When I started work on TandaPay, I didn’t assume anything. I didn’t assume that coverage needed to indemnify risk. I didn’t assume that payment of partial sums, i.e. discounted claim awards, was unacceptable. I didn’t assume that the coverage fund needed to hold substantial reserves. I didn’t assume that premium pricing needed to be efficient or even that premiums should be the same from month to month.
I didn’t assume that all insurance architecture needed to be the same. By disregarding traditional rules, I was able to create something new. Now admittedly, an insurance protocol that has the following attributes is not to most people’s liking:
- Not indemnifying loss (i.e. parametric coverage).
- The policy holds no reserves.
- The policy is permitted to have periods of temporary insolvency.
- Sometimes resulting in depreciated claim payments.
- Premiums are permitted to change dramatically every month.
- Coverage has an upfront cost that is 2x to 3x higher than competitors.
TandaPay is the durian ice cream of insurance protocols. Here are a few fun facts about durian:
- Durian is banned on many types of public transport.
- Durian killed more people than sharks in 2012.
- Durian had a global market of 17.6 billion in 2018, which was 3x bigger than the market for cherries (see also).
If you’ve never had the pleasure of tasting one yourself, I’m sure you’ll be tempted to pick one up on your next trip to the store after watching this video!
What was gained by thinking different?
TandaPay is considered to be a weak protocol, but herein lies its strength, that TandaPay communities will death spiral if consensus is fractured. This is a unique attribute, but it requires everyone to know what constitutes a fracture. I’ve spoken about the necessity of permitting defections because the moral hazard from approving an invalid claim is greater than the moral hazard of an individual defection. If a way to distinguish between selfish defections against valid claims and honest defections against invalid claims could be found, then TandaPay would truly be a breakthrough.
Two unique identities were created which would permit everyone to classify a defection as either dishonest (selfish) or honest:
- A dishonest defector never denies payment to a valid claim.
- An honest defector always denies payment to an invalid claim.
By using subgroups and overpayments, we gain both of these identities. Subgroups eliminate the negative impact selfish defectors have on the system while encouraging honest participants to defect together as a group. See graphic below:
TandaPay didn’t make the same tired old assumptions that insurance providers have been making for hundreds of years. That is why TandaPay is different. Insurance is a financial tool, but many of its principles and underlying assumptions have not been scrutinized for decades. It’s not clear yet if this is going to be a flavor of insurance that people are going to like, but the below quote embodies the wisdom we should take to heart:
We should take these examples as lessons. (Principles) like the conservation of energy and the conservation of momentum are absolutely crucial to the way that physics and the natural world functions. But (these principles) are not sacrosanct. They are not things that we are not allowed to question once we understand them. Physics is a breathing living thing.
(This is because) if you consider physics not as (an absolute law governing) how the universe behaves but (rather) our understanding of how the universe behaves, physics is never perfect. It hopefully gets better, but it certainly changes over time.
You might have thought (conservation of energy) was an absolutely inviolable principle. However, once you understand how the universe works, you might (realize) that those principles are just special cases that are approximately true in the right circumstances. These cases may not turn out to be true more generally. That’s a lesson for us as physicists and maybe a lesson for all of us whenever we think about the world in any context whatsoever. — Sean Carroll (biggest ideas in the universe)