Social insurance? Naw.

For my book, I’ve been thinking about a few industries that I think are impervious to social, Google-age, web-2.0, VRM goodness; we are bound to hate them.

Take insurance. I can’t see any way that I’m going to see insurance as a social experience. Jeremiah Owyang went looking and came up pretty much empty-handed.

The problem is, of course, that the insurance industry is built around getting us to take a sucker bet. Indeed, it’s a bet we want to lose. Nobody wants to have a legitimate reason to collect collision, fire, flood, health (apart from preventive care), or certainly life insurance. Worse than Vegas, we know that the industry stacks the odds against us; that’s the essence of its business and it is open about that. If we don’t collect, we are losers (we’ve lost our money) — and we we do collect, we’re still losers. The industry has to treat us like liars, only reluctantly giving us back the money we paid in. They make it all overcomplicated so we don’t know just how screwed we’re getting and so we make more safe (for them) bets. But we can’t afford to do without them. Insurance is our hedge.

So can you imagine what insurance 2.0 would look like? I can’t. I can imagine that we use social tools to gang up on the insurance industry, to, for example, create groups to take advantage of their rules or to decipher fine print for each other (but that’s really the antiinsurance). Could I imagine a truly cooperative, social insurance company where we insure each other — microinsurance? Frankly, no. There’s too much mistrust involved, too much suspicion of gaming and fraud; that negates the possibility of a system of social trust. Is there any point in having a MyAllstateIdeas, a la MyStarbucksIdeas, to work collaboratively with insurance companies? No. What am I going to suggest — make less and charge me less? Am I going to invent new products to give them money? (Gee, maybe I should insure my blog.)

No, I think our relationship with an insurance company is necessarily adversarial and one of mutual mistrust.

I come to the same conclusion about the law. Can you imagine the 2.0 lawyer? I can’t. They, too, are adversarial by definition.

So two questions: Could you imagine insurance 2.0?

And what other industries are similarly impervious to the possibility of our collaboration and affection?

  • http://sethgodin.typepad.com seth godin

    Think bigger, Jeff!

    20 Korean families pool finances and open businesses one at a time… each member of the group has a huge incentive to help each business succeed, so they can get the money when it’s their turn.

    Imagine insurance being created in a coordinated fashion, with each member of the coop working to decrease the risk of everyone in the pool.

    Or in smart products that come with their own insurance because they’re so much better and talk to each other. When cars know where they are and where trouble might be, or when they integrate with each other and their drivers and the roads and the police, shouldn’t insurance get better? Isn’t coordinating the community and their payments and their actions exactly the sort of thing that could dramatically lower the cost of insurance?

    And while some may not like it, what happens when 23 and me gets a lot smarter and the healthiest gene pool starts their own life insurance coop?

  • http://www.buzzmachine.com Jeff Jarvis

    Seth,

    (I was just reading your words from the Union Square Ventures session on peer production, trying to think through network and platform value. You were talking about network creation as a form of marketing… Kismet…)

    Cooperative business, I get. Better risk pools, I get. Better products that reduce risk and thus insurance costs, I get.

    Isn’t that all an effort eliminate or reduce insurance, the risk and need for it? I’m all for that. But I think that does become the anti-insurance, no?

  • http://www.buzzmachine.com Jeff Jarvis

    Or to put it another way… One of the ideas I”m exploring is that almost every company can benefit from becoming more collaborative, social, 2.0, etc. But there are some that can’t. And they will likely face efforts to use these tools to destroy them. In some cases, people will do that because a company is not smart enough to retool for the new world (see classifieds customers going to craigslist because newspapers tried to hold onto their revenue streams and became the less effective marketplace). In some cases, though, I think the company or industry is incapable of itself embracing these tools. That’s what I’m saying about insurance. That’s why I think what you’re talking about — and I heartily agree — is the use of these tools for anti-insurance. No?

  • http://web-strategist.com Jeremiah Owyang

    Seth, sounds like a very risky activity, I’ll bet (and could prob ally dig up real numbers from work) that when it comes to money, consumers trust banks far more than they do peers.

    Jeff, another industry to scrape at is the Finance and Medical industry. I’m asked frequently enough by clients to discuss Finance+Social but we often talk about the same ol’ examples, Wells Fargo, Chase 1, Intuit. Outside of that small innovation circle we don’t see much adoption.

