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On 1/9/2016 at 0:01 AM, tomxcs said:

@KarmaCoverage Can you explain the difference between insurance and coverage? Is one a subset of the other?

I didnt directly address your question..

Yes, Insurance is a subset of Coverage. it is really the Coverage Industry, and Insurance is just one method people employ to achieve Coverage.

There are other methods which have existed much longer than the Contractual Insurance method, which is so prevalent in today's financial system.

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16 minutes ago, KarmaCoverage said:

KarmaCoverage is NOT designed to focus on the rare huge loss events, but rather to enable users to cover the 92% of loss events which are small, and relatively common.

Insurance companies already offer such products (first loss policy, for example).


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4 hours ago, T8493 said:

Insurance companies already offer such products (first loss policy, for example).

After reviewing what a "first loss" policy is, I dont see any real overlap with KarmaCoverage. It looks more like a method which the Insurance industry has agreed to under-insure a risk. http://www.investopedia.com/terms/f/first-loss-policy.asp


Type of partial insurance (which covers less than the full value of goods or property at risk) where both the insured and the insurer acknowledge that the 'subject to average' (see average) rule does not apply. These policies cover only the estimated largest possible loss, and are used commonly in the burglary or theft insurance where the possibility of total loss is extremely remote (such as in case of a large store).

Read more: http://www.businessdictionary.com/definition/first-loss-policy.html#ixzz3wxzNnUX5


  • Deductible still present
  • Contractual in nature
  • Still must price in Insurance company overhead, commissions, underwriting profit, ect. (all wasted capital, increasing the guaranteed loss of the insured)

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnity) the insured in the case of a financial (personal) loss. https://en.wikipedia.org/wiki/Insurance


There is a bit of a catch 22 when explaining KarmaCoverage, if I begin the conversation by referencing "Insurance", people automatically fall into the "guarantee" mind set. Guaranteed Loss, and Guaranteed Indemnity.

With KarmaCoverage, there is no guarantee, other than the service will not waste user money. All money is transparently reallocated according to user directions, or remains with the contributing user (via Dist Ledger). The users agree to a social arrangement with their 1st & 2nd degree social network to behave in a certain way, this agreed to behavior includes declining to help users who are trying to fraudulently abuse the system to take advantage of their friends.

Insurance is all about Greed. Nobody has ever asked me if they could pay a little more for their policy, or if their coverage check could be a little less money.

KarmaCoverage is all about encouraging and enabling Reciprocal Generosity (Karma), where users can put some "money on the table", and promise to help any of their friends who experience an acceptable loss event. In exchange users can ask for a Coverage Request to be approved by other users should they be the one who experiences a loss event.

KarmaCoverage employs existing Social Trust and Transparency as the mechanisms for establishing Trust; where as Insurance uses Contracts, Lawyers, Courts, to "establish trust".

Ask yourself, "Do I trust people I know, or my Insurance company more".

(I can assure you my clients who have had claims denied and/or losses which were only partially compensated have, at best, damaged trust in Insurance)

Insurance is failing on 2 parts of the service offering

  • No feedback loop, ie when you pay your premium you have no idea who your money went to help, so you receive no positive emotional feedback for having consumed the service, (unless you have the unpleasant emotional experience of a loss event, and jumping through bureaucratic hoops).
  • Insurance sees Moral Hazard strictly as a Cost, where as KarmaCoverage (and all other P2P "insurance" business models) embrace Moral Hazard as a Value Creation opportunity.

The two concepts are fundamentally different in terms of business model, economic model, financial model, and risk tier.

The two financial services are based on different paradigms. Insurance is based on Industrial Age ideas of efficiency gains through centralization and standardization. While P2P Coverage Services achieve efficiency gains through Transparency, Network Effect, decentralization (reduced management cost) via Distributed Ledgers.

Edited by KarmaCoverage
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I dont want to overstate the short comings of Insurance. It has it's place in the world, which is supplying Coverage for low Frequency, and high Severity loss events.

Insurance is a derivative. The only way the market size can grow is either by increasing Risk, (which is bad for society, see Health Insurance), or by expanding Coverage to include more profitable loss events (ie, slightly higher Frequency, accompanied by much lower Severity).

In the Home Insurance product line, you see more Coverage being attached to policies for losses such as Identity Theft, and Equipment Breakdown. This enables higher premiums to be actuarial justified. While at the same time, you see more exclusions and limitations on Liability claims being written into the policies to reduce the Severity of big lawsuits.

Insurance Premiums = Frequency * Severity ; or the probability of a claim (which is 7%) * the average dollar amount of the claim.

Insurance has slowly creeped it's way into supplying Coverage for things which it is not the most efficient method, and backed away from providing Coverage for things which it is, in fact, the most efficient method for achieving Coverage.


Another short coming of Insurance is that it has somewhat high Fixed Costs in overhead for highly qualified Actuaries, and Lawyers. This prevents, or at least makes it very difficult, for the financial service to scale down and provide Coverage to folks who may only have a $1/year to allocate to risk mitigation, or only need say $20/year in potential coverage.

@Haydentiff Basically providing a Risk Mitigation Financial Service to the third world is a real need. The need for this service takes the form of micro-insurance (if stuck in the Contractual Insurance paradigm) and is what sparked this conversation.

Edited by KarmaCoverage
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Guest Haydentiff
1 hour ago, KarmaCoverage said:

@Haydentiff Basically providing a Risk Mitigation Financial Service to the third world is a real need. The need for this service takes the form of micro-insurance (if stuck in the Contractual Insurance paradigm) and is what sparked this conversation.

I'm working on building a mutual aid society, but I'm starting here (in the U.S.) for a few different reasons. I want to include microfinancing and microinsurance.

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