What You Need to Know About Blockchain and 'Crowdsurance' A Q+A with REGA Risk sharing co-founder Sergei Sevriugin.

As we are extremely interested in blockchain, we discovered a very interesting company, REGA Risk Sharing which has developed a decentralized crowdsurance platform based on smart contracts, scoring systems and artificial intelligence technologies.

We interviewed REGA's co-founder and CEO, Sergei Sevriugin to understand more about blockchain and crowdsurance.

After being in managing positions in banks with extensive background in finance you decided to create your own startup in insurance sector. Could you tell why did you pick insurance sector and what problems do you see in insurance market today?
Sevriugin: We have been developing payment platforms and scoring systems for banks, retail chains and insurance brokers for more than 15 years. Our solutions are widely used in Russia. $35M pass through our platforms every month, all major retail chains use our solutions.

While doing all this, we noticed that traditional banking and insurance products were dying when blockchain was emerging. We thought it would be great if people had an opportunity to share risks with no intermediaries or brokers—an alternative option for conventional insurance. That's how REGA Risk Sharing was born: a decentralized blockchain-based crowdsurance platform, where people unite to accumulate private funds secured by Ethereum smart contracts to guarantee a compensation for unexpected loss.

You have founded REGA Risk Sharing company which does crowd insurance. Could you explain how does crowd insurance work and how is it different from normal insurance?
Sevriugin: Crowdsurance is an alternative option to traditional insurance which is based on principles of shared economy—the modern philosophy already well-known and working. We raise a new question. Since we are already sharing cars, homes, so why don't we share risks as well? The term "crowdsurance" stands for association of individuals joint into communities in order to share financial consequences of their potential risks. Such collective cooperation is based on the principles of autonomous decentralized organizations on blockchain and regulated by Ethereum smart contracts.

Crowdsurance is based on blockchain meaning it has extremely high level security. Additionally there are no insurers, intermediaries and brokers, instead all of the processes are being controlled and managed by programs and algorithms. As a result, the costs for the end user are significantly lower compared to conventional insurance.

The nature of crowdsurance implies a collection of reserve funds out of community members' contributions and is operating as a cascading system of pools: sub-pool, pool and super pool. The ability of such system to secure to cover the risks is tied to the capitalization of the super-pool: 80 percent out of each member's contribution goes to secure the pools, 20 percent—to develop the product and the platform. The more members (investors) join the community, the more potential risks can be covered.

REGA is a decentralized platform. For beginners, could you tell more about how blockchain and insurance connect together? What is the process behind it? And what benefit does blockchain bring?
Sevriugin: As consumers, we love shared economy. It gives us goods for its real value, a wider choice and, in general, makes life more convenient. The modern technology has reduced transactional costs and made sharing assets cheaper and easier than ever. In the world of conventional insurance, data aggregated by "Insurance Company A" can be used only by this company. In blockchain world, data is a commodity and can be used by everyone who is involved. If you can place your apartment on Airbnb, which is also a commodity, then you can also share the risks with other people and buy a policy not from insurance company, but doing peer-to-peer from a particular person or group of people. Naturally, when it comes to financial services, the risk factor is higher than in the Airbnb's example.

Until now, only insurance companies and banks "knew" how to do assess the risks. Blockchain technology makes this knowledge available and lets the community to take care of it. If we take care of risk assessment within the blockchain environment, we can keep funds outside traditional financial institutions. Blockchain and our platform bring people solutions together to create their own insurance products by creating the communities according to their needs. Risk sharing is managed by AI scoring mechanisms and smart contracts, meaning that its managed by community itself. In other words, thanks to blockchain technology, we can now store our money in the internet without banks. The next step for online financial development will be the internet of financial products where loans or insurance will be provided not by financial institutions but by the community.

We launched first crowdsurance product this March. The solution Lexi Club which helps pet owners insure their pets against accidents and illness with save up to 80 percent on the vet bills. It was tested on a base of 100 users. We're the only company in the field that has a working MVP for consumers and we want to launch next: gadgets, cars, property and eventually—health.

We went on ICO to raise funds to do all that: pre-sale is running now; crowdsale begins Oct 15th, 10AM UTM. We're aiming to attract to this crowdsurance party as many investors and end users as possible and build a community of people who share their risks together and spread the word around that the age of old insurance is coming to an end.

When it comes to business, can companies use your platform or is it only for individuals? If yes, could you explain the benefits for the companies?
Sevriugin: Yes, it is easy to reconfigure the solution to the business needs. The only difference between corporate and individual usage is in the scoring logic. To reshape the solution to the business we just need to know the specific need and risks of the company or group of the companies that they want to protect.

REGA Risk Sharing Platform is also an open source software system that will be available as SaaS for developers and for crowdsurance product creators. So, the companies will be able to create its own services by themselves or as additional service to their portfolio.

As artificial intelligence and machine learning are most trending topics today, could you tell how you integrate AI into your platform? Sevriugin: We use Microsoft AI instruments. Our platform consists of two main parts: off-chain and blockchain. The off-chain part is our own solution which is scoring and underwriting system that includes products and client databases, product matching engine and scoring/risk management modules. In blockchain we have several smart contract types: three level cascade pool structure including super pool, tokens, and smart contract factory.

To make application process more convenient for the client we apply machine learning and cognitive service to our scoring model. Our risk assessments engine based on facial scoring, where score is calculated based on the member's face photo. The model prototype is already developed and tested and gives about 70 percent accuracy. As any other AI solution in the world, it improves itself over time: the more data we have the better accuracy the AI gives. We use a bot framework which can be pulled up in any messaging platform: Telegram, Skype, Facebook messenger, Slack and web which is the main interface for the customer. This makes the interaction between the user and the platform very intuitive as you're not talking to the sales reps but you're texting, and get your risks covered.

When it comes to security, what are the main threats and constraints that could possibly affect insurance tech markets?
Sevriugin: Most obvious risk is fraud and scam. The holes in the regulatory framework, which is developing as we speak, give the bad guys an incentive to steal users' data and money. However, blockchain is all about transparency: everybody can see all information about every transaction and smart contract. Transparency provides security.

The second most pressing security issue - correct and precise scoring - in our case is already solved: in REGA base we have our own with proven efficiency scoring system. Plus, artificial intelligence and machine learning technologies give almost unlimited possibilities for constant tuning and improvement of anti-fraud platform algorithms.

However, I think the biggest risk is the lack of knowledge, not regulations. The market itself including users, people and counter-parties know so little about blockchain technology that it creates ridiculous myths and fear. We think that to create a product on blockchain in the era of digital transformation is not enough. The companies should educate market on how to use it, how it works and why it is secure. To correctly convey to the people the unique advantages of your product or technology what benefit it will bring to the end user. That is, actually, the evangelistic job and it takes time. In fact, we are doing that. It would be great if others would join us in this collective effort.

Can you share insights of how insurance market potentially could influence global economy in the upcoming 10 years?
Sevriugin: We should expect an appearance of the new regulations and politics for insurance industry. The insurtech development will cause the significant growth of insurance products and service portfolio globally. New products will appear to meet emerging coverage needs in a sharing economy. Digitalization of the processes and technology integration will affect the cost reduction and gain competitive advantages through the small insurtech business against large corporations and financial service organizations. The attitude towards insurance products will change from the product that has been imposed, to the product that is needed and useful. It will change the format of insurtech product consumption, people will get the opportunity to create their own insurance products without insurers, intermediaries or brokers. The overall landscape of the economy will shift to the crowd-created solutions and business models will become crowd driven.