    Same with Health care, no real ‘groundswells’ of change.

    Lastly, I know there are several candidates using social media for marketing, but we’re just starting to see movements of governments using these tools to actually change action.

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  • http://www.jamesrb.co.uk JamesRB

    Actually, I think you touched on why insurance might be very web 2.0-able.

    Insurance, as you pointed out, is a glorified betting market. At present, insurnace providers offer odds against certain outcomes – adverse outcomes – and we pay up the stake. The similarity between insurance providers and bookmakers stack up easily.

    Bookmakers’ control over odds and premiums have been shattered by betting exchanges (betfair jumps to mind), which offers more markets, usually with much smaller premiums (a 2 per cent ‘take’ rather than 6 per cent from the bookies is common).

    For some types of insurance – and eventually more – there’s little reason why similar exchanges couldn’t be made. The facilitator may have to take a slice, in order to have some validators in the process, but there’s no built-in reason for ‘social’ insurance to fail.

    In fact, it could work quite well.

  • http://www.buzzmachine.com Jeff Jarvis

    James,
    Brilliant. So you’re saying that by opening up risk to a transparent marketplace, we undercut insurance margins.
    I still don’t know what to do about fraud, though. Are you saying that policing that just a cost that is built in? So the social part of this is not that I have a better relationship with those intermediaries but that there is an o pen market of risk that gives me a dividend? People aren’t arbitraging my risk (or I’m arbitraging insurance companies’ risk)?
    The problem, of course, is that my economics of getting a payoff on my own beats my motivation of wanting the cooperative marketplace to win, no?

    Jeremy,
    I’ve thought the same about health but I have a few ideas I will be exploring, at least around i nformation.
    Finance I’ll have to think about.
    I do think there is an opportunity for the social venture fund.

  • http://vinu.wordpress.com Vinu

    I personally believe … p2p Banking and almost all financial instruments will be social. The metaphor Society is the bank will exist truly.

    In the immediate future .. I think social aspects can be used …. verticals where information from the society is useful – those industries will benefit.

    As Seth rightly pointed out … we need to think bigger. As any customer for insurance – the new web (i wouldn’t call it 2.0!) helps information to flow easily from both ways i.e insurance to customer + other parties involved.

    Imagine a scenario where everyone has a mobile and everyone is insured. You have an accident. I send out a SMS telling I had an accident. My cell phone provider knows my insurance and location. It immediately informs the insurance provider and also sends an sms to the nearest relevant hospital and people besides me to know more about the accident. … Everybody gains to benefit. Better and faster claims. People can take photos and send to the company – peple who help document the process could get paid in the process! The scenarios and advantages are endless. And at the same time – competing insurance provider could advertise and offer something better!

    • Sean

      Vinu,

      Where will the money come from to pay the picture takers? The insurnace company? The local municipality that sent the fire truck/ambulance/police (taxes)?

      Everyone upto this point has the wrong concept of insurance. It is not betting. It is transfer of risk from the individual/company to an insurance company. In exchange for a premuim, based on the individuals/company’s specific chararcteristics, an insurance company will pay out $xxx.xx on your behalf (liability) to make whole the other person (indimnify). Without insurance, wether social or institutional, the individual/company is solely responsible for making whole/ indimnifying the other party.

      Does anyone here have immediate access to $25,000 to pay for a new Honda Accord plus an additoinal $xx,xxx.xx for the other person’s medical bills if you hit and total one tonight going home from work?

      Betting/gambling has risk involved but it also has a possibility of reward. We all want to pick the winning horse at the Kentucky Derby, right?

      Society pooling money together for the common betterment of the pool has been around for centuries. Today we call it Mutual Funds. Otherwise, trying to socially insure property (auto, home) without fraud is impossible. Someone will have an idea to not play by the rules and screw the rest of the society out of their percieved “fair share”.

      Property Insurance has been around since the 1400’s. Mutual Funds have been around since before that. If society/individuals could be trusted to do the right thing, someone would have come up with a better mousetrap by now.

  • http://fairhaven.typepad.com rjh

    Seth and Jeff, there are still hints of this in the mutual insurance companies, although intense regulation and huge size have greatly diluted it. I recall when I first got my auto insurance I recall it was effortless to qualify despite being young. They just said, “Oh yes, your family has been with use for two generations.” I doubt that this still survives today’s underwriting and non-discrimination regulations.

