Bitcoins to revolutionize insurances

[giszmo]

Insurance companies make a lot of money.  I thought about how bitcoin could help to make p2p insurances and this is what I came up with so far:

First of all I guess it makes sense to do insurances in Bitcoin for people that believe in Bitcoin becoming more valuable but likely no insurance would promise to cover $$ damage while holding 100% in Ƀ. Also my goal is to make insurance companies obsolete. First those that have low insurance fraud rates, later others.

Imagine a fire insurance contract like a normal insurance contract. People pay towards this contract on a regular basis after providing a hash of the "filled out registration form" (download the form, fill it out, save it as pdf, maybe zip it with some photos and videos of your nice house, hash it) and an email address.

People can now contact "their insurance" via its (merge-mined) block chain. If my house burns I send a help-message (which costs $500) to this p2p-insurance via its block chain. Based on some randomness (the hash of the block containing the call for help), other 5 members get elected (emails get sorted by hash(block-hash + email address) and may notify to look into the case. Every hour the next in the list may notify until 5 notified to look into the case for $100 of compensations) to respond my call for help. I may provide all the documentation needed, so first of all I will send them my filled out registration form and proof of damage. They also get my e-mail address to ask further questions. They may eventually hire people to do investigations.

Finally these 5 decide on how many Ƀ will go towards me and each of them to cover their work and investigations necessary to verify my claim.

Each party may escalate the case to demand correction (help calls cost $500).
Each "judge" may only get a maximum of $x (percentage of the insured sum) for expenses made.
In any case any future call for help will also provide all the track record of prior cases to the new members involved.
The help call fees (for the judges) and the money decided on for all the parties only gets paid out if 70% of the judges (if more help calls are done, they become more) agree on the final resolution. Payout would work through contracts. In the Bitcoin blockchain a payout from the insurance wallet would occur based on insurance blockchain data (I'm slightly stuck on that part).

I would like to know what you think of this idea and what you think how anonymity and scam-resistance could be provided as I strongly believe this could be a very fair insurance. Typical fraud with fire insurances would be to burn my house after insuring it with several insurances. Our bitcoin insurance would have the problem that I could even run 10 contracts and resolve all ten in parallel as long as there is no central authority matching incidences and there are enough members that an overlap of judges won't occur but I'm sure either other insurances that are easier to identify could work that way or some of you has a good idea to tackle this concern.

[Luno]

Insurrance normally need a lot of legal scaffolding to prevent fraud. I can't imagine it working in a lot of real life claims.

If you are talking about contractual insurrances where it's easier to determin who has had a loss and culpa, it might work.

[herzmeister]

a great revolutionary and agorist idea!

Some insurances are tied to government legislation though, like motor vehicle insurances, at least here in Germany. Or we can demand international recognition of BTC plates. 

[giszmo]

Insurrance normally need a lot of legal scaffolding to prevent fraud. I can't imagine it working in a lot of real life claims.

If you are talking about contractual insurrances where it's easier to determin who has had a loss and culpa, it might work.

As I said it might work for some insurances better than for others. An insurance company will not only keep records of individual customers but also of people that write expert testimonies for or against the insurance and you wouldn't want all that material to turn into public knowledge in a block chain although … I guess if I ever want to have a fire insurance for my house I will not have an issue with all evidence on my house being my house, my insurance rates being paid and my house actually having burnt down to go public if in turn I get a fair, cheap insurance.

Health insurance is more complicated but that's why I picked fire in my original example.

a great revolutionary and agorist idea!

Some insurances are tied to government legislation though, like motor vehicle insurances, at least here in Germany. Or we can demand international recognition of BTC plates. 

Bear with me but I'm no hard-core libertarian yet. What is Agorism?? It doesn't exist in my dictionary and the Wikipedia Article has no German translation neither. Reading the English version now …

[ElectricMucus]

This would be even more fraud ridden than the already existing BTC economy.

BTC and any kind of credit or loans just don't work, in time everybody will accept that.

[Rassah]

Few concerns:

1) Insurance works because everyone pays into a pool, and the pool has to follow this formula:
Sum of all premiums paid through the year = Sum of all claims during the year.
Who will be in charge of the pool of money, and calculate the required premium amount? (Currently that's done by high-level specialists called actuaries)

2) What is to prevent the judges from colluding with the claimant and taking as much money as possible?

3) Insurance has skilled adjusters that evaluate the damage, look for any signs of fraud, and submit the info to a team that researches how much it actually costs to restore what was damaged

4) Biggest one - people who buy insurance do so because they don't want to worry about having to deal with issues, and are paying for the service of someone taking care of them when they get in trouble. This 5 members thing sounds like it would be really unpopular, in the same way that being called out to jury duty would be unpopular. Not having the skills or the knowledge to do this work aside, people are typically already really busy, and don't want to take on yet another job.

