Blockchain Insurance Whitepaper: How Igloo uses Web 3.0 to decentralise embedded insurance

Published on 02 Mar 2024, authored by:
Dr Jack Xia profile picture
Dr Jack XiaChief Actuary

Embedded insurance is rapidly making its mark, ushering in a transformative era where insurance products are seamlessly integrated with financial and ecommerce systems.

Thought leadership article

blockchain insurance concept


Embedded insurance is rapidly making its mark, ushering in a transformative era where insurance products are seamlessly integrated with financial and ecommerce systems. Both distribution platforms and insurtech innovators have recognized and adopted this paradigm, resulting in top-tier platforms transacting millions of policies daily. These transactions are facilitated by robust, scalable centralized systems backed by major cloud service providers.

However, while this model showcases immense potential, it isn’t devoid of challenges:

  • Centralized Control: Fundamentally, embedded insurance operates on a centralized capital foundation. This structure, while efficient, has unintentionally concentrated authority and influence, mostly among dominant industry entities. Such a centralization model risks dampening competitive spirit, curbing innovation, and may not always prioritize consumer welfare.
  • Human Dependency in Claims: Progress notwithstanding, the claims aspect of embedded insurance remains anchored to human oversight. This human-centric approach, though offering a personalized experience, is also a potential source of errors and subjectivity, possibly leading to biases in decision-making.
  • Inefficient Claims Process: A direct offshoot of human involvement is the potential delay in claims resolution. The reliance on manual oversight and processing can sometimes stretch claims cycles, translating into user frustration and dissatisfaction.
  • Reliance on Reputation: Current systems place significant trust in the reputation and operational efficiency of insurers and insurtech firms. This stands in contrast to the growing global emphasis on transparency in business operations.

Embedded insurance’s potential, particularly concerning decentralized finance, seems to have only scratched the surface:

  • Current Value: While the model has excelled in facilitating data integration and ensuring product compliance for insurers, its proficiency in tapping into the vast potential of decentralized networks is still in its nascent stages.
  • Technological Shortcomings: One glaring obstacle is the technological knowledge gap. Many trailblazers in the embedded insurance realm lack a profound understanding of blockchain technology and the intricacies of decentralized finance. This deficiency presents a challenge, wherein decentralized systems, while upholding their core principle, might not match the efficiency of established centralized systems.
  • Web 3.0 Incompatibility: The shift towards Web 3.0 sets a new benchmark for digital interactivity and operations. The demands of this next-gen internet evolution necessitate a harmonious merger of state-of-the-art technology and in-depth insurance acumen. Crafting such a balance appears to be a complex puzzle for current embedded insurance models.

The Advent of Embedded Insurance 3.0

In view of these challenges, we introduce a concept, ‘Embedded Insurance 3.0’. This innovative approach aims to resolve these issues and herald a new era for embedded insurance.

Embedded Insurance 3.0 transcends conventional operational boundaries by introducing a robust tech stack, thoughtfully designed to adapt to the dynamic demands of Web 3.0 ecosystem. It represents a potent fusion of advanced technology and comprehensive insurance knowledge, promising truly seamless, effective, and integrated insurance products for consumers.

This ambitious innovation, ‘Embedded Insurance 3.0’, is set to instigate a paradigm shift in the insurtech space. Let’s delve deeper into how this game-changing concept works, and how it’s primed to redefine the boundaries of embedded insurance.

The Evolution of Embedded Insurance

Embedded Insurance 1.0

Embedded Insurance 1.0 initiated the integration of financial services with insurance. It predominantly functioned as a partnership model, wherein an insurance company allied with a bank, gaining the license to sell its products to the bank’s customers. Despite expanding the consumer base for insurance companies and allowing banks to offer comprehensive services, it was invented pre-internet era and lacks the technology to support a smooth customer experience.

