Ghizlane Loukili, a doctor in digital law, analyzes in this forum the opportunity that non-fungible tokens represent in the insurance sector, although the question of the “insurability” of NFTs arises.
Even if diversified players are getting involved in NFTs, the contours of the latter remain difficult to define, and the questions raised by its development remain numerous.
As risk carriers, insurers see them as a potential new “insurable material”, but tokens are also attracting interest due to the different potentialities they could offer to their insurance activities. However, there remains the question of the insurability of NFTs.
The development and sustainability of this market will depend in part on the ability of lawyers to reassure their holders, for whom NFTs are often, and perhaps above all, a means of investment. Establishing trust in non-fungible tokens through insurance seems to be a relevant reinforcement in several aspects.
A tool that increases the efficiency of the real world insurance industry
The blockchain technology on which NFTs are based is presented as a revolution comparable to that of the Internet, so it makes sense for insurers to be interested in the applications that can be derived from it for their own activities. In fact, once all the technical obstacles have been removed, and in particular the one related to the trusted third party, the blockchain could also constitute a valuable certificate of ownership to guarantee better traceability and optimization of authentication. The NFT will therefore become a tool for insurers.
Several manufacturers have already announced that they want to associate their vehicles to an NFT that contains all the vehicle data. A first step for a “safe” integration of insurance in the world of NFTs is selective coverage. Therefore, only NFTs we chain they will be insured, that is, those whose entire token lives on the blockchain and therefore presents less risk.
A tool that improves the efficiency of the insurance sector in the virtual world
Since 2021, Hong Kong neo-insurers YAS MicroInsurance have been offering microinsurance products to cover NFT owners against theft and loss of these digital items.
In the field of insurers, NFTs can be a great reinforcement in terms of prevention and coverage, but also in the loyalty of their activity.
The blockchain technology on which the tokens are based already makes it possible to speed up clearing and reduce management costs thanks to smart contracts that have the ability to execute automatically, without third-party intervention, as soon as an event occurs.
In short, the progressive development of parametric or index insurance would make it possible to dispense with the expert and guarantee a quick fixed remuneration to the insured. The insurance company of the future will be in the metaverse. Thus, as part of the development of new digital services to offer the insurance of the future, the insurance of tomorrow will be able to use it. This additional distribution channel now seems difficult to circumvent, as evidenced by the example of South Korean insurer Heungkuk Life Insurance, which joined the Korean metaverse alliance, which aims to create a national metaverse.
Legal gaps to fill
The question of its insurability, in other words, “what specifically is insured in the case of NFTs?” or even, “what is the purpose of the insurance?” – is a more than complex issue that is subdivided in the law into two main levels of questioning.
Thus, to the question “what is likely to be insured?” », it seems obvious that this question must be preceded by a prerequisite, namely the definition of the notion of NFT. You must define these components and how they work. Once this set is legally well integrated, the second step is possible.
The second question is a corollary question to that of the outlines, but also to the various obstacles that may arise to cover the risks associated with this new type of asset.
The milestones of “insurable material”
The insurers’ lack of hindsight on the insurable object is a deplorable reality that makes it even more difficult for those who wish to claim insurability, a situation that, in fact, increases the difficulties in drawing up the contours of the insurable material .
Indeed, the non-expendable pledge is difficult to describe precisely, even when its characteristics make it closer to a law degree.
A two-step reasoning can be adopted with respect to the NFT, to extract from it the insurable matter: what it is and what it is not.
A first report issued by the Higher Council for Literary and Artistic Property (CSPLA), published on July 12, 2022, underlines that NFTs would not be compatible with this field. Indeed, for its speakers, NFTs cannot be similar, with some exceptions “nor to a work of art within the meaning of the Intellectual Property Code, its smart contract cannot, in the state of observable technical capabilities, contain the underlying file in the blockchain […]nor to a certificate of authenticity, in the absence of any third party verifying the authenticity of the associated file or its authorship.”. The absence of economic rights in the associated digital work could seriously disrupt the already fragile NFT market.
The purchaser is only granted a right of use, accompanied by variable rights of commercial use, which may seem relatively small given the often very large sum paid during the acquisition and which therefore makes the insurance cover of this type of participation is less relevant in the absence of copyright.
The willingness of NFT holders to be insured is an important issue. Probing the spirit of the latter, one can realize that there is a built-in speculative philosophy among buyers. Thus, the loss of value is an element assimilated from the beginning.
The question of whether NFT holders themselves want to pay a premium to cover certain risks, should they materialize, remains unanswered. Regarding the question of the NFT related to a unique work of art, the reasoning is different because the insurance interest is specific in case of loss or theft.