Absence of retakaful or reinsurance providers

Absence of retakaful or reinsurance providers

How do national insurance funds correct for the risk of catastrophic events? They do this through reinsurance. Insurance companies engage reinsurance companies to insure the risk of the insurance company. Look at this as yet another layer of capital providers; the difference is, the reinsurers don’t provide the capital up front, they only provide it when the fund runs out of money. And unlike capital providers, there is no defined amount of capital that the reinsurer should provide, it just depends on the capital needs of the fund in a catastrophic event.

Takaful companies also have a similar retakaful set-up, although the market for retakaful has struggled in recent years and many takaful operators turn to conventional reinsurance companies for reinsurance coverage. The shariah position on this is unfavorable.

The Takasure DAO fund will seek retakaful coverage, however, as crypto regulations are still unclear in much of the world, retakaful companies may not be willing to extend coverage. Hence, as with capital providers, the DAO fund is structured to operate without retakaful coverage. As explained above, dynamic underwriting is employed to ensure that the fund will remain sustainable in the long run.

Global fund with no historical data

Takadao’s mission is to provide the global underinsured with access to fair and transparent takaful insurance. From an insurance perspective, a global fund is highly diversified and will benefit from lower overall risk. However, the downside to a global fund is that it hasn’t been done at scale before and hence there isn’t enough historical data to underwrite and predict the risk to a high confidence level.

Takasure will amalgamate data from national sources in its prediction and underwriting models and use machine learning to adapt the models continuously; however, with any new innovation, there will be a learning curve. Additionally, it may be difficult to get up to date data sources, especially from nations where data is not readily available.

Here, dynamic underwriting once again addresses the issue of fund solvency.