
A truly decentralised P2P Insurance - lamito
https://hack.ether.camp/#/idea/a-truly-decentralized-p2p-insurance
======
joosters
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 efficient...

~~~
usgroup
That isn't necessarily true. You could buy "shares" in a contract. The
contract then uses share capital to underwrite many insurance claims, and
you're paid a monthly interest for owning the share capital.

I.e. the money then wouldn't be sitting idly, it could be used again and again
to underwrite more contracts, up to the risk limit.

~~~
joosters
It's still less efficient than 'real world' insurance, which also pays out,
but does not need the money to be locked away.

~~~
mbrock
I don't see why Ethereum-based insurance contracts necessarily lock money.

For example, the contract could give another address the authority to take
risks with some percentage of the deposits, or pretty much any other
arbitrarily complicated setup.

~~~
joosters
If the money isn't available (i.e. locked up in some way by the contact), then
the contract cannot guarantee to pay out, making its promises worthless.

If you have to rely on a human being to decide to pay out, then the smart
contract part of the deal is pointless.

~~~
mbrock
The address given authority to invest the insurance float doesn't have to be
controlled by a human—it can represent some other arrangement, for example a
stake-voting investment scheme.

~~~
joosters
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.

~~~
mbrock
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.

~~~
notahacker
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.

~~~
mbrock
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.

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vesinisa
How is e.g. the flight delay insurance decentralized? According to [1] it uses
a traditional API to fetch the delay data, which very much sounds like a
trusted 3rd party.

[1]: [http://medium.com/@skarpischek/youll-love-to-be-late-for-
dev...](http://medium.com/@skarpischek/youll-love-to-be-late-for-devcon-
two-e711bbe750c0#.bffjjtq0g)

~~~
planetjones
I looked into this before. I just don't get it. There is definitely a trusted
3rd party in play which to me breaks the consensus model of having something
decentralised. Maybe you can have many trusted 3rd parties and they all agree
I don't know. But then insurance is a lot trickier than just paying out
automatically when your flight is delayed. How do you even know the person
took the flight. Maybe that doesn't matter. But lots of other questions
probably do e.g. If we have a major event which delays worldwide flights would
that bankrupt the insurance scheme. What capital must the decentralised
insurance hold to be liquid. Who can recapitalise it if there's a black swan
event. I am not against these decentralised models I just know there are a
multitude of very difficult questions which insurance companies have already
answered. P2P, decentralised and smart contracts can't be the answer alone?

~~~
icebraining
I'm sceptical of Ethereum, but seems a bit too much to expect a proof of
concept to include every nuance of current insurance theory. The question
seems to be: is it impossible to model those problems using smart contracts?
If not, it'll be done eventually.

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jtchang
I find a lot of the lingo that Ethereum uses to be crazy confusing. However
the concept is appealing to distribute risk. It will only work though if there
is an easily verifiable source of truth for what you are trying to distribute
the risk for. For example if it was car insurance and you were trying to
distribute accident risk there has to be a uniform and guaranteed way to say
"this accident happened and it cost $5000". This is where the insurance
company adjusters come in. You'd need infrastructure that isn't easily hacked
that can guarantee a repair took place.

However for life insurance this might be possible. I think you can verify
death 100% (or maybe not since there is probably fraud there as well).

Stuff like options on stocks and price can definitely be verified fairly
easily.

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kbody
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](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 rant but
it's really disappointing to keep seeing ideas that immediately fall apart
when they close to be actually implemented/used.

~~~
kpi
airhelp is one of many services which deal with compensation claims which are
mandated e.g. by EU regulation and take a good cut of the payout for trying to
make a really cumbersome process less bad. the customer experience of claiming
compensation is in my opinion much worse than a fully automated payout and the
whole process a real pain for both customers and airlines.

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rubyfan
Interesting concept but I struggle with the practical aspects. The reasons for
central underwriting authority are clear...

1\. Economies of scale needed to deal with regulatory, dept. of insurance,
etc.

2\. Economies of scale needed to administer policies

3\. Economies of scale needed to administer claims

4\. Expertise needed in pricing and actuarial

In an ethereum based true P2P system the individual is more or less self
insuring and re-insuring their risk via an ethereum contract.

I think there's something worth paying for to be able to say a financial
institution is covering you. I have a hard time believing the financial saving
for an individual is worth the trouble. I also have a hard time believing the
regulatory and administration needs are met without some staff supporting the
contract.

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kpi
note that we just released a first demonstrator for devcon2
[https://fdd.etherisc.com](https://fdd.etherisc.com)

some more information on [https://medium.com/the-future-requires-more/youll-
love-to-be...](https://medium.com/the-future-requires-more/youll-love-to-be-
late-for-devcon-two-e711bbe750c0)

and some discussion on reddit
[https://www.reddit.com/r/ethereum/comments/529o5p/flightdela...](https://www.reddit.com/r/ethereum/comments/529o5p/flightdelay_dapp_one_of_the_first_fullfledged/)

~~~
HairyGing3r
Thanks for sharing, see you in Shangai!

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usgroup
If you guys hope to have an limit order-book for this you may find yourself
running into serious limitations with ethereum. Storage related operations are
expensive. A frequently transacted market would make the costs prohibitive.

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donkeyd
How does a system like this detect and cope with insurance fraud?

~~~
usgroup
... by limiting it to events that can be reliably determined. E.g. was the
plane late or not?

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olh
Create a lending system without requiring collateral from the borrower using
this for risk mitigation on the lending side and you will conquer the world.

~~~
aiouy
can you elaborate? wouldn't "this" be collateral since funds are tied up in a
smart contract?

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Scirra_Tom
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.

~~~
kpi
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.

~~~
Scirra_Tom
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.

~~~
kpi
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.

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

~~~
kpi
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.