Embedded Insurance 2.0

Embedded Insurance 2.0 marked a digital evolution, emphasizing customer-centricity. Insurers transformed their processes digitally, offering customers increased transparency and control over their insurance workflows. A significant improvement over the 1.0 model, it leveraged digital platforms to boost efficiency and enhance user experiences, although still centralized, with insurers controlling the data and processes.

Embedded Insurance 3.0

Embedded Insurance 3.0 elevates the concept by embracing a decentralized network. This next-gen model not only seamlessly integrates insurance into every relevant service but also equips users with their own insurance policy tokens. This tokenization of policies embodies a critical advancement in customer empowerment and data privacy. The decentralized network fosters a transparent, flexible, and adaptive insurance ecosystem, facilitating personalized insurance offerings that evolve in real-time to meet customer needs and fluctuating market dynamics.

Embedded Insurance: An Evolutionary Summary

Embedded InsuranceDistributionTechnologyCustomer ReceivesAdditional Features
1.0Face-to-face agentPrinterA piece of paperRead the policy paper
2.0Digital platformAPIAn email with a linkCheck the policy and claim online
3.0Decentralized appBlockchainA token representing a policyTransparency and trading of tokens

Our Aims

Our ultimate goal is to engineer and implement a trustless, decentralized, and cost-effective decentralized insurance protocol. This innovative solution exhibits several distinctive features that set it apart from traditional insurance models, offering elevated efficiency and transparency.

A Decentralized Vision for Insurance

Traditional insurance companies operate as centralized entities, generating profit through risk pooling and keeping insurance premiums in their bank accounts. These companies are obliged to produce quarterly reports due to regulatory pressure, yet their portfolio details remain obscured. Disputes often arise, with customers frequently having to resort to regulatory bodies. This centralization is incompatible with the decentralization inherent in blockchain technology.

Our solution is an innovative decentralized insurance protocol where:

  • Policy details are recorded on-chain, providing public access to all interested parties.
  • Both the insurance premium and the pool of capital funds are held on-chain. No single user, including the insurer, can withdraw these funds.
  • Claims are processed and paid via algorithms that are publicly available on smart contracts, eliminating potential disputes over claim rejections.

Here is an illustration of the protocol:

On-Chain Capital Pool

Traditional insurance companies store their capital and insurance premiums in their own bank accounts, often leading to declined claims in order to protect profitability—even when profit sharing or brand building is a priority for the insurer.

In contrast, our decentralized insurance protocol prohibits storage of any capital or insurance premium in our wallet. All capital and premiums are held within smart contracts, and withdrawal is only possible through claims by policyholders, or profit-sharing after all risks have expired.

Decentralized Claim Management

Currently, insurance claims are managed and processed by a central authority—the insurer. This centralized approach often results in claims being denied based on black-box processes designed to enhance the insurer’s profitability. Such practices starkly contrast with the principles of decentralization.

We envision a revolutionary decentralized system that eliminates the need for insurer intervention in claim processing. In this innovative model, any user can directly file claims and trigger the claim-processing algorithm transparently coded within a smart contract. This ensures every legitimate claim is processed and paid automatically. Moreover, we have introduced a feature allowing third parties to file claims on behalf of policyholders who find it difficult to interact with blockchain directly. In recognition of their efforts, these third parties receive a fraction of the claim amount as a reward.

Tech Stack

Our technical framework incorporates several advanced technologies, carefully chosen to provide an efficient, reliable, and secure decentralized insurance protocol. Here are the key technologies we have integrated into our protocol.

Smart Contracts

Smart contracts form the backbone of our decentralized approach, transforming traditional insurance processes into a trustless, automated system. When a policy is issued or a claim is processed, the details are stored within a smart contract on the blockchain, acting as an unalterable and transparent record accessible by all parties involved.

Merkle Proofs

To ensure efficient data storage on the blockchain, we leverage Merkle Proofs. They allow us to authenticate a submitted claim against a policy in our database without needing to store all policy details on the blockchain. In essence, Merkle Proofs enable us to keep the Root Hash on the smart contract and authenticate the existence of an insurance policy within a portfolio at very low storage and computation cost.

