Risk Sharing in Blockchain-Based Insurance with Costs

This study investigates the risk allocation problem of distributed insurance based on blockchain technology in the presence of costs. Blockchain technology changes traditional insurance companies, who no longer bear the risks of policyholders. Instead, they build platforms to connect policyholders and charge their fees. We set four different charging methods, and explore the Pareto optimal risk allocation method under different charging methods from the perspective of game theory. We find that, when charges occur during the insurance signing phase, the Pareto optimal allocation method entails each policyholder's risk being proportionally distributed among the policyholder group according to their risk aversion coefficient. If platform provider charges a fee proportional to the premium paid to the policyholders and k1 is the fee collection ratio of the premium, then each policyholder bears an increased risk of others by 1/(1−k1) while they bear less risk, and the overall utility decreases. If technology platform provider charges a fee proportional to the actual risk of the policyholders and k2 is the fee collection ratio of the actual risk, then each policyholder bears an increased risk of others by (1 + k2) while their own risk is reduced, and the overall utility decreases. The conclusions of this paper offer meaningful insights for blockchain insurance companies in terms of user risk management and allocation