A Unified Theory of Decentralized Insurance

Decentralized insurance can be used to describe risk sharing mechanisms under which participants trade risks among each other as opposed to passing risks mostly to an insurer in traditional centralized insurance. There are a wide range of decentralized practices in all kinds of forms developed around the world, including online mutual aid in East Asia, takaful in the Middle East, peer-to-peer insurance in the West, international catastrophe risk pooling by African, Caribbean and Central America countries, etc. There is also a rich literature of risk sharing in academia that offers theoretical bases of other decentralized mechanisms. This work presents a unified framework to describe the commonalities and the relationships of all these seemingly different business in practice and theoretical models in academia. Such a framework provides a fertile ground for the comparison of existing practices and the design and engineering of hybrid and innovative models