Tokenization of distributed insurance by auction

It is a trend in the decentralized finance market that a wide range of financial services are provided through tokenization without traditional financial intermediaries. The insurance market is known to be highly centralized and thus by nature difficult to decentralize. This paper exploits a new approach to tokenize insurance portfolios and break them down for sale to investors via an auction. In particular, the distribution of investment and returns is optimized through a classic knapsack algorithm. In examples with real-world data, it is shown that the proposed approach can improve the efficiency of trading relative to a naive approach that prioritizes minimizing payments to investors per unit of capital investment. Moreover, potential bidding strategies are investigated such as merging and splitting bids.