Author Topic: [VIDEO] Explanation of BitShares Insurance DAC  (Read 15031 times)

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Offline Empirical1

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What about a fixed term insurance DAC that doesn't need a third party to adjudicate claims?
You can make your insurance claim whenever you want without needing to give a reason.

Possibly work using a Keyhotee risk profile, a separate premium that goes into the no claims bonus fund and share claim system.

1. Your Keyhotee risk profile

It determines based on available information, how risky/safe you are.
If you join a fixed term insurance product and claim early it effects your future risk profile negatively and vice versa.
(If you are risky you may not be able to join a good pool, you may have to pay a higher * no claims bonus pot premium and you may have a minimum period in which you cannot make your claim.)

2. The separate premium is a fee that is calculated on your risk profile that goes into a separate no claims bonus pot.
People who did not claim during the period get to split this pot up at the end of the period as well as any money remaining in the pool.  (When you make a claim you forfeit any fees paid into this bonus pot.)

3. A share allocation system as opposed to a guaranteed $ payout.
(So that is hard to defraud the system and so that the insurance pool never runs dry.)

Example: If you would have paid in $10 000 over the life of the product then you can claim 10 000 shares whenever you want at which point you are cashed out from the product.

Lets say the monthly premium is $100 and there are a 100 people in the pool at the end of the month there will be 10 000 shares and $10 000 in the pool. If you make a claim you will be issued 9900 shares (you already have 100 from first months premium) However there are now 20 000 shares and a $10 000 pool so you claim will only net $5000.)

(You might be thinking well a $5000 return for a $100 premium sounds great, everyone will fraudently claim after the first month...
Lets say 70 people make a claim in the first month. (You never know how many people have made a claim in the specific claim period so the system can't be gamed.) Then there would be about 710 000 shares and a $10 000 pot. Meaning each pay out would only be worth $140.

Clearly the above would be a very fraudulent pool. So they may have had to pay a 50% 1st month additional premium ($50 in that example, so they would actually lose by claiming in the first month. In subsequent months the additional premium may fall to 20% or even as low as 5% depending on your risk profile.)


Using something like this you should be able to get a fair payout.
(The only disadvantage would be if you had no reputation, you would be put in a weak pool and if you were forced to make a genuine claim early, you would probably receive a low payout and a bad reputation.)

In this system, the fraudulents would be weeded out early on in the life-cycle of the product and they probably wouldn't make a big gain, maybe even a loss and the system could also be designed so that after about mid-way you would be better off not making a claim as your share of the no claims pot would make not claiming more profitable as well as earning a good reputation/risk profile. (Also after you had been in a few products you would probably be put in a very honest pool so that if you needed to make a claim early you would receive a decent payout.)

(Also the funds may go into a variety of Bitassets that would hopefully appreciate over time making not claiming and getting your hands on part of that bonus pot at the end of the term period more attractive.)
« Last Edit: March 15, 2014, 07:23:06 pm by Empirical1 »

Offline JakeThePanda

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I believe every country has heavy insurance regulations, not just the US.  Please enlighten me on why you think this won't be a problem?  Trust me, I hope you have a solution.

What aspect of insurance is regulated?   Is it the taking of funds?  The investing of funds?  The estimating?   Remember, this system is no more an 'insurance company' than Bitcoin is a currency.    Who is providing the insurance?   Who is promising to pay?  Who under this system has any obligations what so ever of a contractual nature that would constitute insurance?

Like I said, I'm not an expert.  I used to sell fixed income products and one of my clients was a small insurance company.  They had legal restrictions on what products they can invest in.  You also need a license to sell insurance by state.  Look, I don't know enough about insurance and it sounds like you don't want to hear any of this.  As a AGS/PTS holder I hope you can work it out, but don't think it's going to work for liability insurance.  I will move along.
« Last Edit: March 15, 2014, 06:03:34 pm by JakeThePanda »

Offline CWEvans

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The model is similar to fraternal societies and lodges that were very popular until the establishment of the social welfare society.

"From Mutual Aid to Welfare State"

Offline santaclause102

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one question there: At the end of the video it was said that every insurance you can buy shares in is for a specific risk group (e.g. white males non smoking etc....) only? So there would have to be seperate insuracne DACs/Pools  for all kinds of risk groups?

Offline bitcoinba

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I believe every country has heavy insurance regulations, not just the US.  Please enlighten me on why you think this won't be a problem?  Trust me, I hope you have a solution.

What aspect of insurance is regulated?   Is it the taking of funds?  The investing of funds?  The estimating?   Remember, this system is no more an 'insurance company' than Bitcoin is a currency.    Who is providing the insurance?   Who is promising to pay?  Who under this system has any obligations what so ever of a contractual nature that would constitute insurance?
I wondered if it might be an idea to think of another name, i.e. not "insurance". If its a fundamentally different system, it maybe deserves a new name, but in so doing this may lead to the natural creation of an appropriately different regulatory framework outside that of classic insurance. As no doubt, someone somewhere will start to try to regulate it. For many people, the word insurance has a negative connotation, so this was another reason for this suggestion.

