Russian software architects and entrepreneurs Alex Paperno, Eugene Porubaev and Vlad Kravchuk plan to take the insurance company out of insurance. Their Teambrella, a Bitcoin-based peer-to-peer insurance platform, allows users to provide each other coverage for whatever they want, however they want, and without requiring any trusted intermediaries.
Paperno:
“Anyone who ever needed a reimbursement knows that insurance companies are actually not interested in paying out at all; it’s not in their benefit to help their customers. We intend to remove that conflict of interest, and make insurance fair and transparent.”
“Team Coverage”
So, what is Teambrella?
In essence, Teambrella is a platform that allows people to form teams that offer each other coverage. If one person within that team requires reimbursement, the rest of the team chips in to provide it.
Speaking to Bitcoin Magazine, Paperno explained:
“As opposed to a typical insurance, Teambrella team members don't pay a set periodical fee, but instead deposit funds into a special Bitcoin wallet. As long as there are sufficient funds in this wallet, that team member is insured. Or, if there's ‘insufficient’ funds in the wallet for full coverage, the team member is simply partly insured.”
Each Teambrella Bitcoin wallet is linked to a specific team member, but locked using multi-signature. The funds on that wallet can be spent only if both the insured team member, and three out of eight semi-randomly selected teammates, sign for it. As such, neither the insured person nor his team can withdraw bitcoins from the wallet without help from the other. (But typically, a team member should be able to exit a team whenever he wants to; there's no reason for his team to lock him in.)
“If the team then collectively decides that a team member has a right to reimbursement, all team members are to pay their share,” Paperno explained. “Any team member that declines to pay his part, by refusing to sign his end of the transaction, will essentially have his funds locked up, and can lose his own insurance. As such, there is a strong incentive for everyone to contribute to the reimbursement as agreed.”
Getting Insured
Let's take a closer look at how this works:
If you want to take out car insurance, you could look for a bunch of people on Teambrella who want to take out car insurance as well, agree on certain rules, and form a team. Alternatively ‒ and this will be more likely once Teambrella has established itself ‒ you look for an existing car insurance team, and simply opt to join.
To join a team, you present yourself to that team in whatever way you and the team agree on. Perhaps you upload a picture of your driver’s license, or maybe you provide your previous insurance records or whatever might be helpful.
All members of that team then get to vote on what your risk coefficient should be. And, based on that risk coefficient, how much you'll need to relatively chip in when someone needs reimbursement. If the odds of you getting into an accident are higher, for instance because you just got your driver’s license, your team might require you to chip in more when someone needs reimbursement. Or, if you are a very experienced driver with a great track record that will probably not need reimbursements often, the team might be willing to give you a “discount.”
After this voting round, the median of all votes is taken, and that median is the offer the team makes you. You can now decide to either take the offer or leave it, or perhaps provide the team with more information and ask for a re-vote.
Once accepted into a team, you get to vote on the risk coefficient of new team members as well. Additionally, you might get to vote on new risk coefficients for existing team members that required reimbursement, potential deductibles and more. In essence, almost any rule within a team can be voted on by that team.
Pay-Out
Suppose you then get into a car accident, and you have $10,000 worth of damage.
You would submit a claim to the team for $10,000, including evidence. What kind of evidence, of course, depends on you and the team. Perhaps the team requires a police report, a photo or something else.
Once again, each team member gets to vote. This time, team members vote on whether you should be awarded any money, and, if so, how much; this could be anywhere between zero and $10,000. After this voting round, the median of all votes is taken again, and this determines how much all team members must actually pay you. If all goes well, you receive payments from all these team members on your own Bitcoin address.
Paperno, who’s an expert in game theory, outlined how this voting procedure should incentivize everyone to act honestly.
“Voting is a key part of the Teambrella process. Not only because it determines how much the team pays to a team member that requires reimbursement, but also because voting becomes part of each team member's own reputation. If one team member always votes much lower than all other team members, it potentially lowers the reimbursements made to all team members.
As such, the team might be less willing to pay the low-voting team member a decent reimbursement when he needs one himself. Or, if a team member consistently votes much higher, potentially costing everyone money each time a claim is made, the team could be inclined to reimburse him less as well. So it benefits each team member's reputation if he takes the voting process seriously, which will, in turn, benefit his potential reimbursements when he needs it.”