  • http://www.jamesrb.co.uk JamesRB

    Jeff
    You’re right, fraud is a significant issues, but much less so in some markets than others. Let’s suppose we have insurance versus burglary – by requiring the crime to be reported before paying out, ‘insurers’ (those betting against the adverse event) have some measure of security.

    Risky, or trusting, insurers could offer worse ‘odds’ with less requirement for proof in the event of a claim. By treating insurance as any other betting market, we’d effectively be insured by many small stakeholders.

    Cleverer yet, the marketplace could take a cut of premiums in some markets (say 5 per cent?) and use this to audit a random percentage of claims, for particularly risk-averse insurers, or for markets particularly sensitive to moral hazard.

    As you identified, the strength of such a system isn’t particularly reliant on a greater level of trust between the parties involved, but by a far wider and more transparent marketplace. It’s using the technology and theory of social networks rather than the trust built by them, I suppose.

    Health insurance would certainly take some thought. But then again, I’m in the UK, so not a problem for me personally

  • http://www.schoolofeverything.com Paul Miller

    A few months ago I got a facebook message from a friend of a friend saying that the friend’s bicycle had been stolen, which was very bad news because it was the second time in a couple of months and hence wasn’t insured conventionally because the premium would have been too high.

    It turned out that the friend of the friend had contacted all the friends’ friends. She’d asked us all to message back if we would be willing to put in £20 for a new bike which would then be presented as a surprise.

    Sure enough, easily enough friends messaged back to buy a new bike, transferred the money, and the bike was bought. This all took less than a week – which is an awful lot shorter than a similar claim would take through an insurance company. Less paperwork too.

    Obviously it’s not practical in many situations and there are lots of issues about the strength of individuals’ networks but it got me thinking that there might be something in ‘social insurance’.

    • http://www.obermaninsurance.com Justin Oberman

      Paul and Jeff

      This is very similar to the way Insurance was originated. Insurances origins are in fact a precursor of social networking.

      Toward the end of the seventeenth century, London’s growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Mr. Edward Lloyd opened a coffee house that became a popular haunt of ship owners, merchants, and ships’ captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures.Then as now, anyone who was seeking insurance would go to a broker, who would then hawk the risk to the individual risk-takers who gathered in the coffee houses or in the precincts of the Royal Exchange. When a deal was closed, the risk-taker would confirm his agreement to cover the loss in return for a specified premium by writing his name under the terms of the contract; soon these one-man insurance operators came to be known as “underwriters”.

      Today, Lloyd’s of London remains the leading market (note that it is not an insurance company) for marine and other specialist types of insurance, but it works rather differently than the more familiar kinds of insurance.

  • http://theobvious.typepad.com/blog/ Euan W Semple

    I did some consulting work for one of the biggest insurance companies a couple of years ago and I was impressed by the degree to which their business was based on understanding of people, their behaviours and the ways of the world – all very social and all potentially very Web 2.0.

    I spent a couple of days with them working through the issues of social computing and I need to check back how they are getting on. Their initiative may have been dragged down by the inertia that so many experience in big orgs but there was certainly a high degree of willingness to give it a go.

  • http://www.mutopo.com Shaun

    Jeff,

    In their original forms, most insurance companies would have been recognizable as precursors to social networks. In developing countries, many of these organizations exist in their original forms such as the Mutuals. In South Africa, an even simpler structure, Stokvels (like credit unions) enable communal savings. This is really the same thing, in many ways, as savings were sometimes given to members experience an emergency versus someone saving up to fund a new business for example.

    To James’s point on betting and odds-making, do you think groups of people who know one another might outperform actuaries in assessing risk? Do you think it would be easy to defraud a network of people who know each other via friend of a friend type connections?

    One of the other primary issues has always been how the groups cash would generate the best return. Well, they could place the same bets as insurance funds and would probably do just as well, using index funds, in many cases.

    My guess is that “remutualized” insurance + index funds might find a great fit with Web 2.0 tools. And you could still look to Web 2.0 tools like stockpickr to let you figure out how to organize the investment side of the house.