Data Oracle

Blockchain data feeds platform such as Chainlink serves as a critical component in our protocol by acting as a bridge between the blockchain (on-chain) and the outside world (off-chain). It retrieves the required data, such as index values and policy details, from trusted off-chain sources and delivers it to the smart contract in a secure and reliable manner. The integration of Chainlink significantly enhances the functionality of our decentralized insurance protocol by allowing it to interact with off-chain data without compromising the security of the blockchain.

Through the strategic integration of these technologies – Smart Contracts, Merkle Proofs, and blockchain oracles, our tech stack is designed to meet the dynamic needs of the emerging Web 3.0 landscape. We aim to redefine the boundaries of embedded insurance, providing a seamless, efficient, and integrated insurance experience for consumers.

Process Flow Chart

In this segment, we will elaborate procedure of a decentralized index insurance system and explain how we leverage advanced technology to accomplish the objectives of Embedded Insurance 3.0.

Our system consists of three distinctive layers:

  1. A Distribution Channel, responsible for the collection of insurance premiums and the generation of coverage certificates for our customers, obviating the need for customers to pay premiums directly to the chain.
  2. Igloo Off-chain System, which serves as the bridge between the distribution channel and the on-chain system, introducing the technology required for a truly decentralized insurance system.
  3. Decentralized On-chain Contracts, designed to function independently, these contracts manage the portfolio and payout claims even in the event of the distribution channel and Igloo off-chain system’s failure.

Visual Process Representation

This graphical representation provides a comprehensive view of the journey of the whole process and how the three layers interact with each other. The details of the process are illustrated with an example in the appendix.

Key Considerations

We have considered the following during the design and development of the process: user experience, scalability, security, and transparency. The process is developed by prioritizing these factors.

Fraudulent Claims

In the event that a policyholder submits a fraudulent claim – by misrepresenting their wallet address, the claim trigger, or the coverage amount – the integrity of our system will swiftly counteract such attempts. This detection is facilitated through the Merkle tree proof, which cross-validates the submitted claim details with our policy database. If any inconsistencies are found, such as a mismatch in wallet address, the claim trigger not being met, or the coverage amount being inaccurate, the Merkle tree proof will not correspond. Consequently, this will lead to an outright rejection of the claim, safeguarding the system against fraud.

Zero-Trust Framework

A cornerstone of our robust validation system is its adherence to a zero-trust framework. In the context of smart contract execution, this means that the contract does not implicitly trust any source of data, even if it originates from the Igloo database. At the claims stage, every piece of data submitted is subjected to stringent verification.

This zero-trust framework ensures that every dataset used in the claim validation process must be consistent with the Root Hash stored in the smart contract. If the claim data is not consistent with the Root Hash, the smart contract knows that the claim data is not part of the original dataset and the claim is rejected.

This level of scrutiny ensures that our system remains secure, reliable, and resilient to fraudulent attempts, reinforcing our commitment to maintaining a decentralized and transparent platform.

Prevention of Duplicate Claims

To further fortify our system against fraudulent activities, we have put in place stringent measures to prevent duplicate claims on the same policy. This is achieved by maintaining an on-chain database of all claimed policy IDs.

Whenever a claim is made, the system cross-references the policy ID against this database. If the policy ID has been previously registered as ‘claimed’, any subsequent claim requests would be automatically dismissed. This not only protects the integrity of the insurance protocol but also guarantees fair treatment to all policyholders by strictly adhering to the ‘one policy, one claim’ rule. This ensures a transparent, fair, and trustworthy insurance ecosystem.

Third-party Claim Monitoring

Recognizing that policyholders may not always be in a position to constantly track their claims, we have implemented an innovative liquidation feature into our system. This feature opens up an avenue for third-party intervention, often referred to as ‘liquidators’, who can assist policyholders in making their claims.

