The premium (P) that one pays should be equal to the probability (p) of the event times the cost (c) of the event, plus a share of fixed administrative overhead (π):
P = p(event)*c(event) + π
A DAC eliminates the need to hire administrative staff, such that π→0.
However, since probability of a future event cannot be known, only estimated, the optimal premium cannot be known ex ante. Given that hindsight is 20/20, we can calculate what the premium should have been, ex post, but that is not helpful.
A prediction market seems to be the best way to set the premium, and perhaps to determine the payout. Whether every Tom, Dick, and Harry should be able to participate in the prediction market, or only certified claims adjusters is the question.
Perhaps we need a separate reputation market, such that the opinions or votes of each market participant is weighted by his, her, its, or their reputation scores?