Bringing back trust to insurance by having you replace the insurer
Traditional insurance is broken, this is how we rebuild the lost trust in risk markets.
How it all started
In the old days, insurance was nothing else but helping out your community members in case of a catastrophic event. If someone’s house burned down, the community would step in and help to rebuild the house. Alternatively, the community would raise funds for the affected family to mitigate the financial impact. Although a contribution would be voluntary, almost everybody chipped in, as they knew it could be them being affected next time.
Over the years, insurance moved from small scale communities where people all knew each other, to large scale national and international firms with anonymous policy holders, underwriters and claims managers. Large risk pools help to make statistics work, which increases the likelihood that all claims can be paid from the premiums in the risk pool.
Where we are today
In the current insurance industry there is limited social cohesion between the policy holders and there is an implied conflict of interest between the policy holders and the insurance company. The insurance company makes more profit by denying claims and makes less profit by paying all claims. The policy holder may only decide to get insurance if he/she expects to make a claim.
When you are in the inner city of a large metropol, did you ever wonder why many of the tallest buildings belong to insurance companies? That’s because this business is very profitable. We believe it is time that the community shares in the profits.
How decentralized risk coverages make you replace the insurer
How different would it be if we bring rewards of running a risk pool back to the community? With Decentralized Finance (DeFI) solutions anyone can replace the insurer. The conditions of an insurance contract reside on a smart contract in a transparent and immutable way. Any two people out there can sign this contract: One as an insurer and another as the insured.
Recently we have seen new innovative projects emerge which help the crypto community in the catastrophic event when their favorite wallet or protocol gets hacked. The first to market was Nexus Mutual (nexusmutual.io) which allows buying and staking of risk contracts. This staking model allows anyone to become the counterparty to an risk coverage contract and earn the respective fees (at the risk of losing their money at a catastrophic event).
As the DeFi insurance space is in its infancy, innovation is coming quickly. First mover Nexus Mutual allowed users to stake insurance contracts based on their own NXM token. This is a great innovation but still exposes both parties to exchange rate risks of this token. New entrant Bridge Mutual will take the DeFi insurance one step further and allows staking in stablecoins (e.g. DAI) making the products less risky.
At Bright Union we are excited to see which innovation will be hitting the markets in the coming months. With our platform we create transparency for the community in this new and growing market of complex products. We believe that the community itself is able to help each other in times of catastrophic events, and should reap the benefits of doing so.
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🤓 Learn More: Read more in the Litepaper.
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