    – Shaun

  • http://www.jamesrb.co.uk JamesRB

    Shaun,

    There’s some very interesting stuff in what you say there – ever come across “The Wisdom of Crowds” by James Surowicki? Essentially, a group – even without personal knowledge – will likely estimate more accurate odds than one ‘expert’ (there are some conditions, but no reason they aren’t met in these cases).

    When it’s someone’s personal social network, then even better. Essentially it brings the social side back in to the sort-of dehumanised betting market I talked about.

  • http://melle.ca Melanie Baker

    One value of social/Web 2.0 tools to insurance companies is internally. The companies tend to be very big, spread out, and silo-ridden. In part thanks to a lot of M&A.

    Building community internally can be really useful in improving relations between teams and with management, as well as a boon for knowledge management and productivity. At least I’m starting to see evidence of that at the insurance company where I work. (I’m in Canada.)

    We started piloting those initiatives within our tech group last summer, and the mandate actually came down from management. No grassroots necessary. That said, I think they’re using it as research for potential external applications, which I don’t think will help that much, since internal uses and communities are very different from external. And I know the external implications scare them. (I think it’s in good part due to a lack of understanding at this point.)

    I’m also finding it interesting that industries that appear at first glance to be least suited to social media would also appear to be industries that the average consumer hates the most. :) (The whole “the tools would be used to destroy them” angle…)

    Oh, and the Cooperators here in Canada is one example of an organization that started out as a community collective.

  • http://www.aafter.com Subhankar Ray

    Hi,

    Mutual Insurance has been around for a while. Web 2.0 can bring better communication among its members, and make it more efficient and cost effective for its policy holders.

    Here is more about mutual insurance from Wikipedia:

    http://en.wikipedia.org/wiki/Mutual_insurance

    Regards,

    Subhankar Ray

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  • http://lsminsurance.ca Canada life insurance

    You are right Melanie, I am working for Life insurance in Canada and I see it in the same way. Web 2.0 tools created new types of relations and restructured the way of working a lot. However, I have the feeling that we are still lacking much of these knowledges, when comparing with US and the way how they use secial networks…

  • http://www.unltdworld.com Alberto Nardelli

    I think Seth Godin nails is: we need to think bigger. Especially in terms of what web 2.0 is, less in terms of social, more in terms of its economics – community, networks and markets as economic dynamics.

    Focus should therefore be on markets, and not industries, and web 2.0 as economics that disrupt markets and make them cooler and more efficient. This is where the more exciting implications lie.

    MySpace, through networks, radically changed music as a market (and the dynamics within), less so as industry, and in fact in ways that ultimately make traditional industry players “less relevant”, gradually obsolete and lame i.e. a disruptive change, at a market and economics level, then forces a shift at an industry level.

    Google changed the market rules of advertising.

    Etc…

  • http://blog.snipperoo.com Ivan Pope

    I think all insurance is essentially a co-operative activity. In the same way that mutual societies and co-operative societies are all social, so insurance is a social contract. We all put in a bit and the ones who need it draw down from the pool. Sure, we privatised the management of it, gave away the profit, turned it into a huge scale business.
    In the same way savings and loans (or building societies in this part of hte world) are social organisations.
    So we need some imagination, some ambition and some skill to build these back again as social communities.
    Sure, we can never reinvent the small local communities – but online gives us global micro-communities that can build insurance funds between them

  • http://twocroissants.wordpress.com Bertil

    I have to disagree with you: Maif is a French insurrer, originaly for teachers, well-known for caring — their ads (and their behaviour) rely around “A check in a month time won’t help you find a baby-sitter now if you just broke your leg.” Beyond the hype, the service is great: nothing fancy, but convenient: if you need a professional and you lost your wallet, they’ll call and you won’t have to pay (right now).
    Their premia are above average, but they have lower rates for young, students and poors. How can they make it? Thanks to an implicit contract: when you get richer, you stay with them not only for the service, but because you beleive in their way. And they are not publicly owned, but rely on a non-profit structure.
    Conversation is made possible with real help-lines, and in case of non-emergency questions an “activist” on call. I’m not sure it is Web 2.0 as such, but it is ver dufferent then what you describe — I think they have group-buying catalogs, though.

