In the last years, field experts provided evidence that insurance market is on the verge of disruption (Moffatt 2015 and BCG Reports 2014 and followings) and as Holly and Greszta underline, various forms of risk distribution exist, which use the leverage of various strategies: mutual insurance, co-operatives, captive insurance, peer-to-peer, risk retention schemes as well as internal risk distribution. All of them are forms of social ties that are used to formulate a viable distribution of risk, reducing individual suffering and reinforcing the same social ties (Holly and Greszta 2016).
Self-insurance has been present for a few thousand years, and it is often described as circumstances in which a person or a business does not conclude insurance agreements with commercial insurers, but instead uses other methods for risk management. The essence of self-insurance is that a person or business entity that faces a potential loss to its own assets and/or business interruption as a result of an unexpected, sudden and accidental event or when it may become liable due to a negligent act and decides to “carry the risk” on its own or within an organized group of people/companies (i.e. group captives) rather than to conclude an insurance agreement with commercial insurance companies.
In particular, the perspective of the Internet of Values inspires our proposal and the Covid-19 is seen as an accelerator of the whole societal transformation. The main strategy is articulated towards various degrees of protection of the targeted population. This process of protection introduces a new economic process based on tokenization, which allows to overcome the limitations of fiat currency based economies.
Hence the interest in insurance for voluntary work, which is intended differently from how we know it - reputation systems, sharing of digitized skills, etc. including forms of recognition through non-fiat media of transaction. This insurance proposal is intended also as a process of collective learning of the co-designing of a just and wise economy (Giorgino and Walsh 2018): it prepares to the consequence of a jobless economy, caused by technological unemployment and paves the way to forms of provisioning beyond or integrating the traditional provisioning based on the link between productive activities (paid jobs) and fiat money income.
In addition, health and personal data are proposed as owned by citizen, who are expected to exercise sovereignty over the former, ditto for digital identities. This proposal about protection includes insurance as well other tools, all directed to the same aim. Our collective effort is also dedicated to the avoidable deaths occurred until today and aims to reduce/cease the existential, social and economic suffering that accompanies us since the beginning of this pandemic. In sum, we express an act of trust in the self-organization abilities of the human species.
The insurance model within a wider protection strategy
In this light, the traditional insurance model due to the both financial and dimensional limits that it impose needs to be transformed for our purpouse into a more decentralized system based on mutual aid, in which transactions are carried out on distributed ledger technologies and the distribution of quotas and premiums is managed through smart contracts. Designing a more trustworthy insurance system, providing an economic buffer against the damages caused by the virus, including major economic losses caused by the lockdown is central to address and overcome some of the social issues caused by the crisis.
One of the main features of the project is to directly involve the insured in the insurance process. An aspect which is often disregarded by the industry is that insurance is more cost-efficient and effective if applied to medium/small communities and small groups of people having social social ties with each other (either formal or informal), rather than individuals. These could co-share the risks of each participant, which is key to decrease the risk of moral hazard, and as a consequence, the cost of the insurance for the users. This direct involvement is made possible by the relatively new distributed ledger technologies, allowing for instance to encode the terms and condition of refunds into smart contracts. In this light, it is crucial to reinvent a system facilitating the reduction of social suffering by mitigating risks, which is also no-profit oriented.
In this perspective, we consider different possible implementations depending on various degrees of social, economic and technical difficulties. A potential use case would be aimed at protecting Covid-19 volunteers from the contagion, providing them with the needed PPEs (face masks, gloves, etc.) as a form of recognition by the community.
The second could be designed to distribute a daily allowance to those who get sick of covid-19 as a refund. A further and more complex use case would be a generalized form of life insurance specifically tailored to the emergency situation.
In the implementation, blockchain would be used to manage transactions and also to store health data required to calculate the insurance premium in an anonymous form. The use of blockchain can enabled the assessment of claims and their reimbursement to be carried out faster and more precisely. Nevertheless, it is also possible to develop a flexible model in which premia are not paid because once the damage is verified, it is instantaneously covered by a peer to peer network (Hodson, 2013): the choice between the two strategies depends on the kind of protection chosen by the community involved.
DLTs and smart contracts are crucial to ensure transparency and equality of contracts, concepts lying at the core of a fair insurance model. Smart contracts can digitally represent agreements between two peers that when some trigger conditions come up, automatically run the clauses detailed in the contract itself. A correctly functioning DLT stores and processes data in such way that it is unalterable and unstoppable by single agents or groups, which is important to prevent frauds or modifications of the conditions agreed upon. This is ensured also by the fact that contract compliance or breach with DLT-based smart contracts is not at discretion of human agents, as it is, instead, with traditional contracts.
This further guarantee against frauds that these technologies provide facilitates disintermediation, and, therefore, a more cost effective and no-profit oriented system. Furthermore, their use can shrink the time needed to receive a refund due to the automation of the process. Finally, the insurance fund may include both national currency and tokens or digital currencies, in order to pool a wider range of resources.