The Community Fund is presenting the following proposal from community member Chris Comrie for the community’s consideration.
The traditional insurance markets are ripe for disruption due to lack of adoption of new technology and large inefficiencies. I propose a community grant to evaluate how Nexus Mutual could compete with and disrupt traditional insurance markets.
According to Statistica, the market size for Property & Casualty and Direct insurance is at an all time high, up to $694.27 billion in 2020.
If Nexus is able to capture just 0.01% of this market, it represents a $69 million per year opportunity. If we can capture 0.1% that’s $690 million, and if we capture 1% that’s a $6.9 Billion dollar per year opportunity.
For the community members unfamiliar with traditional insurance markets, the property and casualty insurance market includes insurance for things like fires, hurricanes, earthquakes and floods to buildings and homes.
Up until now Nexus has provided cover mostly for crypto assets but has many advantages outlined in the white paper to traditional insurance companies that can make us more competitive than legacy insurance companies to provide cover on more traditional assets. We most notably have lower operating costs due to higher efficiency which could allow us to undercut the market and take a share of the profits.
I propose a grant to evaluate how Nexus could offer cover on more traditional assets starting specifically with earthquake insurance due it’s high premiums, low market capacity (meaning fewer competitors and higher demand), and relative ease of evaluating and paying claims.
Thanks @Kendrea for posting! And thanks @Kayleigh-NexusMutual and @Hugh for helping work through rough drafts and ideas. I’m really excited about how massive of an opportunity this is for Nexus. If anyone has any questions feel free to reply here or contact me directly:
As catastrophe risk was at the heart of the original idea for Nexus Mutual it’s exciting to be considering this avenue. Based on Chris’ experience and the needs of the mutual I support this proposal and will help to support Chris with this project.
It’s cool to see NXM trying to disrupt the traditional market. It’s great if the mutual is able to diversify its offerings, that’s what best for insurance companies anyway.
Agree the property and casualty insurance market is a huge market that Nexus should tackle. The on-chain mutual structure means Nexus is scalable beyond just crypto-native covers.
@chrisc Could you be more specific about what exactly you’re looking to build here on top of Nexus and what NXM grant allocation you’re thinking of?
Thanks @luciusfang. The demand for traditional insurance (especially catastrophe) is generally very consistent. Meaning in crypto bear markets it can be a stable stream of revenue.
You hit the nail on the head @rchen8. The property and casualty market is a golden opportunity. Hugh and team did a great job outlining some of the advantages in the original white paper.
I’m asking for 200 NXM. Having worked in the legacy catastrophe insurance industry for years, the report will require a massive amount of research given the fragmented and walled off current market competitors. This would entail researching and preparing a report analyzing the opportunity. From there, the mutual and team can decide what action to take. Thanks for asking!
This is a fantastic idea. One of the reasons I’m bullish on Nexus is the potential to branch out into off-chain markets. Getting into the traditional sector in property and casualty markets would be a huge development, and another way to add capital to the pool.
Within this report, I would also appreciate a discussion around the capital allocation to any one cover product due to the Global Capacity Limit. Any insight into an ideal capital pool size, or ideal MCR, to branch out into these markets would be appreciated, too.
For an investment of 200 NXM, I think members would be getting a lot of information/value in this research report.
Thanks for the comments @BraveNewDeFi. You’re spot on, capital requirements will be a large factor in judging if it’s a smart product offering. It will be a large emphasis in the report. Fortunately, i think it may be one of Nexus’ greatest strengths… Thanks for the support!
Some additional context from me, that help place this initiative into wider strategic context.
Nexus’ works best where it provides coverage for markets where traditional insurance solutions are either not available, or there is capacity shortage. Cat risk in general is always short on capacity, as a result they often have government mandated backstop solutions which sometime work and sometimes don’t. In short, there is a big opportunity here.
From a technical product point of view, Nexus can currently assess claims on a remote basis only, and works best when there are relatively few claim events. Cat risk fits very neatly here, it requires no changes to the protocol only product design is required (the product wording document) so all off-chain.
Products are likely to be b2b products, rather than b2c, where a large business, government, or maybe an insurance entity off-loads risk in larger tranches. eg $20m-$200m at at time. Triggers are likely to be industry loss or parametric based ones where there is an existing available data source.
For a small insight into the Insurance Linked Securities markets, check out https://www.artemis.bm/ including their deal directory, which shows all historic ILS deals. This is a small part of the overall cat risk market, but it’s more public so it’s a good place to get a feeling for what is happening.