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I have some questions regarding the concept and legality of a blockchain based peer-to-peer insurance platform.

A little background: The basic idea is for people being given the possibility to "insure" another users private property, whatever that may be in any specific case. The insurer would then have the opportunity to claim profits on a timely schedule, while the insured could claim the collateral provided by the insurer, if the requirements both parties agreed upon were to be met. The insurance contracts themselves would be initialized, maintained and eventually resolved through a series of transparent open sourced smart contracts. Smart contracts are essentially little programs, that run on the blockchain. The can be reviewed by anyone interested.

Questions:

  1. Is it legally necessary to formally record such a relation between two (or more) private persons? With the crypto space currently being so very unregulated, are there even laws applicable to this matter?

  2. How difficult would it be for users of such a service to declare the income generated through anything related to the platform? Would this be regarded as a form of self-employment, would they have to register a company or any of the likes?

  3. Would the platform itself, being the service provider, have to be registered in any way? The main aim of the platform would of course be income generation.

Legal accountability:

  1. Would we need to explicitly declare a disclaimer to prevent being sued if a user considers the rejection of their claim unjust? Since this is a peer-to-peer system, the platform itself will mostly be uninvolved in the decision process. Instead this will be the duty of an independant third party comprised of individual users.

  2. Could the platform be held accountable in case of lost user funds? Only if the platform were at fault? (as in, did the platform's source code cause the issue?)

  3. Can a strictly blockchain based platform even be sued? Only if it is legally registered?

  4. Is there an exact legal counterpart as to the role the platform would assume in this system? It provides the framework upon wich the insurance policies are designed, contracts are established and payouts are issued. It does not directly take part in insurance business.

Feel free to let me know, if any further clarification is needed.

Edit: Since jurisdictional specification was suggested, let's assume it to be Switzerland and the U.S.A.

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    It may depend on the party's jurisdiction(s) and whether the "insurer" has an insurable interest.
    – user35069
    Apr 14, 2022 at 13:55
  • Well the insurer in this case is the policy holder. Does he have anything to do with insurable interest? Doesn't that only affect the insured? Apr 14, 2022 at 14:04
  • This question asks what the law permits or requires. IMO it is not asking for specific legal advice, and should not be closed on that basis, although it might get better answers if a jurisdiction is specified. Apr 14, 2022 at 14:16
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    Yep, I mistyped and meant insured (i.e. the policy holder). However, "people being given the possibility to "insure" another users private property" still need in most jurisdictions to have an insurable interest which, unless I'm mistaken (again!) I can't see.
    – user35069
    Apr 14, 2022 at 15:25
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    @DavidSiegel, if you like, consider my "specific legal advice" vote a mis-click: even if it's not asking for legal advice, it should be closed for packing seven questions into a single post.
    – Mark
    Apr 15, 2022 at 3:07

2 Answers 2

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  1. Although crypto space may be little regulated, insurance is in most jurisdictions highly regulated. Any such arrangement would need to comply with current laws on insurance, until and unless modified laws to cover this sort of thing are passed, and then it would need to comply with those.
  2. Tax authorities generally allow one to declare "other business income" or "other investment income" without forming a legal entity. I cannot say how such income would be classified in any given jurisdiction.
  3. Whether the platform, or some legal entity associated with the platform, would need to be registered will depend on the current laws and regulations governing insurance, and on the way in which teh contracts are structured.
  4. A disclaimer cannot prevent one from being sued. The contracts would need to carefully and explicitly state who is liable for what.
  5. Programs cannot be held accountable for anything. Legal entities, including operators of programs, can be. If negligence in the creation or operation of a program causes a loss, the operator may well be liable.
  6. Programs cannot be sued for anything. Legal entities, including operators of programs, can be. It may well be essential to constitute the "platform" as a legal entity of some sort. Otherwise its operator will be liable for its actions.
  7. I cannot be sure. I once encountered a somewhat similar system in which insurance was provided by individuals exchanging contracts, so that in a sense each member insured all the others. There was a company that supervised and provided legal and administrative services to the group of individuals, and collected fees for this. That sounds a bit similar to the suggested platform, but I don't know exactly how that company was organized. The system was called "NJ CURE". I don't know if it is still in operation.
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Every jurisdiction in United States and Switzerland (both of which regulate insurance at the subnational level) requires an insurance license to issue insurance.

Therefore, unless licensed insurance companies are the only "peers" allowed to offer insurance, the arrangement proposed would be illegal. If only licensed insurance companies are allowed, the arrangement would be legal in much the way that Kayak or credit card loan offer aggregators are lawful, but that has nothing to do with blockchain and doesn't appear to be what is contemplated in the question.

The proposal does not appear to be analogous to Lloyds of London, in which "names" finance the policies, but the underwriting of the policies and the determination that the "names" are sufficiently solvent to cover the risk, is made by the central organization.

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  • "Therefore, unless licensed insurance companies are the only "peers" allowed to offer insurance, the arrangement proposed would be illegal" -> I lack the necessary knowledge to dispute your supposition. However, I found an article about this topic, which contains the notion of one not needing a special license or to be subjected to government supervision, if the economic scale of the insurance business is basically negligible. What is your opinion on this? cms.law/en/int/expert-guides/cms-expert-guide-to-insurance/… Apr 16, 2022 at 14:21
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    @quitely_zealous I don't disagree that there might be a de minimus exception, but the scale of enterprise contemplated by a full fledged blockchain model wouldn't fit that exception.
    – ohwilleke
    Apr 18, 2022 at 19:34

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