  • http://robertdfeinman.com/society robertdfeinman

    It is only for-profit insurance that is a problem, the firm needs to keep more than it pays out. We have two examples of non-profit insurance and they work quite well: Social Security and Medicare.

    Once the profit motive is removed then there is no reason for the insurance company to game the system, all they need to do is balance the income against the payments by setting rate schedules for both appropriately.

    In other parts of the world social insurance is even more widespread, it just isn’t regarded as insurance. For example, in those countries that offer free higher education funded by taxes the “winners” are those who go to college, while the “losers” are those who don’t. To balance this are other programs where the reverse might be true. For example the less highly educated might tend to be unemployed more often and thus collect more unemployment insurance.

    If done properly, on average, everyone gets out an amount of service proportional to what they put in, but in those cases where they suffer extreme harm they collect more. The cost to each individual to cover these instances is small.

    In this country the rich see paying into a universal pool for social services as an infringement of their “right” to become as wealthy as possible. They fight this by opposing taxation in general and on them specifically (such as with the estate tax).

    Why selfishness is now seen as a virtue in the US is something I’ll leave to the social scientists and philosophers to explain.

    In an earlier period we had mutual insurance companies and mutual savings banks. The idea was clear, there was not to be a profit. Until recently most Blue Cross/Blue Shield health plans were non-profit. In a deal typical of the tenor of the times they were converted to for profit by paying a small bribe to the government (in the case of NY about $1 billion). The result is as was to be expected. When non-profit, Blue Cross paid out about 94% of premiums to subscribers. This has now dropped to about 72%. The difference it the profit and high salaries of the bosses. For comparison Medicare pays out about 97% of premiums. The head of Medicare is a civil servant. The head of United Health Group made $1.3 billion.

    Who has gained from this? Certainly not the public. There are just some areas where the profit motive is not the best way to provide services.

  • http://www.buzzmachine.com Jeff Jarvis

    Robert,
    Though I’m very much in favor of Social Security and Medicare — not to mention universal health care coverage — I do think you’re going with a rather Marxist analysis — I don’t intend anything loaded in that — and ignore the problem of recipients and providers gaming and defrauding the system and the problem of bureacrats gumming up the works. I think you’re essentially right about cooperatives as a solution but I also think you’re glossing over the problems that rise there, too: namely, greed, fraud, and evil from all sides. If we all lived and contributed according to our means and needs, well, Russia wouldn’t be run on oil riches today but on optimism and good will.

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  • http://scott.heiferman.com Scott Heiferman

    Props to Paul & Ivan’s comments.

    Historically, when people are free to assemble & associate, they self-organize insurance, cooperatively. Later it became the centralized, professionalized industry we know today. I predict there’ll be some kind of massive craigslistification of insurance by April 27, 2018. It’s about de-institutionalization — not from the government borg (social security), not from the corporate borg (AIG). The New Social [graph] Security. Decentralized, self-organized. Not just DIY, but DIO (Do It Ourselves). That the big theme for everything now. (posted here)

  • http://robertdfeinman.com/society robertdfeinman

    Jeff:
    How do so many countries in Europe (and Japan) manage to have extensive social insurance schemes without falling prey to the ills you worry about?

    Presumably greed, fraud and bureaucratic inefficiency aren’t restricted to the US. Even Canada (which is much more like the US than states in Europe) manages to run a national health system without the problems you fear. It is not only cheaper than the US system, but performs better.

    I’m not sure what you mean by “Marxist”, but we already have a bit of “from each according to his ability” – Medicare payments are not capped and there is talk of removing the cap on Social Security. The same thing could be said of our progressive income tax system. The EITC (earned income tax credit) is an example of “to each according to his need” as are the parts of Social Security not related to retirement (disability and survivor’s benefits).

    I’m afraid that the common condemnation of government smacks more of ideology than of actual data. Medicare is much more efficient than private insurance and the VA (which is allowed to negotiate prices) is not only more efficient, but cheaper as well. (I’m excluding the recent deficiencies caused by the Iraq war – that’s deliberate mismanagement by Bush.)

    On your next jaunt or international panel why not talk to a few people from Scandinavia and see what they have to say about their extensive social services.

    I spent my career working for non-profits and the people in these organizations worked just as hard and were just as motivated as those who were presumably motivated by profit. I’m sure you see examples of this at CUNY – passionate faculty who will gain nothing personally if their student’s do well in life.

