Blockchain-Powered Smart Contracts for Pooled Annuity Products

Smart contracts are self-executing programs with agreements between buyers and sellers stored on a blockchain network. A blockchain can record and share data over a network, which has been closely associated with the application of cryptocurrencies. However, the underlying technology has more potential for broader applications outside the crypto world. The network can execute the transactions automatically when prespecified conditions are met. The creation of smart contracts on the Ethereum blockchain embeds the key features of decentralized financial (DeFi) applications (DApps), including decentralized network, peer-to-peer distribution, record-keeping ledgers and the immutable nature of transparency.

Pooled annuity products resemble a longevity risk pool where the plan participants share the risk via group self-annuitization. Existing studies have examined the product design challenges from a macroeconomic perspective, such as systematic mortality improvement, adverse selection and investment risk. The project aims to discuss product development with the emerging technology and the practicality of the framework on the blockchain network.

The adoption of smart contracts in pooled annuity products may create a revolutionary way to manage longevity risk and operate group insurance schemes. Young generations (Millennials and Gen X) embrace the new technology and are willing to manage investment themselves compared to Boomers. The main benefits are easy distribution and large scalability. The product can be distributed through the decentralized framework, reducing the fund administration cost significantly and making it easier to access for product participants on the Ethereum network. It will also improve the transparency of fund management and decrease the cyber risk involved in financial transactions.

Find the Q&A here: Q&A on 'Pensions - Inflation and Data Analytics'