[giszmo]

Hi Rassah,

I disagree on some points:

Few concerns:

1) Insurance works because everyone pays into a pool, and the pool has to follow this formula:
Sum of all premiums paid through the year = Sum of all claims during the year.
Who will be in charge of the pool of money, and calculate the required premium amount? (Currently that's done by high-level specialists called actuaries)

No.
premiums paid = claims collected + savings + salaries + bonuses (+ …)

2) What is to prevent the judges from colluding with the claimant and taking as much money as possible?

The judges money is limited as per my OP. The judges decisions become public record, so you could allow others to send help messages for an ongoing case. Payout could be delayed by 3 days during which people curious about these public anyway cases may through in further random judges (at the expense of a $500 help message).

3) Insurance has skilled adjusters that evaluate the damage, look for any signs of fraud, and submit the info to a team that researches how much it actually costs to restore what was damaged

Yep. Therefore judges may hire such adjusters or not. Adjusters cost money. Sometimes a less than 100% fair process is better for almost all participants. As nobody has to use this insurance, fairness is a selling point and no absolute necessity.

4) Biggest one - people who buy insurance do so because they don't want to worry about having to deal with issues, and are paying for the service of someone taking care of them when they get in trouble. This 5 members thing sounds like it would be really unpopular, in the same way that being called out to jury duty would be unpopular. Not having the skills or the knowledge to do this work aside, people are typically already really busy, and don't want to take on yet another job.

These 5 judges would get compensations. If you think $100 pp is the wrong number to get started (they may decide on getting more from the public pool. The $500 is just the guy in trouble's money) pick a better number.
I don't buy insurances to not have any trouble at all but to not get into trouble that ruins me for life or even costs my life cause the surgery was too expensive.

Finally I know it does not work yet cause it's not thought through enough and of course not implemented yet. That was the purpose of this thread. Throw in ideas to solve the issues that you see or bring up real issues that stop this from working. I stick with the claim that a fire insurance with a totally public claim process would actually work.

[Rassah]

Hi Rassah,

I disagree on some points:

Few concerns:

1) Insurance works because everyone pays into a pool, and the pool has to follow this formula:
Sum of all premiums paid through the year = Sum of all claims during the year.
Who will be in charge of the pool of money, and calculate the required premium amount? (Currently that's done by high-level specialists called actuaries)

No.
premiums paid = claims collected + savings + salaries + bonuses (+ …)

Yes.
You are just nitpicking. Savings and salaries are not needed for insurance to work, and originally wasn't part of insurance. The very first historical instances of "insurance" was farmers who were taking their produce down the river, splitting their goods evenly across all the farmer's boats. If one boat went down, they all still had their remaining food in the rest of the boats. You could look at it as them paying a premium (10% of their total contents in the sunk boat) to cover the rest of the produce (90% in the remaining boats). Maybe you could set up something like that, I don't know.

2) What is to prevent the judges from colluding with the claimant and taking as much money as possible?

The judges money is limited as per my OP. The judges decisions become public record, so you could allow others to send help messages for an ongoing case. Payout could be delayed by 3 days during which people curious about these public anyway cases may through in further random judges (at the expense of a $500 help message).

I didn't see anything regarding limits on payouts for damages. What's to stop someone for claiming a $20,000 claim on a $500 damage, and spreading the money among the judges? Why would other people be curious about something as boring as someone else's insurance claims?

3) Insurance has skilled adjusters that evaluate the damage, look for any signs of fraud, and submit the info to a team that researches how much it actually costs to restore what was damaged

Yep. Therefore judges may hire such adjusters or not. Adjusters cost money. Sometimes a less than 100% fair process is better for almost all participants. As nobody has to use this insurance, fairness is a selling point and no absolute necessity.

Hire them with what? Part of that $100 they get? I don't think so

These 5 judges would get compensations. If you think $100 pp is the wrong number to get started (they may decide on getting more from the public pool. The $500 is just the guy in trouble's money) pick a better number.
I don't buy insurances to not have any trouble at all but to not get into trouble that ruins me for life or even costs my life cause the surgery was too expensive.

Yes, that's what insurance is for: to make you whole after a loss.  I think $100 is the wrong number to get started. It may be enough for some judges, and way too little for others. How do you set a rate? More so, there's still the problem of lack of skills, and likely not knowing whom to hire. You could end up hiring a scammy adjuster or someone in cahoots with the person seeking compensation. How do you prevent that?
I just see way more problems with this than solutions for things like property insurance.

[Ichthyo]

while I agree that its very important to try to build new financial constructs on top of BTC -- and some kind insurance is certainly one of the most basic constructions -- I think we should start with an analysis: What exactly does not work well with traditional insurances and what exactly can we think to improve with a BTC based insurance model?