Third-party Claim Process

A liquidator steps in by covering the gas fee and initiating the claim on behalf of a policyholder. This is a particularly useful feature for policyholders who may not have the necessary resources or time to continuously monitor the index value and trigger conditions. It simultaneously offers an economic opportunity for liquidators who are willing to invest their resources in claim submissions.

Compensation for Liquidators

In return for their service, upon successful claim validation, the liquidator is rewarded with 10% of the claim amount. This system is designed to be a win-win for both parties involved: the policyholder has their claim processed without the need for constant monitoring, and the liquidator potentially profits if the awarded amount exceeds the gas fee they initially covered.

This economics-driven approach has the added advantage of alleviating the burden on Igloo to monitor claims continually. It creates a self-sustaining system where liquidators are economically incentivized to make claims as soon as the conditions are triggered. By integrating this dynamic feature into our system, we ensure a proactive claim process that benefits all parties involved, improving overall efficiency and satisfaction.

Potential Capital Pool Deficit

In the exceptional circumstance where an influx of approved claims leads to the depletion of the capital pool, our system will not be able to provide further coverage. This situation is analogous to an insurance company becoming insolvent, an eventuality that, though rare, can occur in extreme conditions.

It’s essential to note that our commitment to transparency and accountability remains undeterred in such instances. Thanks to the inherent transparency of our blockchain-based system, all policyholders can independently verify the status of the capital pool. This transparency allows policyholders to monitor the health of the capital pool in real-time and make informed decisions about their insurance needs.

Our robust technology infrastructure aims to mitigate such risks as far as possible, but it’s vital for policyholders to understand the potential of this extreme scenario. As with any financial decision, it’s important to consider all risks before making a commitment.

Prototype Implementation

Our prototype for the embedded insurance system underscores several essential features, serving as the framework for our innovative vision of the future of embedded insurance. This system revolves around several core functions:

Data Feed: The primary feature of our prototype is the Data Feed, which currently leverages Chainlink’s price feed contract address. This functionality enables the system to acquire secure, tamper-proof data pertaining to various financial metrics. While this is an important initial stage, we aim to significantly expand this capability, incorporating any decentralized data feeds into the blockchain, and building a system capable of real-time processing of diverse and extensive information sets.

Index Data: In terms of Index Data, our prototype primarily considers the prices of dominant cryptocurrency tokens, specifically Ethereum (ETH) and Bitcoin (BTC). These tokens serve as reliable indicators of overall crypto market trends. Yet, our vision extends far beyond these specific tokens. We plan to incorporate any dependable index, thereby including data points such as weather patterns, market volatility, and various price indices. This expansion will grant us a holistic understanding of the financial landscape and other essential market and environmental factors that may impact insurance conditions and requirements.

Claim Trigger: Our prototype employs a Claim Trigger that activates when the index exceeds a predetermined threshold, a straightforward but effective mechanism for managing claims at this stage. As we evolve, we foresee a more sophisticated, dynamic trigger system where the claim trigger will be a function of the index, considering multiple parameters including the maximum, minimum, and average index values over time, as well as geographical factors. This advanced system will allow for nuanced, adaptable, and responsive triggers, enhancing the accuracy and efficiency of claim management.

Claim Payout: In terms of Claim Payout, our prototype offers a fixed payout per policy for clarity and simplicity. However, we see great potential for increased flexibility. Our future plan involves developing a payout system that can be variable, stepped, or tailored as a function of the index value, providing customers with more personalized payout options that better reflect their individual circumstances and needs.

Transitioning from our prototype to our future plan, we aim to bring about a paradigm shift in the realm of embedded insurance. With the integration of these ambitious features, we aspire to create a superior, customer-focused embedded insurance system that not only caters to the needs of contemporary consumers but also proactively adapts to their changing requirements.

