Nexus Mutual, a startup that provides decentralized alternatives to traditional insurance, has partnered with InShare, a firm that manages mutual insurance organizations, to bring blockchain-based cover to real world risks.

The partnership sees Nexus adding some of its $274 million on-chain capital pool capacity to The Retail Mutual, a U.K.-based mutual organization comprising more than 5,000 shopkeepers and small retail businesses. The total coverage provided by Nexus is $2.3 million for risks such as fire, theft and accidental damage. InShare manages The Retail Mutual and makes all the key decisions with claims, risk management and excess coverage.

There’s a shortage of capacity in certain areas of traditional insurance markets, particularly for small or niche business such as community-based, discretionary mutuals, which sit outside the U.K.’s regulated framework for insurance companies.

In addition, the niche world of decentralized finance (DeFi) is exploring ways to expand beyond crypto into real world assets and traditional finance models.

“It’s an on-chain discretionary mutual covering an off-chain discretionary mutual, which is interesting,” said Nexus Mutual founder Hugh Karp in an interview. “The insurance industry is starved of capacity and people are looking to the crypto world because they know there's capital there. From a Nexus point of view, we have excess capital that we’re looking to deploy effectively.”

Under the agreement, Nexus will pay out if The Retail Mutual is on the hook for more than 57% of the community’s contributions in any one year as well as single claims above 200,000 British pounds ($255,000). The Retail Mutual rakes in about 2 million pounds a year, so Nexus will pick up the excess if claims top 1.14 million pounds.

The Retail Mutual is made of small corner shops and the like, and the largest individual claim over the community's 20 years of operation is much less than $1 million, Karp pointed out. "Even under their worst year in the last 20, the total cover amount of $2.3 million wouldn't have been fully utilized," he said.

Graeme Thurgood, chief underwriting officer of InShare, said his firm understands the “tremendous potential” of accessing alternative risk transfer capacity. “Being a progressive and forward-looking company, we are committed to continuously exploring innovative approaches that elevate our offerings and the overall customer experience,” he said in a statement.