Of course, as with any other insurance, there is always a risk of fraud. Team members can submit unjust claims in order to receive reimbursements where they don’t deserve any. But Paperno expects this problem to be comparable to typical insurance companies, where the cost of this type of fraud is indirectly paid by all customers as well.
Paperno:
“In Teambrella, teammates are not limited to a standard set of verification procedures, and may require any amount of additional proofs. Furthermore, fraud against peers is usually much less tolerated than fraud against ‘the system.’”
Expert Proxys
And there's an important added dimension to the Teambrella platform.
First, when a claim is made, all voting team members receive a bit of money per reimbursement as well. By default, this is 5 percent of the total reimbursement, distributed among all voters. (But the percentage is adjustable per team.)
Plus, team members can proxy their vote to other team members. And since voting weighs into a team member’s reputation, it makes sense for team members to proxy their votes to an expert who knows what he’s doing. That expert will then receive the voting commission, while the team member won’t need to dig through claims from team members to find out whether they are legitimate.
This dynamic, Paperno believes, could make Teambrella a viable alternative to existing insurance companies, as it should ensure no one overpays for their insurance.
Paperno:
“If enough team members proxy their vote to an expert within their team, that expert earns more money, and should therefore also be able to invest more time and knowledge in researching the claims, ensuring the votes he issues are fair. This could, in turn, improve his reputation even further, earning him more proxy votes, and therefore more money and time to invest. If teams are big enough, these experts might even make a full-time job out of their expertise. They'd effectively be insurance agents operating in a reputation-based free market environment within Teambrella.”
And, making the picture complete:
“These experts could also serve as the gatekeepers of each team. Rather than each team member evaluating a potential newcomer themselves, experts can take this job on as well. While the experts will not get paid for this, they might want to do it regardless, as good judgments will benefit their reputation. And it will also be a good point of contact for them to get to know new team members, which could earn them proxy votes as well,” Paperno explained.
Setup and Risks
Teambrella is set up as a hybrid model with open source clients, that connect to a central server (which will not be open source from the beginning).
Teambrella may eventually charge a small fee for use of their platform, but never touches bitcoins used by team members, and there are no private keys stored on their server. So even if that server is compromised, or the project is pressured by authorities, all team members within Teambrella can still get their funds back using only their open source clients (though they'll disband the team by doing so).
That doesn’t mean using Teambrella instead of a typical insurance company is without risks - if it’s even allowed (which will vary per insurance and per jurisdiction).
For one, there's always a theoretical chance that teams consist of dishonest people. The team could refuse to pay out any funds to a particular team member, or perhaps even “hijack” that team member’s wallet by refusing to sign a transaction unless part is paid to the hijackers. In that case, there is no legal recourse, and Teambrella won’t be able to resolve the issue either.
Paperno expects these types of problems to be rare, however.
“We will warn users not to join teams with no friends or friends of friends in them as long-term members. And, of course, it’s also possible to set up teams for people that already have some sort of trust relationship, like colleagues. We expect almost zero hard fraud in these cases,” he said.
Additonally, Teambrella will typically offer weak privacy. At least in the first version, Teambrella users will need to create an account through Facebook, which is in itself not very privacy friendly. Moreover, any claim a team member makes will be visible to the entire team. This might in some cases be undesirable; think of health insurance.
And of course, the fact that Teambrella is Bitcoin-based is a risk in itself. As a project, Bitcoin is still experimental, and as a currency, Bitcoin is volatile. Using Bitcoin for insurance exposes users to these risks – which is perhaps undesirable for very important types of insurances.
Though, as Paperno pointed out:
“In big teams, users don't have to keep large sums in their wallets; they can keep ‘pay as you go’ amounts, and add funds to the wallets once a week or so.”
Adding:
“And while Bitcoin is indeed volatile, it’s not as volatile as the ruble.”
Like many Bitcoin projects, Teambrella is experimental, and this article should not be considered an endorsement. For a more detailed explanation of Teambrella, as well as some (technical) risks not covered in this article, see the project’s white paper.