Market Discussions

Dear MD, \o?


Together with my good corp mate, we have an idea to offer a financial service that could benefit both the customers and investors to the program.

It is still rather early stage to disclose & discuss the full details on the forum, but I would like to see a) if there's some interest in this from potential investors, b) invite people to join the discussion, where I will send out a group memo/eve-mail to outline more details and progress the discussion towards actual implementation of the program.

While there are many rough ideas, the first one I would like to start with as our 'project' is player driven insurance program.

The idea is simple

1. The client buys an insurance program from the insurance corp

2. The client could be a single pilot, or a corporation or even an alliance (probably start small though)

3. The target for the insurance is freighters, citadels and ECs

4. The idea is that the Insurance Corp offers some degree of pay out in case the client suffers loss of relatively high-value assets of the above types

5. Each client will have his/her/their risk level assessed based on their past loss records as well as other variables that may come into play

6. When the insurance fee per month and the duration of the insurance is agreed between the client and the insurance corp, the insurance shall start

7. If the client loses his insured asset during the insurance period, the insurance corp will pay out the client according to pre-defined rate as agreed during the insurance contract phase

8. The main principle is that an early loss of the insured asset will not be a good option for the client, as the asset will not be fully covered until the client has paid X value of the insurance fee. This shall act as a basic means to prevent insurance fraud and also to ensure that the insurance corp can maintain good reserve fund that can be put into work to keep the capital growing

9. Aftger X months (or any other given time depending on the contract) of insurance fee has been paid, the client will find that he can enjoy the maximum coverage for his insured asset

10. After the insurance contract has expired, the client shall receive 100% + x% of the insurance fee he has paid during the period, effectively profitting from the insurance scheme as a form of slow-investment

11. The benefit for the insurance corp is that it can use the insurance fee income to engage in various other trade, production and investment activities, while keeping a safe buffer for early pay outs in case of loss for the clients (with limited pay out rate before X number of months has been reached).

12. Simply put, it could work like this - the Insurance Corp estimates that it can make 10% profit on its collected fund over the period of 6 months. The policy can be set up so that the clients will be paid out 103% of their insurance fee paid upon completion of the insurance contract. This leaves profit margin for the insurance corp over long term (just random numbers at this point)

13. Of course, one of the main issue is that the insurance corp needs to have enough buffer ISK to make this work, and to achieve this, I am willing to invest in my own ISK (+assets as collateral) but I would be happy to have other investors on board, who will get the cut of the Insurance Corp's profit while helping the insurance corp to maintain healthy reserve fund level + enough excess ISK to seize investment opportunities.

So in summary;

A) No insurance fraud. The most ISK a client can make will be if he does NOT lose his ship/asset and the insurance period runs its course to the end, in that case the client will make similar ROI as a common bonds found on MD, but without putting up a lump sum up front, instead he shall be putting in monthly payment as insurance fee. This is pretty good deal as a savings/investment

B) If anyone loses their asset deliberately to claim the insurance ISK, the time frame where the claimed ISK will be 'worth it' will be the time that the insurance corp has gained enough value from the monthly fees received, hence no loss for the insurance corp at that point. The loss value, NPC insurance rate, amount of insurance fee paid up to that point by the client, the insurance duration and all these factors will be calculated into the pay out rate

C) Multiple clients+big enough buffer from the investors should ensure that the insurance corp will run relatively stable, and generate steady long term profit, despite some sudden dips when big pay outs need to be made (but again, this shall be controlled as much as possible)

Anyways, this is the rough idea. We have already made some calculations on possible rates and such based on some randomly picked zkill loss records of various corps (just so we have some practical sample data to see what the numbers will be like), and I believe with variable rates, duration and coverage % it will be possible to run such an insurance corp that can benefit both the client and the investors.

As it is still very early stage and I'm just testing water, I will not disclose and discuss the calculations/formula here for now. But I would be happy to receive anybody's input on this as a general concept, and also if anybody would be interested in investing in such an insurance fund.

We can hold basic discussions here, and if there are sufficient interest from potential investors we could move the discussion to in-game mailing list, where the actual numbers can be discussed & put under close scrutiny, so that we can agree on the optimal value for the investors while keeping the insurance service an attractive option for potential clients.

Thanks in advance for your feedback.

Toobo

This is probably one of the best ideas tbh. I see how this could encourage people to use their valuable ships for example. Big thumbs up for this. And as it is mentioned ny trusted MD active gets me exited 😃

Need concrete numbers to give a judgement. From what I read, I don't see a big net payout being possible in case of loss. Your collected capital has to earn the guaranteed interest rate on the nominal PLUS the early payouts (insurance part). The scheme will only be beneficial for customers if the payout is significantly higher than saving the fees (to cover own loss).

What will be insurance payout if i destroy my ship/citadel/etc after X months + 1 day? Can i get profit off it?

I mean after X months from the start payout will be 100% until insurance contract ends. However i pay monthly fee. Not having numbers my best guess is that to get more off this contract (payment minus fees) one should try to get payment asap.

Is there something to talk about? Or i'm totally off the rails here?

For Citadel and EC, will you cover fits or just the hull? Rigs are a major component of the cost.

