Infrastructure, Insurance, and Blockchain

Dan Robles, founder of The Ingenesist Project, hints at an intriguing intersection of the titled subjects. At a visionary level, he posits that professional engineers, the insurance industry, and blockchain technology may share a complimentary role together as a key to potentially unlock economic productivity. Robles' vision is compelling, but we need tangible examples of how this might work…

Insurance is not often described as an innovative industry, even though it constantly finds more sophisticated ways of pooling capital efficiently to lower the cost of risk. Conversely, infrastructure finance is often too easily called innovative just for its occasional use of private entities to borrow money to build things like water treatment plants. The double standard for innovation is striking with insurance being held up to Silicon Valley for comparison, and infrastructure finance to the Romans.

Granted, infrastructure investment is obscure and not at the forefront of our cultural awareness the way insurance and information technology are, and too few people wonder why they should care about where the funding comes from to build the systems that keep our lights on, houses warm, and the clean water flowing out of our refrigerator water dispensers.

As a society we spend trillions of dollars each year in hard infrastructure made up of machines, buildings, roads, pipelines, and vehicles that allow society to thrive. In both its creation and operation, infrastructure uses most of our scarce energy, materials, and labor, and it all becomes obsolete over time as it ages. These are cohorts of aging physical assets that have a manufacture date, and eventually die, or equivalently, obsolesce. The onus is on the insurance industry to see the analogy and act on it.

Enter life insurance...

Mortality of physical assets that make up infrastructure can be defined and observed objectively such that it becomes insurable with death benefits payable to policy holding owners of assets that obsolesce. Engineers know that infrastructure mortality is not only a life contingency problem, but an optimization one balancing the vast costs of manufacturing and construction against the even vaster costs of continued operation of aging assets.

By defining this problem in the context of insurance, we could bring the industry’s full actuarial talent to bear on what would essentially become a ratemaking and reserving exercise to assure the appropriate portfolio treatment of pooled, homogeneously grouped physical assets treated as mortality risks. Underwriting, reinsurance, and other industry resources would further assure the most efficient allocation of capital, and simultaneously provide a cheaper and less volatile risk-financing delivery method for the replacement of aging infrastructure.

Enter blockchain and the engineer…

What is missing from this model is that an insurance delivery method for aging infrastructure would suffer from information asymmetry, since the owner of the aging assets would know more than the insurer about their condition during underwriting and when filing claims. The licensed professional engineer provides the missing link as a third party adjudicator of asset condition and obsolescence for underwriting and claims handling, and a blockchain ledger of the engineer’s findings and stamp is a transparent way of triggering insurance benefits, leaving an immutable public record, enforcing performance guarantees, and creating a legacy of mortality data for actuaries to use.

The engineering profession, insurance industry, and blockchain technology as a whole could provide an executable demand model for infrastructure renewal that would be influenced by advancing technology, changing energy costs, and the aging physical condition of the assets themselves. It would provide the exact balance of resources needed for the optimal output of manufacturing and construction, and is a workable example of Dan Robles' tripartite nexus leading to increased productivity and prosperity.