Omni Fund: Insuring the Uninsurable With Blockchain
Omni Fund released the world’s first blockchain-powered community fund platform, as a cheaper, more agile and transparent risk-hedging alternative to traditional insurance plans
On Bitcoin’s 10 year anniversary, Silicon Valley-based Omni Fund released the world’s first blockchain platform for decentralized peer to peer insurance funds. Omni uses a blockchain technology called “smart contract” to replace human-run insurance companies as the trusted fund holder, reducing the cost of operations by several orders of magnitude. The savings in operational cost is then passed on to customers in the form of significantly lower premiums.
Omni Fund’s co-founder Zack Peng said that insurance premiums are high because insurance companies spend a fortune on operations, which are paid for by consumers. In 2017, insurance giant StateFarm reported a total earned premium of $42B, but paid out only $31B. That means for every $4 premium that a customer paid, only $3 is used toward covering their stuffs. However, the excess premium did not go in the pockets of StateFarm either, as it spent a whopping $16B on operations such as IT and management, and ended up with a loss of $4.2B before investment gain.
In contrast, smart contracts can perform almost all of an insurance company’s functions on a negligible amount of transaction fees. Smart contracts are special software that runs on the Ethereum blockchain. Assets are securely stored in smart contracts by cryptographic locks that have a billion more combinations than the number of stars in the universe, and managed autonomously by the smart contract’s codes that are publicly auditable and guaranteed to always execute by mathematics.
By eliminating the high cost of operations, Omni not only allows customers to pay lower premiums for the same coverage but also brings risk prevention solutions to verticals inaccessible to insurance companies. Zack explained that:
“While Bitcoin is banking the unbanked with sound money, Omni Fund is insuring the uninsurable with smart contracts. In the past decade, globalization and technological advancements created a large number of long-tail asset classes and career options. These long-tail verticals have risk-hedging needs just like mainstream verticals, and when put together is a multibillion-dollar opportunity. However, each of these verticals is too small on its own to justify insurance companies’ investment, and thus are left uncovered. Now, people can create their own risk-hedging products using Omni Fund’s tool to protect themselves, even if the vertical only has 1000 people.”
Omni calls the risk-hedging pools created on its platforms “community fund,” because they are decentralized and community-based. Zack says that Omni Fund is not an insurance company and does not profit from excess premiums, but instead charges a small flat fee for transactions on the smart contract:
“(Not profiting from excess premium) aligns our interest with that of the user. Insurance companies profit from excess premiums, so they are incentivized to charge as much as possible and deny claims whenever they can. By taking a flat fee from actual user activities, Omni Fund succeeds only if many people use it. That means we’re more incentivized to help each community fund grow.”