Unity — A New Model for Generalized Peer to Peer Insurance

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What has been done so far

The initial checking of the incentive architecture has been completed and so far no errors have been found in the incentive structure.

What the Unity framework is

  1. The means by which small communities can self insure using smart contracts to transparently hold premiums to pay future claims.
  2. A means for providing more transparency and accountability by entrusting the blockchain to manage funds and liabilities held by the policy such as:
    Record of premiums paid
    Record of claims paid
    Total value of underwritten liabilities
    Current value of outstanding liabilities
    Current value of reserves to pay claims
  3. A policyholder incentive model that rewards them if they exercise proper governance and punishes them if they don’t plan for future losses.
  4. A moderator incentive model that rewards them if they underwrite risk responsibly and punishes them if them misevaluate risk.
  5. Governance is focused on resource management to avoid a future solvency crisis. To assist policyholders the software educates them as to the current state of their policy. This allows them to make choices about:
    Setting premium rates
    Allocating premiums toward short term or long term risk
    Seeking lines of credit when needed
  6. The software framework makes the communities assumptions about risk transparent to everyone. This means that a policies risk model is subject to public scrutiny and debate.
  7. The Bancor protocol provides policyholders better protections against sudden insolvency and guarantees that everyone’s claims will be fairly paid even if everyone is forced to accept a partial claim payment.
  8. Unity allows for new insurance products that were previously unavailable in the marketplace. It does this by creating small communities which pool resources similarly to how tandas, cundinas and ROSCAs work.
  9. Unity’s goal is to provide the same guarantees as these lending clubs by eliminating a trusted third party which holds insurance funds.

What the Unity framework is not

  1. A working piece of software or even an early stage prototype. At this stage only the incentive architecture is completed and some limited financial modeling.
  2. A model applicable to all types of insurance. Any insurance where privacy of claim awards needs to be preserved is incompatible with this model.
  3. An automated system for approving insurance applications or evaluating insurance claims. The software code doesn’t make determinations on who is permitted to obtain a policy or who is awarded a claim. The human occupation of underwriting will probably never become fully automated.
  4. A valid competitor to existing forms of centralized insurance.

An overview of how Unity generates incentives

The participants in the model:

  • Policyholder: Pays fees to a moderator to have their policy underwritten. Pays premiums to the system to open a policy. If a loss occurs they can open a claim to receive a claim award. This award entitles them to obtain a claim payment.
  • Moderator: Underwrites policies and evaluates opened claims. In exchange for investing in the community they can collect fees by underwriting policies. If the community remains solvent then their investment maintains its value. They also approve the claims of policyholders so that they may receive a claim award.

Incentives are generated using four different assets:

  • E̶T̶H̶ DAI: This is used to pay premiums and to pay claims. DAI is a stablecoin that will always be worth $1 USD. It also allows moderators to purchase UW-tokens which underwrite policies.
  • UW-tokens: Needed to underwrite policies. Purchase of this asset is like buying community stock.
  • PA-tokens: Policy approval tokens. This allows policyholders to pay premiums to acquire a policy. It bridges the underwriting process and the policy approval process.
  • CA-tokens: Claim award tokens. This allows policyholders to be approved for a claim award which they can later convert to a claim payment in DAI.

Requiring participants to use these assets for the following transactions:

  • Bonding of UW-tokens for PA-tokens: This allows moderators to trade the future value of their investment in the community for the present value of fees they can collect by underwriting policies. If a claim is opened then this delays their ability to reclaim their associated UW-tokens. If they fail to properly evaluate risk then their UW-tokens once returned will decrease in value and they will experience a net loss.
  • Purchase of PA-tokens: Policyholders pay fees to moderators to underwrite a policy. PA-tokens effectively underwrite policies for a specific maximum claim value.
  • Payment of PA-tokens + premiums: This allows policyholders to trade the present value of their premiums for the future value of their potential claims by purchasing a policy.
  • CA-tokens awarded for valid claims: Policyholders pay fees to the moderator that underwrote their policy for a claim evaluation. Valid claims are approved by moderators for CA-tokens. CA-tokens are a claim award in local currency that entitles policyholders to a claim payment in DAI.
  • Exchange of CA-tokens for E̶T̶H̶ DAI: Bancor provides a way to exchange CA-tokens for DAI. The exchange rate remains the same if the community remains solvent and gradually decreases if the community starts running out of resources. This allows policyholders to receive a claim payment relative to the current solvency of the community. Policyholders are responsible to plan accordingly for future claims and respond to changing levels of solvency. To understand this process please read my previous post: New types of payments for new types of claims.

Future plans for Unity

The model is continually being checked, refined and adjusted. The goal is to build a software development team and make this a working consumer product. Our initial target market is insuring cannabis growers and dispensaries. Right now we have enough funds to build a working prototype but we don’t have the team members needed to accomplish this.

Are you going to ICO?

No I hate ICOs. I only plan on using my personal funds + funds from friends and family to build this project. I’d accept VC funds only if a VC could provide development resources in addition to funds.

Why are you doing this?

Sometimes I don’t know. This has been a very long journey. I became obsessed with creating an insurance platform running on blockchain three years ago and I never regained my rationality. I’ve spent a ridiculous amount of time and money attempting to create viable prototype products. The projects I worked on however were out of reach due to their complexity, their need for business partners, or their reliance on other factors out of my control.

For the first time I am hopeful that I’ve found a solution future consumers will want to use. But simultaneously I feel discouraged because I don’t have a way to build a team that will develop the software. Trying to validate the model by publishing all of my insights is going to be a very long process.

I’m determined to keep publishing pieces of the architecture until I am able to gain more traction for this project. I feel that Unity is the solution for peer to peer insurance I’ve been searching for these past three years. It is a superior architecture for insurance than any other whitepaper I’ve read but I haven’t read a lot of other whitepapers recently. I’m not going to be building another model or framework. If Unity cannot be produced as a real software product I’ll quit working on peer to peer insurance and invest my time in something else.

How much work have you put into creating peer to peer architecture?

I can’t say for certain. This is just a small sample of some of the things that were published and are still available online. This wouldn’t include all of the offline work that was done for these projects.

  1. Initial whitepaper: Peer to Peer Insurance on an Ethereum Blockchain
  2. Exploration of severance / unemployment insurance
    A New Platform for Separating Severance and Grievance Payments
    Dynamis explainer video

    Dynamis planned website
    Several blog posts: 1, 2, 3
    I hired Quickleft to build a prototype but it was never completed this produced many lines of code which were abandoned.
  3. Peerback — Crowdfunding insurance
    I hired Anthony Akentiev to build a prototype, many lines of code were written. We needed to integrate with an actual crowdfunding platform. Insufficient interest from partners resulted in an indefinite pause.
  4. Exploration of the Bancor protocol for creating community currencies
    certificate architecture
  5. Unity architecture
    Does Cannabis Insurance on the Blockchain make sense?
    Bancor is a fractional reserve protocol 1
    Bancor is a fractional reserve protocol 2
    Bancor is a fractional reserve protocol 3
    Bancor could be used for governance
    What problems does blockchain technology actually solve in insurance?
    Incremental payments vs. lump sum payments
    Hyperlocal Insurance Uses Bancor — 1

So what now?

A website, an explainer video, pitch deck, more blog posts … etc. Until all possible opportunities for building a real development team are completely exhausted its worthwhile to continue to try and explain how this is going to work.

Written by

Incentives architect for TandaPay

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