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A truly decentralised P2P Insurance

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Re: A truly decentralised P2P Insurance

#41

Post by j15t »

joosters wrote: post #6

How can Ethereum-based insurance products ever be competitive? For an insurance smart contract to work, all the money must be tied up in the contract (otherwise, there would be no way to guarantee that you could be paid out). But in the real world, insurers don't just leave their money sitting uselessly in a pot, they put it to work, investing it. So the smart-contract based insurance is always going to be less effic…

Just to be clear, most insurance companies have very strict risk management policies and almost exclusively invest capital in government bonds. As you are probably aware, these bonds have had very low rates of return in recent years - getting close to 0℅ yield (or even negative yield in some regions)

So I don't think the difference in efficiency will always be a significant factor.

In addition it is possible to create bond tokens on Ethereum, which might provide opportunities to invest the capital from premiums - provided that the bonds have sufficiently low risk.

Re: A truly decentralised P2P Insurance

#42

Post by notahacker »

mbrock wrote: post #38
joosters wrote: post #28

Earlier quoted context omitted.

It doesn't matter how many hops there are between the insurance contract and the money, if the cash isn't sitting idle on the blockchain, the insurance contract cannot guarantee to pay it out.

Just like how if an insurance company has invested part of its float in bonds, it cannot guarantee to pay for all losses simultaneously... right? I'm trying to understand what you think is the essential difference between an Ethereum-based insurance scheme and a traditional insurance scheme in this respect.

I'd guess it's a combination of (i) there's a not unreasonable belief that a human (or a trading algorithm that evolves over time according to human input) can do a better job of managing an investment portfolio than an immutable "contract" algorithm (ii) insurance companies tend to be much larger and better diversified than an individual insurance contract on the blockchain (iii) insurance companies are often considered to be "too big to fail" by governments even when they do screw up...

For Ethereum-based smart contracts you can probably throw in (iv) Ethereum-based asset classes are riskier than many liquid investments available in dollars, and even if you can write your smart contract to seamlessly exchange the cryptocurrency float for nice, safe Federal Reserve bonds and convert back if and when more of that float is needed to pay claims, you've got more counterparty risk and exchange rate risk than carrying out the same trades purely in dollars.

Re: A truly decentralised P2P Insurance

#43

Post by kpi »

Scirra_Tom wrote: post #36
kpi wrote: post #32

Earlier quoted context omitted.

the total amount of payouts per flight is limited as well as premiums and individual payouts. there is a non-negligible legal risk of such action and the payout limits in the end will converge to the price of the risk someone is going to take.

The legal risk is zero for someone who is out of the jurisdiction of the US completely (eg in some developing country). Ironically, your system is meant to help compensate people when delays to flights occur yet to me it looks like you've built something that strongly incentivises people to cause more disruption to flights.

also note that there is an easy workaround to limit this which essentially is the difference between a bet and an insurance: check if the user has a valid ticket for the flight.

Re: A truly decentralised P2P Insurance

#44

Post by Scirra_Tom »

kpi wrote: post #43
Scirra_Tom wrote: post #36

Earlier quoted context omitted.

The legal risk is zero for someone who is out of the jurisdiction of the US completely (eg in some developing country). Ironically, your system is meant to help compensate people when delays to flights occur yet to me it looks like you've built something that strongly incentivises people to cause more disruption to flights.

also note that there is an easy workaround to limit this which essentially is the difference between a bet and an insurance: check if the user has a valid ticket for the flight.

I'm not well versed in Ethereum, but this sounds like creep towards the solutions we already have today.

Re: A truly decentralised P2P Insurance

#45

Post by kpi »

Scirra_Tom wrote: post #44
kpi wrote: post #43

Earlier quoted context omitted.

also note that there is an easy workaround to limit this which essentially is the difference between a bet and an insurance: check if the user has a valid ticket for the flight.

I'm not well versed in Ethereum, but this sounds like creep towards the solutions we already have today.

I think the design space is much larger than what we have today, and blockchain applications surely have interesting features it might be worth exploring in that space.

Re: A truly decentralised P2P Insurance

#46

Post by cmussenbr »

Scirra_Tom wrote: post #25

What's stopping someone putting a lot of money on an insurance policy then calling in a fake bomb threat on the plane? Pretty low risk way to make money from anywhere in the world.

