Takawriting and its impact on the insured

Takasure’s most important role is to ensure that its members are protected and benefit from mutual aid and assistance in times of adversity. To achieve this, every design and operational decision must be carefully considered against cost and benefit to the DAO membership. Likewise, the impact of Takawriting on DAO membership must be carefully considered.

Impact 1: Long term solvency of the fund

Takawriting optimizes for the long term solvency of the DAO fund. Everything is oriented around the goal that the fund should remain solvent in perpetuity and therefore be able to pay claims in perpetuity. If the fund becomes insolvent because it paid out too much in claims, then the minority who received benefit payouts earlier would have benefited, but the majority of participants would be harmed as an insolvent fund would neither be able to pay future claims nor distribute underwriting surplus. Hence Takawriting will ensure the greatest benefit for the largest number of people.

In a healthy life insurance fund, less than 1% of the insured is expected to pass away in a given year. This means that 99% of the insured population will not make a claim. However, with a longer time horizon, everyone will pass away and everyone should be able to make a claim and receive a benefit. This is why fund solvency in perpetuity is the ultimate objective.

Impact 2: Perpetual life insurance

Takawriting allows us to operate a life insurance fund in perpetuity without the need to focus on short term profits. This also means that we can offer life insurance in perpetuity and at a much lower cost than conventional “whole life” insurance. We are able to do this because the fund is managed to ensure solvency in perpetuity.

Impact 3: Uncertainty in benefit payout amounts

Takawriting, unlike conventional insurance underwriting, does not have a sum assured and the benefit multiplier is impacted by loss ratios. This means that there is some uncertainty in what a beneficiary will receive in the event that the insured passes away. For some, this defeats the purpose of insurance altogether. Putting things into perspective, the undefined benefit is common in conventional auto and medical insurance where the benefit payout depends on the expense incurred as a result of a car accident or medical condition. In addition, there are usually limits put on benefit amounts and a deductible which the insured pays. As such, the practice of the undefined benefit in insurance is not new. What is new is its application to life insurance. However, individual impact should be limited due to the risk sharing nature of the fund where losses are spread among many instead of borne by a single person. In addition, as benefit payouts are a multiplier of an individual’s contributions, the minimum benefit payout that can be received will equal that individual’s contribution. In the event of a claim, the beneficiary will receive at least what was paid in.

Impact 4: Participation in underwriting surplus (affordability and fairness)

Trade Offs

Dynamic underwriting and the need for transparency