    Government man not be good an entrepreneurship, but it can provide standard services better then firms that are looking to cut corners. If we are seeing a rash of mismanagement and corruption at the federal level these days, that is because of a failure in our democratic system. The elected officials are seldom called to account by voters and act accordingly. When 94% of incumbents get reelected do they really need to listen to the concerns of voters?

    The cure for imperfect democracy is more democracy. In the case of the US a good first step would be to get big money out of elections. The media is complicit in this since they are making a bundle from political ads and attracting viewers as they play up the horse race.

  • http://thenoisychannel.blogspot.com/ Daniel Tunkelang

    One of the problems I see in health insurance today is our ambivalence (at least in the United States) to accept that people differ widely respect to both the costs and benefits. Some of that is inevitable (e.g., consequences of age, gender differences, genetic predispositions); some is not (e.g., smoking, diet, exercise). Also, different people may put a different value on their own health, which after all is not a binary good.

    Given all that, it seems obvious that, in a market economy, if insurance is worth less to you than to me, then you won’t willingly pay as much for it as I will. If the price is fixed at X, then the people for whom insurance is worth less than X (in general, a lower-risk pool) won’t pay for it. If we force everyone to pay X, then we are redistributing wealth–quite possibly in a regressive way.

    What I am saying is economics 101, and shouldn’t be at all controversial. Nonetheless, that common sense seems absent from most of the public debate about health insurance. Interestingly, other insurance industries (e.g., term life insurance) seem to have figured this out. What makes health insurance different? Do the moral dimensions of health and quality of life preclude rational analysis?

    One of the phenomena I associate with Web 2.0 is that everything becomes a market (money, attention, etc.). It seems to me that Insurance 2.0 should be more tuned towards market reality.

  • http://robertdfeinman.com/society robertdfeinman

    If you really want to get into the details of the health debate I suggest you visit http://www.healthbeatblog.org/

    The principle author, Maggie Mahar, is an authority on health finance, having worked as a reporter in the field for several decades and written two books on the subject. She also replies to comments, so if Daniel Tunkelang would like to repost his questions there, I’m sure he will get an intelligent reply.

  • gregory

    web’o’sphere 2 point oh social networking will blow up insurance, because it will transparently link the whole system, insured, insurers, providers of the service that insurance is paying for

    no place to hide, accountability everywhere, prices will drop, profits/savings more evenly dispersed

    best thing that can happen

  • http://fairhaven.typepad.com rjh

    Many of the comments above mistake two of the very important aspects of a mutual insurance or banking system;

    1) The customers are the *owners*. We hold the stock. We get the dividends. We vote for the board of directors. Profits flow back to us. This is an important difference.

    2) These are situations where the customer chooses the vendor. Healthcare is different. With a few exceptions, the healthcare insurance buyer is a corporate or government bureaucrat. It is very rare that the patient has any choice in the insurance vendor or insurance coverage. The mutual insurance and banking have been in areas where the customer is the person insured.

    Both of these make a huge difference in the motivations of the insurance staff, attitudes of both staff and customers, and the correspondence between customer expectations and insurance coverage.

  • http://thenoisychannel.blogspot.com/ Daniel Tunkelang

    Robert,

    Thanks for the link. I took a look at Health Beat and found this (excerpted from http://www.healthbeatblog.org/2008/04/health-care-ref.html):

    “The only way to avoid such inequality is to insist that private insurers offer everyone in a given community the same insurance at the same price. Young and old, sick and healthy, everyone pays the same price for the same coverage, and no one can be denied insurance because of pre-existing conditions.”

    If such a system is mandatory, it can work–though it is, as I said in my earlier comment, a redistribution of wealth. We take this approach for education (though some people, usually those with more wealth, opt out and choose private schools); we don’t take this approach for housing (though the tax code favors regressively homeowners over renters).

    Perhaps personal choice and individual freedom, which comprise the main objections to most national health care initiatives, are overrated. This is a libertarianism vs. socialism debate, and both sides have strong arguments.

    In any case, it is certainly possible to take a one-size-fits-all approach. But it certainly doesn’t sound very “Web 2.0″–which is where I thought this discussion started.

