Where can we go wrong?

There are several situations where PRSPR (the collective) can face severe losses or even collapse. People respond differently to risks based on their socio-cultural-economic background. A few behaviour patterns that can adversely affect us are,

  • People may want to cash out after a few days (10-30) of staking their wallet (short profit bookers-adverse selection) and not return.
  • People may form a group outside of PRSPR and demand a payout to test or cheat (moral hazard) - may happen when PRSPR payouts become substantial.
  • People may feel fatigued to pool their risks on a daily basis and PRSPR may lose members due to that.
  • Opening PRSPR for new participants too fast (crashes) or too slow (not enough to pay claims).

Typically the following risks are associated with any insurance like models and PRSPR would also have similar though with variation in activity and impact.

  1. Adverse Selection Risk: This is the risk that healthier individuals may choose not to join the mutual health insurance organization, leaving behind those who are sicker and in need of more medical care. This could lead to higher premiums and a strain on the resources of the organization.

  2. Moral Hazard Risk: This is the risk that individuals may engage in risky or unhealthy behaviour, knowing that they are covered by the mutual health insurance organization. This could lead to increased medical expenses and higher premiums for everyone in the organization.

  3. Financial Risk: The mutual health insurance organization could face financial risks such as inadequate funds, unexpected claims. Co variant risks also exist when the majority of the participants need to claim (happens due to disasters).

  4. Operational Risk: The mutual health insurance organization may face operational risks such as administrative errors, fraud, or system failures.

  5. Reputational Risk: The mutual health insurance organization may face reputational risks such as negative publicity or loss of trust from members.