Insurance and Underwriting
Insurance and underwriting applications provide financial protection against predefined risks by assessing exposures, collecting premiums, and managing claims. These applications determine the level of coverage required and continuously monitor the insured risks throughout the policy lifecycle.
Policies can be backed by onchain collateral, ensuring sufficient capital is available to cover valid claims when they occur. Symbiotic V2 provides the infrastructure for managing this collateral, enabling applications to integrate collateralized underwriting, programmable guarantees, and slashing into their existing systems.
How it Works
Capital allocators deposit funds into Symbiotic vaults, providing the collateral used to underwrite insurance policies or other forms of risk coverage. Rather than being pooled across all policies, collateral commitments can be isolated per insurance pool, product, or risk category, allowing each underwriting strategy to be independently managed and risk-assessed. Depending on the application's design, collateral can also be structured into senior and junior tranches with different risk and return profiles.
When a user purchases coverage, the application performs its underwriting process and determines the amount of collateral required to secure the policy. Once sufficient collateral has been committed through the corresponding Symbiotic vault, the policy becomes active. The vault collateral serves as the financial guarantee backing future claims, while the application remains responsible for pricing policies, assessing risk, and managing claims.
If no covered event occurs during the policy period, the collateral remains untouched and capital allocators continue earning the insurance premiums generated by the application. If a valid claim is made, the corresponding collateral in the Symbiotic vault can be slashed to cover the insured losses. In return for assuming this underwriting risk, capital allocators receive compensation through the premiums collected by the application, with junior and senior tranches, where applicable, earning different returns based on their respective exposure.
Case Study
Nexus Mutual
Nexus Mutual is a decentralized insurance protocol that provides coverage against a wide range of onchain and offchain risks, including smart contract exploits, validator slashing, custodial failures, and other predefined loss events. Rather than relying on a traditional insurance company, Nexus Mutual uses capital supplied by members to underwrite policies and pay valid claims.
1. Collateralized Underwriting
Capital allocators deposit funds into dedicated Symbiotic vaults, providing the collateral used to underwrite Nexus Mutual cover products. Depending on the risk profile, vaults can be structured into multiple tranches, allowing capital providers to choose different levels of risk and expected return. For example, a dedicated collateral vault may act as the senior tranche, while additional tranches can absorb higher levels of risk in exchange for higher premiums.
2. Policy Issuance
When a user purchases coverage, Nexus Mutual performs the underwriting process, prices the policy, and determines the amount of collateral required to back it. Once sufficient collateral has been committed through the corresponding Symbiotic vaults, the policy becomes active. Throughout the coverage period, the collateral remains locked as a financial guarantee, while capital allocators earn a share of the insurance premiums generated by the policies they underwrite.
3. Claims Settlement
If no covered event occurs before the policy expires, the collateral is released and can immediately be reused to underwrite new policies. If a valid claim is approved, the corresponding Symbiotic vaults can be slashed according to the predefined loss waterfall. Losses are first absorbed by the appropriate tranche based on the application's risk model, allowing senior and junior capital providers to assume different levels of risk and earn premiums accordingly. This structure enables capital-efficient underwriting while providing transparent, onchain guarantees for policyholders.