Matt Peterman, co-founder of VouchForMe, shared his thoughts on using social proof and blockchain in the insurance industry.
Hello! What’s your background, and what are you working on?
I’m Matt Peterman, the co-founder of VouchForMe. For the last two decades, I’ve worked in private equity and venture capital companies. Especially in the last five years, my focus has shifted on insurtech or, to be more specific, to fraud detection and underwriting for biggest insurance companies such as Allianz, Groupama, Fosun.
Some years ago Tom Volk, the co-founder of VouchForMe (and also co-founder of ADACTA, a leading European vendor for insurance core software) and I came together to try to find an effective solution for the insurance industry that would benefit both: the carriers and insurance clients with one single end. To make the insurance fairer, more just and affordable. We formed VouchForMe (at that time InsurePal).
Today, VouchForMe is an online platform that enables lower insurance premiums by building trust between friends and family members. The online system is easy to use and excels with smooth user experience. The workflow is simple: the policyholder asks friends or family to vouch for him/her as a trustworthy individual with a financial commitment. In return, he/she benefits from a lower insurance premium. VouchForMe provides the framework for vouching and handles the legal and financial aspects of the process. The product sits on the concept of social proof - a psychological phenomenon in which people are influenced in their decisions and actions by mirroring other people or social groups. Each time we believe, buy or support something, we (usually) do it because we trust others who support the idea too. Every time we make a conscious choice about where to eat, we (subconsciously) choose the place with the best reviews. Trust is the keyword.
Blockchain sits on a premise of mutual trust, transparency, privacy, and traceability. As such, it has been a perfect fit for the implement social proof. Blockchain enables transparent and immutable storage of legal documents and transactions on a distributed ledger.
All involved parties benefit from the social proof concept: it simplifies the risk assessment and segmentation for insurance companies while creating favorable insurance solutions for the end customers. The VouchForMe product is designed for all those individuals who feel they are overpaying their insurance and feel they should benefit from a personalized approach to insurance without the extensive use of private data and information gathered by invasive technology (like IoT, machine learning and big data).
What’s VouchForMe backstory?
I’ve been in the insurance business for quite some time and I’ve witnessed the rise of insurance prices and the reduction of benefits to the good clients on the one hand, as well as numerous frauds and mischief on the other. This is when I became intrigued: what has happened to the integral values and how could we get insurance back on track?
Insurance is as old as society itself. Through the evolution of social systems, it became more and more complex. And complexity also brings different levels of categorization of insured parties, which are currently very unfair. Young and good drivers, for example, have an unfair disadvantage, just because of their youth. They pay full and expensive premiums, in other words: they pay for the mistakes of bad drivers.
With Tom, we’ve designed an accurate mathematical model, calibrated on a real motor market data which proved us that the top 1% of the safest drivers overpay their insurance for a whopping 80% and the top 10% overpay for 70%. We figured this is a valid point and decided to build a product that would solve the issue in a simple way. The question we had to ask first is, who can verify that you are a safe driver? Of course, there are many ways how to dig this info from various data sources, which can be a tiresome and complex process. How about the testimony of people who know you best, like friends and family? How could they prove to the insurance company that you are a trustworthy individual? In the finance world, the sole language is money. And here is the answer - trust can be proven by a financial guarantee. The more guarantors a person has, the more trustworthy he/she is. If the trust is misused, friends need to cover the risk.
We went even further with our ideas and thought about where to store this manifestation of trust so it cannot be manipulated, owned only by the one who it applies to, but at the same time accessible to whomever the owner wants to prove they are trustworthy. The answer was simple - the blockchain.
What went into building the VouchForMe?
In VouchForMe, we use blockchain technology in two ways. First, our token, IPL, can be used as a payment method when you pay the fees for using our platform. Second, we are using the distributed ledger as an alternative data store that works independently of our otherwise web-based platform. The classic insurance policy becomes a smart contract. The social proof endorsement is registered on a ledger and can be used in a variety of ways, across different insurance segments and even across industries.
In the future, our idea is to develop Social Proof TrustScore representing one’s trustworthiness will be calculated for each user (e.g. each blockchain node) and will work as valuable information. Apart from that, the blockchain brings transparency, agility, and cost-reduction in the sector that has resisted change and therefore, delivers value across the entire chain. VouchForMe dApps and smart contracts are built on top of Ethereum. Ethereum blockchain is our first choice due to its widespread acceptance within the blockchain community, carrying great future potential for our platform’s scalability, flexibility, and versatility in the long run.
What’s your business model?
VouchForMe is introducing a new model of risk selection, guided by the science of social proof. In other words, we use peer-to-peer endorsements to improve segmentation and lower premium costs. The distributed insurance platform has reinvented the science of social proof to work similarly as a third-party deductible. VouchForMe is suitable for everyone who feels they are overpaying their insurance and feel they can prove with their good behavior; they deserve better premiums.
The social proof motivates beneficiary behavioral patterns. And, blockchain’s immutable record is an impeccable way to store the social proof into the ledger. As such, it can serve as an important sign of one’s diligence and can be used to gain benefits across various insurances and even across different industries.
The simplest application of social proof would be in motor insurance: John’s best friend Mary knows he’s a safe and careful driver and therefore endorses him. For that, John ends up with a cheaper premium. If nothing goes wrong, that is pretty much it. However, if John files an at-fault claim, Mary is the one held liable.
The biggest threats for the insurance industry come in the form of new entrants, introducing peer-to-peer business models and/or niche products based on innovative technology. Both of the approaches better-serve the increasingly digitized behaviors of modern consumers, generating more than 16 billion in revenue in a few recent years.
What are your goals for the future?
For the near future, our goal is to successfully launch the first pilot projects in the car insurance industry and to prove the social proof model is working. This is the foundation for the growth phase. Next on our list is the development of alternative use cases to grow the VouchForMe ecosystem.
What are your future thoughts for the DeFi market?
The hype about blockchain and cryptocurrencies cooled down a bit (at least for the time being), but the business and tech world is unanimous: blockchain is here, and it is going to stay and evolve. How and with what pace is in the hands of everyone who participates in the development of the infrastructure and creates new ways of usage. By some estimations, there are about 20 million crypto users worldwide, which are 0,25% of the world’s population. Considering this fact, we cannot be surprised that there is still a lot of misconceptions about blockchain, cryptocurrencies, and decentralized apps (dApps).
The crypto is expanding from digital trading to something that will soon become a vibrant parallel economy. We are heading towards the decentralization of particular services and the primary point being positive effects for the end-users. To get there, we need to overcome some critical milestones: increased performance, interoperability, reduced costs and complexity, supportive regulation, and more collaboration.