Here is a simple schema for a Ripple-based semi-automated insurance pool I could easily code and may actually turn into a company (BitInsure):

If anyone wants to start this with me (a lot on my plate) or found this independently I will fund you.

You could set a required time to remain in the pool, a pool expiration date, or if your pool is large enough, let trusted people leave or join at any time.

The potential features on this design are boundless. You could go so far as to create profiles and upload credit history/health records to increase your chances of acceptance into a pool (vote for trust) which people would be inclined to do to decrease their own costs when something bad happens to a member.

In an automated application you choose people everyone in the group (or the majority - 51%+) trusts:

The application adds up the amount each trusted individual hopes to insure

10           
12
20
100
20
30
22
44
67
89
__

414

The application divides the amount each individual wishes to insure by the total of the pool minus that contribution

0.024
0.029
0.048
0.24
0.048
0.072
0.053
0.11
0.16
0.21

You assume each wallet has an equal chance of theft

The application multiplies each individual's percentage contribution to the pool against every individual insured amount

i.e. for the 100 contribution:

0.24 * each insured

2.4
2.88
4.8
(24 - weight this back out by percentage)
4.8
7.2
5.28
10.56
16.08
21.36

The application would trust the 100 contributor on each Ripple holder's wallet for the corresponding above amount of BTC (weighted out).

The application would add 9 trusts to each Ripple wallet corresponding to the BTC amounts calculated as a percentage of the total pool each insured amount represents - this adds up to the total amount insured for each wallet.

If a wallet or BTC amount were reported stolen, the application would issue IOUs or send XRP corresponding to each of these trusts.

The larger the pool and the less percentage a given insured amount constitutes of that pool, the less each insured entity has to pay to a specific loss.

(Of course I use a proprietary algorithm, this is just for example's sake - pure weighting is not entirely fair to large stake holders)

Risk is spread out among the insured - no transfer costs - no or little insurance fees - no overhead - no fees - only pay a small percentage of a trusted loss - you can pick who you trust and want in your pool.

This is a simple example of how distributed insurance can and will work with the Ripple protocol.

Global, frictionless, libertarian, decentralized insurance.