For freighters will you cover cargo/collateral or just the hull? A new freighter hull is covered 40% for 12 weeks free of charge. After that a 12 week basic insurance contract pays out 10 times the premium if you lose your ship - which isn't a bad deal. As a freighter pilot I was more concerned about my collateral than my hull. When I flew for Red Frog, WFI covered both - with a substantial deductible - as long as you flew within guidelines. Made runs through Uedama and Niarja a lot less stressful!

So say i insure my ship with you for 1bil, contract term 10 months. I assume im paying you 100mil per month?

If i make it to 10 months i get my 1bil + x%?
If i lose my ship at 5 months do i get back my 500mil? or do i get less?

Thanks for the comment and yes, it's those kind of scenario where it could benefit.

Long time ago I visited Daimler-Benz Aerospace centre in Germany, where they do R&D/engineering/some production for space rockets & such.

An interesting chat I remember with a guy there was that when they were launching a rocket into space they needed insurance in case something goes wrong, which could result in horrible loss (in many ways). What happened was that they struck a deal with an insurance company to cover for this potential disaster.

From what I remember, the one-off insurance fee was in the region of 10+ million Euro, and the potential pay out in case of the launching failure resulting in maximum loss (of life/assets/etc) was more than double that amount.

So basically, if the rocket launched and got safely into the space, the insurance company pocket 10m+ Euro 'out of nothing'.

However, if something went horribly wrong, the insurance company could end up paying out double the amount of what they've received as insurance fee.

I'm sure they had all sorts of analysts calculating the risk and structure the contract & etc to make it the best deal possible, but in a way that's pretty high level 'gambling' I thought. :)

But anyways, I digress - yes there are things that are not covered by NPC insurance. I gave an AT ship as an example, but there can be many more, like special cargo, rigs on a Fortizar, etc. I gave the Chremoas example as that's pretty extreme.

Let's say a team wants to field something like an Etana in their next AT. They could have it insured for 30b, with potential pay out (in case of the loss of the ship) being 50b ISK. If they fly Etana in their tournament matches and the ship manages to survive, then maybe they feel their 30b went to 'waste'. But if they do lose the ship during the tournament they know they would get at least 50b ISK in pocket, which won't get you another Etana but it's 20b 'profit'. At the same time, nobody would deliberately lose their Etana to make 20b ISK 'profit', as the ship's value is much more than that, both in terms of ISK and in terms of its uniqueness. It's a very specific example but I think this example shows there CAN BE a legit insurance scheme that are relatively free/safe from deliberate fraud/abuse, because it just doesn't make sense for the customer to lose their valuable/special stuff to claim the insurance pay out.

I think the same can be done with people who haul high value cargo or own structures with rigs that they have invested in heavily. Yes, they could 'earn back' more ISK than they paid for the insurance if these get destroyed, but there would be clear and legit cases where the customer would rather their asset stay safe & get some little interest pay back in the end. Many financial arrangements in EVE are open for abuse/scam with no consequence, and this is often the difficult part in establishing such services, but if a deal can be made where each party can say "it's good for me and it's good for you", then I think it's possible.

Mass scale insurance for the general public for common PVP ships and such could require a lot more administrative work and potentially needing to set up a system to facilitate easy application & tracking & etc. But specialised, high value insurance for something starting from freighter/capital level and upwards is probably something that could be looked at in good detail as a start for such venture.

Reposting myself from Pi Day in 2013... that's not meant to imply criticism, just bringing these old references to the fore:

Thoraemnd,

Thank you very much for the reference links! I shall certainly check them all out in detail to gain better understanding of the history of this discussion.

Ethan02,

In EVE when insurance is mentioned people automatically think of insurance fraud, because well, EVE is like that heh. ;)

However, what you do say is pretty correct and is a legitimate concern. This is part of the reason that if we were to do it, we'd like to start with small/limited number of pilots and with relatively high value contracts, such as captails and structures. Both entities do not have great pay out (or not at all) in case of destruction, and for things like Fortizar and Engineering complexes it just won't make sense to have them destroyed deliberately to claim insurance pay out, as what will be lost is much greater than what may be looted.

The assurance part, for the investors, is that if we were to do this me and the insurance corp should put up some form of collateral that covers up to certain value. But yes, you could look at it as a pyramid game, because by the nature of financial business like this, the total value of the operation SHOULD exceed the collateral value at some point. In the beginning we may even start with over 100% collateral (which I've done before with bond and shown that I can put up 100b+ collateral), but if the whole amount of the insurance business is always going to be covered 100%+ with collateral than I may as well just do a straight loan/bond. I guess there should build a degree of trust & long term cooperation between the investors and the insurance corp that will bring it to higher level of value generation than what is covered by the collaterals, ultimately.



Anyways - thanks everyone for your inputs. I do like the insurance idea quite a bit, but it's just one of a few other more 'financial product' I have been thinking about & discussing with my mates these days. I think there is a potential, but I think the feedbacks here also point out some very clear and legit concerns that need to be addressed before the idea is taken any further.

I will look into this issue more and also investigate more on the past discussions, crunch some numbers and see what may be the best next step for this.

How i see this working. When you have something like rorqual where the hull cost of ship is nothing compared to the cost of fitting the ship. I would get a insurance for the fit with high monthly payments to ease the risk of losing. For example i could pay 10bn upfront and after that 1bn a month for the remainder of contract. This way at the start i could get decent amount of isk if id lose my ship at the start of the insurance. For the corp this kind of deals allows them to make decent profit early on. I dont see why this couldnt work. Ofc there is always people that will try to take advantage over these kinds of projects.