Here is a summary of the features above:

FeaturePrototypeFuture Plan
Data FeedChainlink price feed contract addressAny decentralized data feeds to the blockchain
Index DataLeading token ETH, BTC pricesAny reliable index (weather, volatility, etc.)
Claim TriggerIndex exceeds a thresholdFunction of the index (max, min, avg, etc.)
Claim PayoutFixed payout per policyVariable, stepped, function of index value

Future of Decentralized Insurance

Our vision towards a decentralized future of the insurance industry is aliged with the decentralized economy of how businesses collaboratively work to minimize risks for end users as well as businesses.

DAO in Insurance

Decentralized Autonomous Organizations (DAOs) can play a crucial role in building our decentralized insurance vision by fostering collaboration and trust among different insurers, insurance brokers, and partners involved. It will help us building insurance products that are more secure in terms of claim protection to the policy holders, wider coverage and resilience among businesses. Through decentralized governance and automated processes, DAOs contribute to building a vision of insurance that is more inclusive, responsive, and secure.

There are key ideas behind our goal of building a decentralized insurance ecosystem:

  1. Collaborative Decision-Making:
    • DAOs enable decentralized decision-making, allowing various stakeholders to participate in the governance process. This can be particularly beneficial in the insurance industry, where multiple parties are involved in decision-making processes. DAOs facilitate a more democratic and transparent approach to decision-making.
  2. Shared Risk Economy:
    • Building the decentralized claim pool expands the scope for innovation and enforces trust among end customers as they have much reliable and future proof economic infrastructure that they can trust.
  3. Decentralized Claims Processing:
    • Using smart contracts within DAOs can automate the claims process. When predefined conditions are met, the smart contract can automatically trigger the payout without the need for a centralized authority. This increases efficiency, reduces fraud, and enhances trust among participants.
  4. Innovation in Tokenized Incentives and Insurance Products:
    • DAOs can issue tokens as incentives for members who contribute positively to the network. This tokenization can align the interests of participants and motivate them to actively participate in the DAO’s activities, whether it’s decision-making, risk assessment, or coming up with new ideas for building better products for the insurance industry.
  5. Interoperability among Insurance and Fintech Industries:
    • DAOs can facilitate interoperability among not only insurers but can establish and expand the scope of innovation via bringing the insurance and fintech industries to work together and come up with better products for end customers. The possibilities are endless for new type of product lines that will help in shaping a better future for the end customers.
  6. Community Engagement:
    • DAOs provide a platform for community engagement and participation. Insured individuals and other stakeholders can have a voice in the insurance processes, leading to a more customer-centric and responsive insurance model.


In conclusion, the future trajectory of our embedded insurance system is aimed at enhanced adaptability, precision, and customer-centricity. As outlined in our future plan, we plan to enrich the Data Feed to include any decentralized data feeds to the blockchain. We also intend to broaden the Index Data to comprise any reliable index, thereby covering a wider array of pertinent data points. The refinement of the Claim Trigger to become a function of the index and the transition toward a more flexible Claim Payout system are also part of our roadmap. Collectively, these advancements represent a transformative approach to embedded insurance, enabling us to better cater to evolving consumer needs and market dynamics. This paper serves as a blueprint for these future developments, underscoring our commitment to driving innovation in the insurtech space.


Here is an illustration of the flow of the complete process.

0 Initial State

At the outset, we presuppose a portfolio comprised of 1,000 policies with a Merkle tree Root Hash ab…7a and 10 ETH stored in the smart contract.

1 Pay Premium

For illustration purposes, consider a scenario where 100 policies are sold in one day. At this step:

1.1 Customers pay premiums and purchase insurance through a distribution platform

1.2 Platform transfers both the data and premium to the Igloo system.

2 Process Policy

Igloo provides a data processing layer before the policy information and premium are uploaded to the chain. This is required for the following reasons:

  • Customer may not have access to or experience about blockchain
  • The policy data has to be processed and efficiently uploaded to the blockchain
  • A centralized platform is required to support multiple platforms and product

The process for issuing policy is the following:

