC. His published peer-reviewed research focuses on health care entitlements, health data analytics and the application of health information technology. Dr. Randall also serves as an Advisory Board member of the Solve.Care Foundation).
(Below is the continuation of The Coming Revolution: DeFi, Blockchain and Healthcare. Part I)
The insurance market and specifically the broader insurance markets surrounding the healthcare industry in the U.S. and around the world are a large and unique opportunity for the use of a blockchain platform and decentralized finance. The addressable market for the use DeFi is potentially very broad given the dollar volumes associated with the insurance industry and captive insurers specifically.
Captive insurance entities are regulated insurance arrangements that ensure specific coverages and can be tailored to meet the needs of specific insured. A “captive insurer” is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits.
Captive insurance is utilized by insureds that choose to:
- put their own capital at risk by creating their own insurance company,
- working outside of the commercial insurance marketplace,
- to achieve their risk financing objectives.
Given the nature of captives, it is a natural fit to be used in a DeFi application with a trusted insurance company that will ‘front’ or use their licenses to write the policy. Those that contribute the capital to the captive can benefit by sharing in any profits. There are many potential applications in using a captive insurance arrangement in conjunction with providers, telehealth solutions, and even specialized health systems.
Blockchain is relatively easier to program and to implement system-wide changes in comparison to changes made to legacy IT systems. The advantages of blockchain are obvious, but with any new technology, there are questions about efficacy and efficiency. This includes issues of interoperability, privacy, and data security. Blockchain applications and arguably the integration of DeFi with niche products and markets can address these questions of efficiency.
The use of DeFi in the healthcare space globally and in the U.S. specifically represents many unique opportunities to address market inefficiencies in high margin, highly profitable market niches. Blockchain has the ability to leverage a tokenized platform to address these market dislocations to enable greater transparency and to promote efficiencies. The use cases are potentially limitless as well as the profit potential for platforms that can leverage blockchain integration with DeFi products and services.
(Read on Part III here)