It think Bytemaster already gave it another name: Mutual Aid Society.

This name has some interesting connotations and could serve it well.

Offline pgbit

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I believe every country has heavy insurance regulations, not just the US.  Please enlighten me on why you think this won't be a problem?  Trust me, I hope you have a solution.

What aspect of insurance is regulated?   Is it the taking of funds?  The investing of funds?  The estimating?   Remember, this system is no more an 'insurance company' than Bitcoin is a currency.    Who is providing the insurance?   Who is promising to pay?  Who under this system has any obligations what so ever of a contractual nature that would constitute insurance?
I wondered if it might be an idea to think of another name, i.e. not "insurance". If its a fundamentally different system, it maybe deserves a new name, but in so doing this may lead to the natural creation of an appropriately different regulatory framework outside that of classic insurance. As no doubt, someone somewhere will start to try to regulate it. For many people, the word insurance has a negative connotation, so this was another reason for this suggestion.

Offline bytemaster

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I believe every country has heavy insurance regulations, not just the US.  Please enlighten me on why you think this won't be a problem?  Trust me, I hope you have a solution.

What aspect of insurance is regulated?   Is it the taking of funds?  The investing of funds?  The estimating?   Remember, this system is no more an 'insurance company' than Bitcoin is a currency.    Who is providing the insurance?   Who is promising to pay?  Who under this system has any obligations what so ever of a contractual nature that would constitute insurance? 

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Offline JakeThePanda

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I believe every country has heavy insurance regulations, not just the US.  Please enlighten me on why you think this won't be a problem?  Trust me, I hope you have a solution.

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What if we all live in the us but the adjuster lives in Thailand?


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Offline luckybit

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I'm sorry to doubt the DAC but I have to make this comment.  Gov'ts can block this DAC very easily .... Just make it illegal to be an insurance DAC adjuster. How do we adapt?


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Unless every government on earth blocks it at the same time why does it matter?
Do we even have to know who the adjuster is or where the adjuster is if we know who it is?
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Offline bytemaster

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Offline biophil

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Isn't insurance a heavily regulated industry here in the US?  Won't you need DMV approval for car insurance and I'm sure other types of insurances have regulations, no?  I'm not an expert on insurance so I'm just throwing questions out there.

My guess is that in heavily regulated countries like the US, if this operates legally, it would have to be set up as something like a non-profit co-operative. Co-ops are fantastic ways to circumvent certain types of regulations. Of course, just because it's legal doesn't mean it's easy to convince regulators that, for example, DAC health insurance fulfills the PACA individual mandate. Actually, I think health co-ops do count towards the mandate, so maybe there's already a legal precedent.
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Offline JakeThePanda

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Isn't insurance a heavily regulated industry here in the US?  Won't you need DMV approval for car insurance and I'm sure other types of insurances have regulations, no?  I'm not an expert on insurance so I'm just throwing questions out there, but it seem like a lot of red tape to go through.
« Last Edit: March 14, 2014, 09:04:44 pm by JakeThePanda »

bitbro

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I'm sorry to doubt the DAC but I have to make this comment.  Gov'ts can block this DAC very easily .... Just make it illegal to be an insurance DAC adjuster. How do we adapt?


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Offline bytemaster

A big potential problem is share distribution and its effect on the claim pool.  Since ownership of shares in the DAC insurance policy is anonymous, how can I as a consumer trust that my risk exposure won't fluctuate wildly if someone who holds a significant portion of shares has a large but valid claim. 

For example, say the claim pool is around 5% of total, on average.  I buy shares expecting ~20x their BitUSD value in return if I need to make a claim.  Then someone holding 20% of the total shares makes a valid claim which is then added to the claim pool.  That 5% jumps to 25% and now if I need to file a claim then the maximum I can expect is ~4x the BitUSD value of the shares.

Insurance is all about mitigating risk and traditionally when you buy a policy you know what your premium is as well as the maximum claim amount so you can quantify your risk exposure for the asset that's insured.  With this Insurance DAC, while your premium is fixed, the maximum payout has the potential to fluctuate wildly which is counter intuitive to the entire purpose of buying insurance in the first place.

I suspect that this is easily mitigated by defining the terms of the policy.  For example, it could price things at 1 share per month per person with defined per-person limits.  The adjustor would then be responsible for preventing bogus claims.

Note: if the claim is valid, then the risk was there the whole time and the guy who was buying 20% of the insurance was subsidizing everyone else.  Also note, that you will eventually receive your payout as the long-run averages are all that matter.

Most of these things are just tweaks to the basic framework.
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