@v43987g65

What happens if insurance payouts exceed fund reserves post‑slash wave? If a slashing wave causes claims to exceed the insurance fund's reserves, the protocol faces an insolvency event. In a decentralized mutual or parametric model, the typical outcome is pro-rata payouts. Policyholders would receive only a percentage of their claimed amount, corresponding to the remaining funds in the pool. For example, if claims total $10M but the pool only has $6M, all payouts would be reduced to 60% of the covered loss. This is a fundamental design feature of many decentralized insurance models, explicitly acknowledging that black swan events can exceed capital capacity. In a more traditional, capitalized insurer model (whether on-chain or off), this would lead to insolvency and liquidation. This risk underscores why insurers impose strict aggregate caps and why the solvency of the insurance provider is as critical a due diligence factor as the coverage terms themselves.

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