Members will act as judges, with each claim subject to a yes/no vote by members who have chosen to stake a portion of their NXM to act as Claims Assessors.
When a cover holder experiences a material loss, they can file a claim. During the Claims Assessment process, members acting as Claims Assessors will discuss a claim and vote on whether or not the claim meets the criteria outlined in the relevant cover wording.
When Claims Assessors discuss the value of the lost funds, they refer to the value of the funds just before the exploit took place.
If a claims payout is approved through the Claims Assessment process, the cover holder will receive a payout.
If Claims Assessors were to begin denying legitimate claims, thus failing to fulfil the core purpose of the mutual, then no new users would come to the platform and make contributions to it.
While it is true that successful claims would lower the value of the capital pool and hence the value of the NXM tokens the Claims Assessors hold and earn in the short-term, Claims Assessors are also financially incentivised to take a longer-term view as they are required to lockup a stake. This stake can be burned if there is deemed to be clear fraudulent voting activity by Claims Assessors (see Advisory Board section for details).
Denying legitimate claims would result in Claims Assessors having their NXM stake burned and, in the long term, the NXM earned through Claims Assessment would lose its value. The economic incentive aligns interests between members to promote positive contributions and to deter fraudulent behaviour in the Claims Assessment process.
Yes, there has been an example of a Claims Assessor voting fraudulently. A member submitted a claim for a Kraken Custody Cover policy where no loss had occurred. This was Cover ID 3102, Claim ID 94.
The member who submitted the claim then staked 131.5 NXM to act as a Claims Assessor. This member then voted on their own claim with a Yes vote. Because there was no loss on Kraken and the member decided to vote on their own claim where no loss had occurred, our members voiced their opinion and directed the Advisory Board to burn the Claims Assessor's staked NXM.
Proposal #148 was passed with 4 out of 5 Advisory Board votes to burn the 131.5 staked NXM. The following transaction shows the staked NXM being burnt: 0xe2cc5d1d18885c533b167abdcb3115a1bd2204e0e469a31c548350d38f9500f6