Interesting discussion! 1. Indeed, we already have many incentives to stop planes by fake threats, and it does not happen. 2. The problem of moral hazard is present in all insurance economies. Of course, this has to be solved. 3. Part of the solution will be a P2P approach, limiting the payout to people who themselves have "skin in the game". We will elaborate on these topics in the next time (disclaimer: I'm one of the founders of the FlightDelay DApp)

Re: A truly decentralised P2P Insurance

#47

Post by richmarr »

kpi wrote: post #37
richmarr wrote: post #24

Earlier quoted context omitted.

> ... cancel out... This assumes that investments made with premiums are precisely equal with the margin kept by the insurer. Considering the variety of insurers, insurance products, seasonal variation, etc. this is a pretty wild assumption. That said, insurers do make a profit on their income and make a profit on their investments. They may tell you that they have a negative combined ratio, but it's a misrepresentat…

I am a big fan of heyguevara, and happily disagree with you on regulatory approval and access to re-insurance markets: these need to be addressed, and we are happy to have discussions with insurance brokers and regulatory bodies to do that. as soon as those risks are reduced and some examples established, smart contracts will make it very easy for any group of people to start their own p2p insurance with their own pa…

Appreciate it, thanks. Don't misunderstand I totally respect anyone willing to get stuck into this stuff... I just think you're making a rod for your own back by adding this "distributed" requirement.

I don't see customers caring about distribution, whereas it would make several areas more difficult to manage... fraud for one. It's cool and all, but it's a walled-enough-garden even without that constraint... a constraint that regulators, reinsurers, etc will find alien and confusing.

Re: A truly decentralised P2P Insurance

#48

Post by mbrock »

notahacker wrote: post #42
mbrock wrote: post #38

Earlier quoted context omitted.

Just like how if an insurance company has invested part of its float in bonds, it cannot guarantee to pay for all losses simultaneously... right? I'm trying to understand what you think is the essential difference between an Ethereum-based insurance scheme and a traditional insurance scheme in this respect.

I'd guess it's a combination of (i) there's a not unreasonable belief that a human (or a trading algorithm that evolves over time according to human input) can do a better job of managing an investment portfolio than an immutable "contract" algorithm (ii) insurance companies tend to be much larger and better diversified than an individual insurance contract on the blockchain (iii) insurance companies are often consid…

I have a feeling that people tend to underestimate the role of "semi-trusted" actors in the future of cryptoeconomics.

In other words, I think that indeed most interesting applications won't be pure on-chain algorithms. The computational power is extremely limited. On-chain bookkeeping is extremely useful as a base layer, but the real intelligence will always have to come from elsewhere.

(For these reasons, many of my blockchain friends consider "smart contract" a pretty stupid catchphrase, preferring instead to talk about e.g. "dumb durable software objects".)

So, for example, consider an insurance contract structured as a "DAO", where some combination of stake and reputation translates to influence in investment decisions. Obviously there could be enormous problems with that, but it's also an interesting possibility, and I predict that such experiments will keep happening and we will learn more about collective decision-making etc.

Re: A truly decentralised P2P Insurance

#49

Post by dpc_pw »

joosters wrote: post #6

How can Ethereum-based insurance products ever be competitive? For an insurance smart contract to work, all the money must be tied up in the contract (otherwise, there would be no way to guarantee that you could be paid out). But in the real world, insurers don't just leave their money sitting uselessly in a pot, they put it to work, investing it. So the smart-contract based insurance is always going to be less effic…

With public "willing" (ignorant enough) to subsidise that "investements" (google: AIG bailout), every time they inevitably fail, nothing really can compete in short term. Rich get richer with guaranteed profits.

Despite what neo-cons/keynsians acolytes proclaiming, saving money is an investment (low yield, but quite safe), and it should be yielding profit (in form of deflation).

As money tied in such a p2p contract will be deflationary, it will be competitive (as long as the Ethereum/currency it uses does OK).

Re: A truly decentralised P2P Insurance

#50

Post by drytoastbrunch »

kbody wrote: post #7

Any example that this would be useful and most of all actually applicable to real-world? The example of air flight delay is already done (see: https://www.airhelp.com ) with much better payout. The problem I see on such "presentations" is that they focus on abstract ideas instead of taking a pragmatic approach of how to actually make it usable on a real use-case outside of the experimental playground. Sorry for the r…

Freebird (www.getfreebird.com) is actually taking the pragmatic approach but does not seem to have the p2p component. Could be an easy add to them...
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