Sergey Sevryugin, the CEO of the REGA Risk Sharing blockchain platform, told about the transformation of the insurance market under the influence of the blockchain.

CoinFox: The description of the Rega Risk Sharing project uses a new term - crowdsurance. Why did you decide to drop the term ‘insurance’?

Sergey Sevryugin: It would not be very correct to use the usual word ‘insurance’ for what we are doing. Unlike the classical insurance, in our case there is no insurance company, there is no centralized body to collect money from customers and then pay this money to the customers to cover their risks, there is no centralized body to take decisions on claims.

It took us a long time to find a word that would reflect the essence of the project. We thought to call it ‘joint’, ‘mutual’ insurance but it still made us think about the traditional pattern of risk insurance with the participation of the middlemen.

From the technical point of view, what we do is very different from the classical insurance. We have a community of people that join together to cover their risks. There are no middlemen. Everything is managed by smart contracts, everything is transparent and unchangeable thanks to the use of the blockchain technology.

The last but not the least: the very word ‘insurance’ has negative connotations for many customers.

This causes a negative attitude to the insurance. When speaking at conferences, we often ask people present in the hall: what is your attitude to the voluntary insurance? The answer is almost always the same – ‘bad’. That is why we decided to drop this negative connotation.

CoinFox: You declare that the use of the service will make it possible to cut expenses 80% on risk management. What will enable you to do this?

Sergey Sevryugin: In the insurance business, a great portion of the insurance premium is taken by the middlemen. Many insurance policies are bought not directly from the insurance company but through the broker or in retail, for instance, when buying airplane tickets on the website of the company. We have been working for 15 years on the insurance and credit market and we know that the broker fee can reach up to 80-90%. It is an honest robbery. Usually the customer does not know how much does a broker earn; had he known, he would not probably wish to purchase such a product.

However, on our platform, thanks to the blockchain and its transparency, the users will be able to see in smart contracts how much money was collected and from how many people. With such a transparency, a situation when a broker gets 80-90% of the fee would probably never emerge.

CoinFox: Please tell in more detail how the scoring works. Defining risks from just a photo sounds futuristic.

Sergey Sevryugin: It sounds as strange as calculating risks from your demographic data, and yet it is the most common insurance risk assessment technique.

How does the traditional scoring work? The customer fills in a standard questionnaire, telling his age, residence registration, parental status and caring responsibilities. These parametres are used to tell if the customer is going to be a good borrower. There are other parametres, incredible but confirmed by statistics. For instance, people whose address contains the term “blind alley” are usually worse as borrowers than those who do not have this term in their residential address.

An insurance company or a lender collects the statistics from the customers’ questionnaires, it is accumulated. Then the statistics or accumulated demography as it is also called, is supplemented by additional information about the borrowers: were they trustworthy, how often they had insurance events, for instance, how often their animals were ill. This information is treated with the help of certain mathematical algorithms, analysed and a certain behaviour model is worked out. This mathematical model, based on statistic data, will then give recommendations whether to work with this or this lender or customer. It calculates insurance risks and insurance premium based on the risk level.

That is how the ordinary insurance pattern works.

We went further and created our own pattern. We started to identify some demographic data from the photo of the animal and of its owner. We tested this pattern with the help of a programme of risk distribution for the pet owners. The photo makes it possible to identify the age, the sex and other demographic parametres with reasonable accuracy.

In what concerns the scoring, we did not invent something new: we replaced the usual questionnaire with some standard demographic information from the photo and added in our parametres some facial features which, as we found out with the help of experiments, influenced the insurance risk statistics.

CoinFox: Why will the platform start working first on the American and then on the European market? Why not choose the fast-growing Asian countries?

Sergey Sevryugin: We wished to understand the functioning of a product based on mutual insurance so we needed to find a niche where the competition is not too strong. By chance, we discovered that the market of pet insurance is very interesting. There is lots of money in this field. In Russia, there are almost no insurance companies on this market. Big insurers made several attempts but the products they put on the market were so expensive and complicated that generated almost no demand. We saw an opportunity and a free niche.

However, in Russia we met an obstacle which was the low demand. The absence of competition is a great thing but it also has a flip side: lack of demand for such a product. We found out that people never even thought about insuring their pet.

The Russian public does not have any comprehension or any experience of using such products. Such a market needs a lot more investment in marketing and public relations than markets where the people use voluntary insurance more often. That is why we started to examine more developed markets. After surveying the situation, we discovered that the US market is very interesting in this respect. They treat pets as if they were their children. Many companies are successfully developing in the sector, many products are available. However, the penetration of the pet sector by insurance products is still marginal, around 5%, but it is developing pretty quickly and has a large potential.

That is why we decided that it is worth-while to come with our product to the developed markets where the competition is not so strong and there are customers who are ready to comprehend our product.

CoinFox: The customers do not criticise the work of the insurance companies until when they stumble on what they believe to be an injustice in the payment of the insurance money. In the case of an insurance company, the procedure of dispute settlement is evident – it is a trial in a court. Where should the users of the platform appeal if they are unhappy with the amount of the insurance money?

Sergey Sevryugin: In fact, we are creating this court represented by our expert community. The experts are the holders of the Risk Sharing Smart Token. They are our jury that examines litigious cases. 

Our experiments have shown that a full automation without human participation does not yield such results as the involvement in risk management of both smart contracts and the members of the community.

It is important that there is no centralised body such as an insurance company to take a decision on awarding or refusing the insurance premium. The decision is taken by a community of the independent and therefore more impartial members of the platform. With that, the experts are interested to make a right decision.

CoinFox: What is the difference between your platform and the p2p insurance?

Sergey Sevryugin: They are similar. The p2p is more used in lending than in insurance. However, the p2p platforms do not use the blockchain, so there is no such transparency and there is a kind of a middleman, the company that aggregates and collects money from people, has a website, a platform. All funds are kept on the bank accounts of this company, all the insurance premiums are paid by the company.

We do not create a new middleman. Smart contracts are used to keep the money. We do not manage these funds, we do not keep them in our accounts. We are just the developers of the service and its smart contracts.

CoinFox: When building your blockchain platform, have you used the practices that you had previously used in your insurance and credit projects?

Sergey Sevryugin: Yes. For instance, to create the scoring system, we used information from the system of insurance and credit products we already had, with a monthly turnover of 30 million dollars. Within this system, we have amassed a relatively important number of photos. We were not interested in personal data, the photos were virtually depersonalised: we looked at them from the point of view of the usual scoring which is conducted in insurance companies and banks.

Having digitized these photos and using statistics on demographic data and insurance risks, we built up a pattern that makes it possible to identify with a probability of 70% whether this person is an acceptable member of a risk sharing community. We made this project together with Microsoft: they helped us with advice. It sounds futuristic but when you come right down to it, you discover that it is nothing more than banal math and statistics.

Interviews by Elena Platonova