Institutional flaws in mutual insurance and the application of blockchain

Mutual insurance accounts for nearly 30% of the insurance market in foreign countries. Due to social trust and some institutional reasons, the domestic mutual insurance market is almost blank. Mutual insurance, which has emerged in China in the past two years, is widely expected to realize the market function of mutual insurance with the help of the Internet, reduce the level of premiums, and benefit the people. However, the current mainstream mutual insurance platforms in China have defects in mechanism design, and there is room for human manipulation in some links, which restricts the rapid development of mutual insurance.

From the perspective of institutional design, this article objectively analyzes some of the institutional design flaws of the current mainstream platforms and the application of blockchain in solving some problems.

1. Participation in mutual insurance platform

Defect 1: The platform tampers with the number of insured persons

If the platform falsely reports the number of insured persons as half of the actual number, then for each compensation, each insured person will have to pay twice as much! The platform easily profits half of it. (For example, if there are actually 2 million insured persons, but it is falsely reported as 1 million, for a compensation of 300,000 yuan, the platform calculates it as 1 million people, and actually deducts 0.3 yuan from the accounts of 2 million people, and the cumulative deduction is 600,000 yuan.)

Solution: Using blockchain technology at the bottom of transactions can better guarantee openness, fairness and immutability.

Defect 2: The platform tampers with the insurance time and the identity of the insured

Assuming that a patient falls ill within the 180-day observation period (or even takes out insurance only after being diagnosed), he or she should not be protected by the insurance policy. However, if the platform tamperes with the insurance start date to 180 days ago (or even tamper with the identity of a valid policyholder to that of the patient), he or she can become the object of insurance policy protection and illegally transfer benefits.

Solution: Using blockchain technology at the bottom of transactions can better guarantee openness, fairness and immutability.

Flaw 3: Fictional patients, collusion with appraisal agencies and hospitals to commit fraud

If the platform negotiates with the appraisal agencies and hospitals and directly fabricates a group of patients and medical records, and obtains signatures and approval from the appraisal agencies and hospitals, and the platform deducts money from the account of each policyholder, it can make large-scale and continuous profits.

Solution: Using blockchain technology at the bottom of transactions and adopting a public supervision system (see below) can reduce the severity of collusion.

Flaw 4: The platform misappropriates insurance funds

Driven by investment returns or operating pressure, if the platform misappropriates insurance funds, it will bring risks to every policyholder.

Solution: Insurance funds are managed by banks. (When the amount of funds is close to the psychological temptation critical point of banks and platforms, there is still uncertainty as to whether the two will collude to violate regulations.)

2. Mutual insurance platforms do not participate

Collusion between hospitals and patients to commit deception, collusion between hospitals and appraisal agencies and patients to commit deception, etc. are common problems faced by the insurance industry, but the problem of mutual insurance is particularly serious. The author here proposes a "public supervision system" to try to solve this problem to a certain extent.

Public supervision system : For each case of illness, the platform randomly selects 3 users as supervisors. Supervisors can transfer their supervisory qualifications. Users who do not trust the platform enough can purchase supervisory qualifications and participate in the full supervision of the operation procedures of the medical institution and the appraisal institution for the case. At the same time, in order to prevent competitors from purchasing supervisory qualifications in large quantities to spread smearing remarks, the following restrictions must be imposed on supervisors: their remarks can only appear in the appraisal report (can be negative or positive) and each different opinion must have a formal reply from the hospital and the appraisal institution; they can only make specific opinions on a specific link in the medical process (and cannot make general smears); only the person himself is supported to participate, and no more than twice a year.

As supervision and evaluation gradually increase, we will generally gradually get reasonable public opinion evaluation about the platform products. At the same time, the public and specific comments of supervisors will generally promote faster product iteration on the platform, more compliant operations of appraisal agencies, hospitals and patients, and more efficient and transparent compensation processes to gain better and more extensive trust. In terms of humanitarianism or other humanistic care, the problems brought by supervisors and appraisal agencies are the same.

Flaw 5: Patients collude with hospitals to exaggerate their conditions and falsify medication or medical services

When a patient's condition is identified, it is often treated specifically based on the specific symptoms. If at this time the hospital exaggerates the patient's condition and falsifies medication or medical services to obtain higher compensation, in the real world where the identification capabilities of the appraisal agencies are limited to varying degrees, it is more likely that the appraisal will fail.

Solution: Many research reports point out that under the designated hospital system, due to the interests of long-term cooperation, the illegal behavior of designated hospitals will generally decrease significantly. At the same time, the adoption of a public supervision system can significantly reduce the severity of collusion.

Flaw 6: Patients collude with appraisal agencies to use medication or medical services beyond the standard

If the patient's insurance terms stipulate that the medication and medical services exceed the standard, and if the appraisal agency colludes with the patient and the appraisal agency signs and approves the insurance in order to obtain some form of compensation from the patient, it may easily lead to unreasonable compensation.

Solution: If we select a few third-party appraisal institutions to cooperate with the designated hospital system, their violations will generally decrease significantly due to the interests of long-term cooperation. At the same time, the adoption of a public supervision system can significantly reduce the severity of collusion.

Flaw 7: Collusion between the appraisal agency and the hospital

When a patient's insurance policy payment is sufficient to cover his or her medical expenses, he or she generally does not care much about the level of medical expenses. If at this time the hospital colludes with the appraisal agency to significantly raise the prices of certain medicines or medical services, it can easily lead to profit transfer.

Solution: The adoption of a public supervision system can significantly reduce the severity of collusion. At the same time, a designated agency cooperation system can be adopted.

III: Risk Assessment of China’s Mainstream Mutual Insurance Platforms

It should be noted that the objective existence of operating space is a fact, but whether the operator will use the operating space to make profits or even commit fraud is another matter. Objectively, there is a certain correlation between the background of the founder and whether the platform will violate regulations, so the background of the founder is added when evaluating the risks of the mutual insurance platform.

Note: A score of A means that there is still some room for improvement under this item, and A+ means that it has been well resolved.