Ascent Insure ($ASCENT)

Whitepaper v1

Decentralized insurance protocol on BSC

1. Abstract

The insurance industry has developed over time from a community-based model to an adversarial one where large institutions dominate. It is also inefficient in many areas leading to large frictional costs being borne by customers. Blockchain technology allows individuals to efficiently transact directly with each otherand therefore enables the core insurance entity to be replaced. Ascent Insure uses blockchain technology to bring the mutual ethos back to insurance by creating aligned incentives throughsmart contract code on the Binance Smart Chain.

2. Background

Before insurance companies existed, communities would group together themselves. They would pool resources to protect individual members from risks they all faced. If an unfortunate event occurred the senior members of the community would decide whether to provide assistance or not. All funds raised were used to benefit the members of the community.In developed nations we have largely moved away from this community approach primarily due to the underlying economics of insurance. Insurance economics are driven by diversification. The more individual risks that are pooled together the less capital is required to be confident all claims can be met. Scale benefits are significant and community models don’t have the means to access them easily. Moving away from the community model brought other challenges, in particular the issue of agency. An insurer is looking after customers money and then promising it will pay when a claim arises. As a result, the insurer is becoming an agent of the customer history has proven this model doesn’t work without heavy oversight from government institutions and complex legal frameworks.

These frameworks are necessary primarily due to the lack of trust between customers and the institution and boil down to two main points:

1. AGENCY : Insurers decide on how customers money is handled. Including how it is invested, which insurance risks it will back and when it gets paid out to shareholders. They also have an implied option where there is potentially unlimited upside but if the insurance company goes bust it is customers that suffer. Interests are not directly aligned.
2. TRANSPARENCY : A customer finds it extremely difficult to assess how safe a particular insurer is. There is a clear information asymmetry issue.

In developed nations both of these issues are dealt with primarily via law and prudential regulation — a complex combination of standards defining minimum capital levels, governance processes, reviews and regular financial reporting. Regulation in this way is largely effective, barring a handful of high profile exceptions, but brings additional costs and reduced flexibility.
Even with this burden the institutional model has provided significant benefits to customers via reduced premiums and deeper pockets. The underlying diversification benefits have more than outweighed the regulatory burden. But there is still substantial unnecessary cost in the system. Roughly 35% of insurance premiums are lost due to frictional costs in the system. Only 65% of premiums are returned to customers via claims, the rest is lost in distribution, operational expenses(including regulatory), capital costs and profit. Blockchain technology and smart contractscan strip out not only the administrative inefficiencies but a large portion of the governance and regulatory related costs. They can do this by providing trust in a different , much more cost-effective way. Trust is moved from institutions and regulations to transparent code. Of the 35% of frictional costs we believe blockchain technology can cut out approximately 18% due to administrative savings and reduced governance and regulatory costs, effectively halving the frictional costs in the system. Additionally, through the use of membership tokens, blockchain technology can bring back the original goals of the mutual where all contributions are entirely for the benefit of members. Aligned incentives will foster a community spirit rather the existing adversarial and unbalanced relationship between individual and large institution

Blockchain technology allows a peer-to-peer insurance mutual to be recreated in a cost effective and scalable way. It allows the cooperative ethos to be regained while preserving the benefits of diversification.

3. Project Overview

The following components are necessary for apeer-to-peer risk sharingmutual:

1. MEMBERSHIP TRACKING : Away to track individual members, including their proportional ownership

2. CLAIMS ASSESSMENT METHODOLOGY : Away for claims to be approved ordeclined.

3. CAPITAL MODEL : Todefine how much capital is required to back the risks at any point in time.

4. FUNDING : Ability to attract capital to back the risksand reward that capital appropriately for the risks taken. Initially and on an ongoing basis.

5. INVESTMENT RETURNS : Insurers hold customers money until a claim event occurs. During this time they tend to invest these funds, usually quite conservatively, to earn additional return.

6. PRODUCT : A viable product to sell, including underwriting rules and other acceptance criteria.

7. PRICING : A method for determining the fair risk charge for the risk cover and a way for it to adjust over time.

8. DISTRIBUTION : Tools and incentives to attract new members

9. IDENTITY : An identity module will be required as part of the sign-up process to conform with legal and regulatory requirements.

10. GOVERNANCE : A way to upgrade, enhance and fine-tune the code in line with the wishes of the membership base, as well as the ability to interact with the non-blockchain world.

11. TRANPARENCY : Real time reporting of capital position and risk exposures.

12. LEGAL FRAMEWORK : A safe legal and regulatory environment to operate within.

A simple BEP-20 token will be created to serve as the key internal incentive mechanism to bind the mutual together.A continuous token model will be used so that tokens can be purchased at any time but at a variable price. This contrasts to more common ICO type approaches where there is a fixed purchase period with set price change points, followed by a speculation-driven market on exchanges.

Tokens can only be created in the following ways:

1. INITIAL TOKENS : Some tokens will be set aside for founders and early contributors when the contract is deployed.

2. PURCHASED VIA THE TOKEN PRICE MODEL : Anyone, at any point, can purchase tokens via the token price model. When funding is required (ie low MCR%) the price will be lower to encourage funds to be placed. Conversely the token price increases when funds are more plentiful. Price also increases based on the business growth (represented by growth in the MCR)which places a natural throttle on token issuance. The token model ensures a balance is reached between adequate compensation for the risks taken by early participants and allowing future members to join at any time.

3. CLAIMS ASSESSMENT REWARDS : Additional member tokens are allocated as an incentive to perform claims assessment. This will be limited to a fixed percentage of thecost ofcover.

4. RISK ASSESSMENT REWARDS : Additional member tokens are allocated as an incentive for participating in risk assessment.

5. GOVERNANCE : Additional member tokens are allocated as an incentive for participating in governance.

While the supply of member tokens is not fixed all methods of generating new member tokens require a specific contribution to the mutual. Contributions are made as either funds or services (claims assessment, risk assessment or voting in governance).

4. Our Strategy

A key challenge in open source business is retaining a competitive advantage when anybody can copy your entire code base, decrease margins slightly and poach all your customers. To remain relevant the business must establish meaningful barriers to potential competition. In open-sourced blockchain systems this is largely achieved through the network effect wherea community gathers around a certain technology, becomes bought into it (usually financiallyas well as emotionally and philosophically) and continuously improves it to remain relevant. The following barriers and frictional costs are designed to keep Ascent Insure relevant to current members and continually attract new ones:

• RISK ASSESSORNETWORK : Establishing a meaningful network of risk assessors (smart contract auditorsto begin with)and providing them adequate incentives to participate.
• SIZE OF CAPITALPOOL : The faster scale can be achieved the larger the CapitalPool can grow and the greater the diversification benefits. This ensures efficient capital usage, lower prices and provides more resilience to claims shocks. Additionally, the greater the pool value the higher the barrier to replicate.
• CONTINUAL DEVELOPMENT : A continued focus on improvement of the product. Releasing new products and providing easy to use infrastructure surrounding the core blockchaincode will heighten the barrier to replicate. This will be increasingly driven by all members of the mutual over time.
• MEMBER TOKENS : All customers are members and have a vested interest in the success of the mutual through token ownership. If members shifted to another provider their current holdings would drop in value. Membership tokens therefore provide an indirect incentive to remain with the mutual and an additional barrier to competitors.

Whilst all of these barriers have the potential to be overcome the goal is to gain network effects and scale benefits that will prevent copy-paste competitors taking significant market share.