Deloitte & Victoria University of Wellington School of Government having written an interesting report on how we can boost resilience in the face of uncertain shocks.
Uncertain shocks are broader than insurable risks and so require a broad set of tools. Beyond personal resilience (cash savings), the next layer of resilience includes:
When these different sources of work together, we get something really powerful. PeerCover is a club which enhances the financial resources of our support networks. The club is in effect, peer-to-peer insurance - disrupting disruptions!
If you buy an umbrella when it is sunny, you probably are also a fan of insurance. However most people only buy an umbrella when it is raining and they see insurance as a necessary evil. The two approaches can be restated as: whether to prefund risk via insurance/savings or post fund losses via levies/borrowing? How risk/losses should or shouldn’t be shared is a separate question and is not addressed in this article but is addressed in this article.
So what’s the difference between prefunding and postfunding?
Prefunding obviously requires some estimating because when and how severe a loss will be is uncertain but less-obvious is that opportunity cost of investing in financial assets until monies are needed to pay for losses. Arguably prefunding is more forward looking, meaning there is a greater focus on risk management.
Postfunding is also a lot more transparent as the reason for the funding requirement is clear / there are less assumptions required. However, postfunding is less guaranteed because the source of liquidity may dry up when you need it following a loss. A liquidity shortage may be due to external events or the nature of the loss and the affect on you. One major benefit of postfunding is that there are less strings attached. Most insurance/savings scheme restrict payouts / how you can use the money.
Many discretionary mutuals and government insurers use a 100% postfunding i.e. subscriptions/levies are used to fund losses in the year rather than future losses where the underlying event occurred in that year. Donation based crowdfunding fits in this category.
Insurers offers a number of postfunding options to complement their core prefunding model. Examples include deductibles, co-pays, burning cost ‘premium adjustments’ and health savings accounts.
Crowdfunding Cover is a genuine mix of both postfunding and prefunding. In return for regular risk-based subscriptions (prefunding), subscribers are entitled donation-matching of their life event crowdfund campaign (where donations are postfunded). An alternative name for this type of model is community coinsurance. What ever you want to call it – it is a entirely new way to finance risk.
Postfunding is a legitimate form of financing risk and is perhaps an approach you may very well want to consider.
Next weeks topic: Brexit, Borders & Scaling Startups (shared)
Any difference between #insurchat (Americas) and #insurchat (Europe/Asia)?
Same hashtag (#insurchat) only it is run 12 hours after the Americas session. The topics may be the same or can differ. The rest of world invite is orange whilst the Americas invite is blue.
Who's behind insurchat (Europe/Asia)?
Currently @sahoodk & @PeerCoverNZ co-host the session but no ones really owns it - it is a collaboration of those interested in boosting #insurtech through sharing
Insurance policies are contracts, and like all contracts, many of the important items are often found in the fine-print. In the case of insurance policies, the fine print refers to the body of the contract where exclusions and (sub)limits are spelled out. (An exclusions is where the insurer won't pay, a sub-limit is where the insurer will only pay up to a certain amount for a specific risk and a limit is the overall maximum that an insurer will pay across all risks.)
Insurance companies limit their risk by specifying exclusions and (sub)limits. Looking for and understanding exclusions and sub-limits is especially important because they can be used to lower the premium of seemingly identical coverage from different companies.
Here’s an unsurprising fact: Very few people read the legalese terms of service contracts - less than one person in 1,000 (according to this Forbes articles). So what are people doing:
Of course you can do all of the above but you may still find yourself beholden to insurance fine-print when it comes time to claim. That is why we invented a Crowdfunding Cover:
Who's behind insurchat:
Currently @MichelleAPriest & @PeerCoverNZ co-host the session but no ones really owns it - it is a collaboration of those interested in boosting #insurtech through sharing
Next week's topic: Brexit, borders & scaling (29 June 2016)
Topics to date:
Critical illness insurance (CII), otherwise known as trauma cover or a dread disease policy, is an insurance product in which typically pays out lump sum cash payment if the policyholder is diagnosed with one of a predetermined list of specific illnesses.
Rapid expansion of CII definitions however has lead some to associate this cover with playing the lottery or even a retirement plan (see "Trauma Insurance - Want to play the lottery"). This problem persists. One proposal is "life insurance solutions should be linked to impacts, not causation, and should provide benefits based on the claimant's outcome of an illness rather than just on the condition meeting a particular definition" - Gavin Teichner, general manager of individual life at Australian life insurer TAL
Diving deeper into medical or legal definitions to define further conditions or impacts is not the future. The world has changed. Peoples' trust in professionals, including doctors and lawyers, is at an all time low - so basing a insurance product around these professionals' decisions is a tough ask. Further, 'impact' is path dependent . For instance, there is a big difference between someone who has been diagnosed with cancer and another person, diagnosed with the same form of cancer but has also recently lost their job or even husband / wife. Can you really put your trust in an insurer to fairly make a call on how impactful your condition is? So what is a way to offer simple cover but still allow for impact?
Enter donation-based-crowdfunding. Donation-based-crowdfunding is being used by many to help fund costs of critical illnesses, severe injuries and even death. Because donations are made post event, donors can allow for 'impact' is a straight forward way. Unfortunately, most campaigns don't go viral, so you are dependent on your crowd - this often means only a small amount is raised. A crowdfunding insurance solution could remedy the shallow pockets problem by magnifying the amount raised - funded by pre-event regular premiums.
PeerCover is promoting such a solution (see how you can make it happen) but also offers a non-insurance approach based purely on gifting and transparency which anyone worldwide and take-up today. See here for more information.
PeerCover hasn't been successful to-date as publicized in this insurancebusiness article . There are a number reasons for this, which I thought I'd share with y'all:
Feel free to comment below or privately contact us with your thoughts.
Stokvels are a “a type of credit union in which a group of people enter into an agreement to contribute a fixed amount of money for to a common pool weekly, fortnightly or monthly” (Andrew Lukhele, NASASA). The common pool is may have various purposes including insurance against adversity such as death (burial societies), as well as equipping them with the financial muscle to fund various other functions agreed upon by the stokvel as a collective, for example loans to needy members, education and other physiological needs such as housing, grocery shopping and business endeavors.
From the above definition, it is clear that stokvels are already used for peer-to-peer funeral insurance. Peer-to-peer insurance, enabled by the internet, expands on the coverage available for small groups to include insurance classes like home contents (e.g. Friendsurance), auto (e.g. Hey Guevara), mobile phone (e.g. CommonEasy), bicycle (e.g. CycleSyndicate), income protection (e.g. Broodfonds) and coverage for all one’s insurance excesses (e.g. PeerCover) etc. In some cases peer-to-peer insurance is replacement for insurance, in other cases it compliments insurance.
So will digital stokvels aka peer-to-peer insurance succeed? Riovic is taking the charge in South Africa - the home of the stokvel, many others are independently launching in other countries.
For more information, see