2.1 Process the data from the platform to Igloo Master Policy Database

2.2 Calculate the Hash of the data

2.3 Update Root Hash of the latest portfolio

2.4 Publish the data to public databases for third parties to have access

3 Update Smart Contract

The Smart Contract is then updated with

3.1 Transfer the premium of 1 ETH to the Smart Contract

3.2 Update the Root Hash stored in the Smart Contract

Following this process, the smart contract updates are as follows:

FeatureBefore Policy IssueAfter Policy Issue
Policies in Portfolio1,0001,100
Root Hashab…7abc…8b
Capital Pool10 ETH11 ETH

4 Liquidator Monitor Claims

In the system, we provide incentives for Liquidators to make claims for customers and make a profit from the approved claims. Assume that we set the rule that the Liquidator’s share is 10% of the claims. At this step

4.1 Liquidator keeps monitoring the potential claims from Igloo’s Master Dataset or the replica. Or they may keep a record of the data in their own database

4.2 Once they find a claimable policy, they make claims for the customer

5 Liquidator Submit Claims

Inare two policies in the portfolio where the condition for claims is that if the index is less than the Claim Trigger, a claim amount will be paid to the Policyholder Wallet.

Policy No.Policyholder WalletClaim TriggerCoverage Amount
10010x…aa1002 ETH
10020x…bb1103 ETH

Assume the current index value is 105, the first policy 1001 is non-claimable, while the second one 1002 is claimable.

6 Claim Submission

Our system leverages the robust functionality of Smart Contracts, where computational processes necessitate the payment of a gas fee. Due to the volatile nature of the index, which updates every second, the smart contract lacks the capacity to continuously monitor potential claims from the myriad policies in our portfolio, potentially amounting to thousands or even millions. Consequently, we must insist on manual claim submissions. Please be aware that a gas fee is required to authenticate each claim submitted.

To make a claim, a policyholder is required to provide information and gas to submit a claim to the smart contract.

  1. Information related to claimable policy number 1002.
  2. The necessary gas fee to enable smart contract claim validation.

Should the claim prove valid, the predetermined coverage amount will be remitted accordingly to the wallet.

7 Smart Contract Validation

Smart contracts streamline the claim validation process using algorithms coded in the contract. Here’s an in-depth look at the process:

7.1 Verification of Policy Ownership: The smart contract initiates the validation process by verifying the policy information submitted against the portfolio of policies. It accomplishes this by utilizing a Merkle tree Root Hash. It calculates the Root Hash from the submitted policy information and compares it with the Root Hash stored in the contract. Only those policies found within this tree that can result in a matching Root Hash are eligible for the claim process, ensuring a secure system that safeguards against fraudulent claims.

7.2 Index Value Verification: The smart contract then calls the third-party and trusted data source to check if the index value (105 in this scenario) meets the trigger condition (110 in this case). The index value represents a predefined condition that, when met or surpassed, permits a policyholder to make a claim. This data is retrieved using Chainlink, a decentralized oracle network that provides real-world data to smart contracts. By accessing real-time, reliable data via Chainlink, the smart contract can accurately assess whether the trigger condition has been met.

7.3 Claim History Check: Following index verification, the smart contract reviews the claimed policies stored in the Smart Contract if a claim on the current policy has been made previously. This step is crucial to prevent double claims on a single policy. The contract’s programming ensures it can efficiently track all past transactions and claims related to each policy, thereby eliminating the risk of double payouts.

7.4 Approve Coverage Amount: Once the above steps are successfully executed and all conditions met, the smart contract proceeds to pay the coverage amount, which is 3 ETH in this instance. The amount is directly transferred to the policyholder’s wallet (designated by the address 0x…bb). Blockchain technology enables this transaction to be both secure and transparent, ensuring that the rightful policyholder receives their due coverage promptly.

This streamlined, four-step process, executed through smart contracts, guarantees a fast, secure, and efficient claims process, reducing the need for manual intervention and increasing trust among policyholders.

8 Pay Claims

A claim is paid according to the rules specified

  • 10% or 0.3 ETH is paid to the Liquidator
  • 90% or 2.7 ETH is paid to the Customer

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