“Taka DAOs (tDAOs)” vs. Centralized Insurance Companies

Our mission at Takadao is to enable:

• Global access to affordable insurance alternatives through the use of public blockchains and cryptocurrencies

• Transparency, trust and community engagement by establishing true ownership of the risk fund by members in the form of a community DAO, a sovereign self-governing entity

• Transparency, trust and community engagement in payout management processes

• Curtailing of the profit-incentive to eliminate conflicts of interests and misaligned incentives currently inherent in the insurance industry

To achieve these goals, Takadao builds technology to enable insurance alternatives that differ from traditional insurance companies in the following ways:

• Each insurance risk fund is owned by a Takadao-powered mutual protection community DAO (tDAO), which is a standalone entity unrelated to Takadao. Takadao acts as the technology service provider to the tDAOs. The tDAOs have their own legal entities, ownership and governance structures.

• Smart contracts actively manage the operations of the tDAO with no interference from any other manager. No one can change the smart contracts unilaterally and any changes made are immediately viewable publicly. Only upon express approval of tDAO members, through voting, can smart contracts be replaced or updated. Takadao has no management control over the smart contracts, risk fund or community tDAO.

• The Takadao technology is underpinned by a patented underwriting and risk management model that requires no external capital and is self-adjusting according to the performance of the risk fund. The conventional “sum assured” is replaced by a “benefit multiplier” to de-risk the tDAO fund and to ensure solvency. In simple terms, the payout in the event of an adverse event is based on the amount contributed, individual risk and the performance of the tDAO fund.

• The surplus of the tDAO fund is either retained for reserves, used for services beneficial to the tDAO or redistributed to members. The distribution of the surplus is “on-demand” (subject to lock-up periods) as opposed to being tied to the fiscal year end.

• Reinsurance is replaced by a Reprotection Pool (rePool) that consists of Takadao ecosystem tokens (TAKA) staked by token holders who may or may not be from the tDAO. The rePool acts as a separate pool of reserve funds that can be drawn from in the event tDAO fund reserves are rapidly depleted due to a catastrophic event.

The following table highlights how a tDAO differs from a conventional insurance company.

	Takadao powered mutual protection DAOs (tDAO)	Conventional insurance (Stock or Mutual)
Primary objective	Not-for-profit. Maximize well-being of tDAO members collectively and individually. Optimize size of tDAO fund to diversify risks and ensure long-term viability	Stock co: Maximize profits to shareholders Mutual co: Maximize profits to the company, which benefits the for-profit management (through compensation) and policyholders (through dividends or discounts)
Legal entities	2 separate legal entities. Takadao, the technology services provider Community tDAO that owns the risk fund and governs third party service providers like Takadao and investment managers.	The insurance company is the single legal entity that manages all funds. Stock co: Funds are owned by the company and its shareholders. Mutual co: Funds are owned by the company and its policyholders (while the policy is in force).
Members vs. Policyholders	Members are owners of the tDAO fund and are (minimally) known to one another. Their ownership and equity stake is represented by tDAO tokens (Membership Credits). tDAO governance by participants is through voting, one Credit, one vote.	Stock co: Policyholders are customers and have no rights to governance Mutual co: Policyholders are “contractual creditors” and have rights to governance Policyholders are unknown to one another. Cannot effectively organize as a group.
Appointed Committees v Board of Directors	Contributor Committees of the tDAO fund are selected from members and voted in by members. They represent the interests of the tDAO fund solely. They are not related to the board of directors of Takadao.	The policyholders are not represented by an independent board of directors. The board of directors of the insurance company represents the interests of both the company and the policyholders.
Variable vs fixed benefit	The member is assigned a benefit multiplier at the initial joining of the tDAO based on individual risk. To determine the actual benefit payout amount, annual contributions are multiplied by the benefit multiplier. The higher the contribution, the higher the benefit amount. The benefit is variable depending on the overall performance of the fund to ensure fund solvency. In the event of a catastrophe, all benefits are reduced to ensure that there is enough money to pay out the maximum number of people	The policyholder is guaranteed a certain “sum assured” in the event of a claim. This sum assured is determined at the initial underwriting of the policy and remains fixed throughout. The sum assured is not variable based on fund performance. In case there is a catastrophic event, the sum assured is still paid, which can lead to fund depletion such that remaining claims are unpaid.
Distribution of fund surplus vs underwriting surplus	The benefit payout amount varies within a stated range according to the performance of the tDAO risk fund. In case fund performance is better than projected, surplus amounts increase and are redistributed to members. In case fund performance is worse than expected, benefit payouts are reduced across the board to ensure fund solvency. There is no surplus in this scenario.	Stock co: Surplus amounts are distributed to external shareholders. If the fund is insolvent, the company can raise additional capital through share sales. Mutual co: Dividends are paid out to policyholders if there is an underwriting surplus. If the fund is insolvent, the company is closed or demutualized to raise money from share sales.
Benefit payout vs claims management	Benefit payout process is technology facilitated, but final decision-making is performed by a revolving committee of tDAO members (Verifiers) in a double-blind process.	Insurance companies manage the claims process from start to end, without need for transparency or disclosure.
Reprotection vs. Reinsurance	While a tDAO risk fund is self-adjusting based on fund performance, it cannot account for a single catastrophic event that significantly depletes reserves in one go. For this scenario, Takadao has established a reprotection pool (rePool) that makes a no-interest loan to a tDAO to help increase Benefit Payouts in catastrophic events. The rePool is funded by Takadao token holders who choose to stake their TAKA tokens in the rePool. The tDAO will repay any such loan to the rePool with its future surplus. Repayments are triggered once certain fund conditions are met.	Traditional insurance companies have rigid underwriting models that are vulnerable to reserve depletion and fund insolvency. This is exacerbated by regulations that don’t allow insurance companies to change premium rates easily. To mitigate and spread their risk, insurance companies engage with reinsurance companies. In case losses exceed a certain threshold, reinsurance companies step in to pay the excess claim amounts. In return, the insurer shares part of the premium with the reinsurer and keeps any fund surplus as shareholder profit.
Regulatory regime	Takadao is regulated as a for-profit entity providing consulting and technology services to the community tDAO. The tDAO fund is regulated as a non-profit association or foundation engaged in a risk-sharing pool. There is no offering of a paid service. Participants are protected from personal liability.	Stock co: Regulated by insurance and securities regulators to protect policyholders and shareholders from one another. Mutual co: Regulated by insurance regulators to protect policyholders from management