As others have pointed out already, existing insurance companies do offer some very valuable services. And people are buying insurance contracts since the benefit of these services outweighs the other drawbacks. So maybe a better approach is to try to decompose the service "insurance" into several elementary services. There is no need to come up with a final construction for every part. Rather we could aim at creating one or several new markets.

Along this line of thoughts: I think, your idea with the "judges" is the weakest spot of your concept. It counts on a high degree of diligence and reliability of randomly picked, average people, there is no inherent price regulation and there is no room for misbehaviour. What if we instead just include a judgement service and define a clear interface for using that service? Then there could be a market for judgement providers. This "interface" should include some guaranteed income, some additional, competitive effect, plus it should contain a standardised claw-back mechanism to deal with misbehaving judgement service providers (e.g. delayed payout of revenues).


PS: obviously the organisation of the interplay of those services shall be implemented in blockchain-based technology, and not in the form of conventional legal business entities. This is the whole point of the revolutionary idea behind Bitcoin.

[giszmo]

while I agree that its very important to try to build new financial constructs on top of BTC -- and some kind insurance is certainly one of the most basic constructions -- I think we should start with an analysis: What exactly does not work well with traditional insurances and what exactly can we think to improve with a BTC based insurance model?

As others have pointed out already, existing insurance companies do offer some very valuable services. And people are buying insurance contracts since the benefit of these services outweighs the other drawbacks. So maybe a better approach is to try to decompose the service "insurance" into several elementary services. There is no need to come up with a final construction for every part. Rather we could aim at creating one or several new markets.

Along this line of thoughts: I think, your idea with the "judges" is the weakest spot of your concept. It counts on a high degree of diligence and reliability of randomly picked, average people, there is no inherent price regulation and there is no room for misbehaviour. What if we instead just include a judgement service and define a clear interface for using that service? Then there could be a market for judgement providers. This "interface" should include some guaranteed income, some additional, competitive effect, plus it should contain a standardised claw-back mechanism to deal with misbehaving judgement service providers (e.g. delayed payout of revenues).


PS: obviously the organisation of the interplay of those services shall be implemented in blockchain-based technology, and not in the form of conventional legal business entities. This is the whole point of the revolutionary idea behind Bitcoin.

Nice idea with the judgment service. The random judges were to make the cheapest yet fair pick but maybe you are right that this pick might turn out to be far from being the most effective.

[SouthernComfort]

I dont believe bitcoin insurance will ever come about, for the simple fact everyone would be doing insurance fraud. Think about it all you would have to do is steal your own coins and claim your were hacked/ripped off.

[giszmo]

I dont believe bitcoin insurance will ever come about, for the simple fact everyone would be doing insurance fraud. Think about it all you would have to do is steal your own coins and claim your were hacked/ripped off.

You are on the wrong thread. This thread is about insurances using bitcoin/blockchain/crypto, not about insuring your bitcoins. Else I agree on your statement

[Spaceman_Spiff]

2) What is to prevent the judges from colluding with the claimant and taking as much money as possible?

The judges money is limited as per my OP.

Nothing stops the claimant from paying the judges outside of the insurance system.  They just give him an anonymous bitcoin address .

[giszmo]

Necro-posting cause teambrella seams to take on the challenges addressed in this thread.

They just published this to reddit.

[Iseecookies]

Car insurance will most likely go the way of the dodo once driverless cars are mandated. But other aspects I can see as homes become more technology based they will become much more valuable to every day transactions.

[BTCBinary]

It is not only the insurance industry that Bitcoin is bound to transform. Bitcoin and the blockchain technology is bound to applied to pratically almost sector of development. The next 10 years will be all about bitcoin and the blockchain.

[mkc]

How do u determine how much pay into policy? This is based on statistics and many other factors.

[giszmo]

How do u determine how much pay into policy? This is based on statistics and many other factors.

Insurance is a bet against events happening. "My house will not burn". How much is the house worth? How likely is it that it will in fact burn? This will determine how much it costs to cover the case of it actually burning.

If your house is worth $1million and chances it will burn are about 0.1%/year, the policy should cost $1000/year.

Now this simple example shows why insurances don't like over-covered risks. If your house in fact is not worth a million or you insured it ten times with ten companies, it becomes worth burning it down yourself. Aka over-insured assets tend to have much higher risks. I guess it will be exciting to see how a decentralized insurance deals better with this than today's insurance companies.

[nanonymousx]

How do u determine how much pay into policy? This is based on statistics and many other factors.

If your house is worth $1million and chances it will burn are about 0.1%/year, the policy should cost $1000/year.

How you come up with 0.1%? Today's insurance company hires the best Mathematician, has the man power to calculate the risk, and take the calculated risk.

[romero121]

Insurance companies requires a lot of legal proceedings, but nothing matters to get their early benefits through the bitcoin, as few insurance companies are in corporate with government and remaining were private sector.