  • http://virtualeconomics.typepad.com Seamus McCauley

    I think James RB’s idea works just fine, with a couple of tweaks.

    Any investor in the p2p insurance market must also take all their own insurance through that market and no investor can join who is not also willing to use the market to insure their own risks.

    It’s then in the interests of everyone involved for the claim validation process to be accurate and scrupulous. If your house burns down, you want your claim upheld; but if another member falsely claims their house has burned down you want their claim defeated.

    In theory the response to that will be for all members to claim on day one that their houses have burned down. Get past day one and you’re in a stable situation where everyone is properly incentivised to reward honest behaviour.

  • Uncle Fester

    Here’s an important issue that cannot be overlooked for any of this to work in the US: At least on the surface, each and every scheme laid out above would either be illegal or would require a significant cash investment by the participants.

    The first poster, Seth, has a great idea, but if anyone did it they’d wind up in court on about 30 counts.

    The ongoing regulatory burden is enormous, too. And then there are the mandatory coverage issues (which really are part of the regulatory burden). For example, you can’t buy health care coverage in NY that does not provide chiropractic or psychiatric coverage.

    You’d have to solve all first to make any stab at insurance 2.0 work.

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  • http://www.liveelements.net Elaine Bolle

    I think looking at the insurance issue only from the perspective of consumers is limiting. The real opportunity for insurance and other areas will be in the application of social media tools to achieve better business results. An example within insurance would be to connect adjuster, claims processing and consumers in gathering and settling claims more quickly. There could be many applications with larger claims impacting large groups of consumers where the sharing of information, ideas and solutions work for everyone’s benefit–dam–better for consumer, more efficient for insurer, etc.

  • http://www.ichoosr.com Bart Stevens

    Jeff,

    I’m late in the discussion, but I wrote a “Seth: think bigger” post about this problem.

    It’s related to “people ranking” (as in google’s page ranking), whereas people’s insurance fee will be related to some sort of ranking in their communities. This ranking can then be matched against the (top-down) ranking you get from your insurance agency, offering you a more personalized monthly fee.
    See also: http://www.ichoosr.com/blog/archive/peopleranking-what-do-you-think

    Do with it what you like.

    Cheers

    Bart

  • http://www.mediaflect.com Dorian

    Would there be a way to set up a “unused insurance credits” market? Analogous to the carbon credits market for selling unused pollution credits? So, if someone is healthier than predicted by actuarial table, they could sell off (or donate) their health insurance credits to someone else who needs them.

    Apps would help manage the process by identifying the “markets” and helping manage them at very low incremental cost. Could even provide anonymity, so buyer and seller don’t know each other. Could reduce the cost of insurance by helping cut down the need to charge more to the older or more risky because the credits would be used only on an as-needed basis.

    • http://www.obermaninsurance.com Justin Oberman

      That is, in a sense, already the way it works. I pay but I am healthy, therefore I help pay for those who actually use the insurance.

      Unless you mean pay for people that don’t have insurance.They would be legally complicated.

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  • http://www.hirechriscranley.com chriscranley

    All of the comments, including the original post, seem to gloss over the underlying motivation of any type of insurance: A hedge against risks that would not or could be covered by the policy holder.

    To the extent that “insurance” is mandated by government on a state by state basis, I think its beyond the hope of help from Web 2.0 technology (just like political game itself).

    To the extent that social intelligence may be able to *reduce risk*, I think the Web 2.0 technology may assist in the creation and distribution of “risk avoidance” knowledge. Most technology companies “self insure” (I believe) their employees for long and short term disabilities. They know that the profile of their work force allows them to mostly “avoid” the disability sucker bet.

    On a personal level, if I had the knowledge and possession of a fire proof building, I would not need fire insurance. If I found a community that supported a walking life triangle (distance between work, home, and shopping center), I would not need car insurance. If community / alternative / genetic medicine supported average age up to 80, I may give up health insurance. If I knew how to avoid problem X, I would not insure against it.

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  • Sarwer Amin

    the benefits, eligibility requirements and other aspects of the program are defined by statute;

    Private insurance programs are generally designed with greater emphasis on equity between individual purchasers of coverage, while social insurance programs generally place a greater emphasis on the social adequacy of benefits for all participants.
    i.e,Equity versus Adequacy

    http://lifeinsuranceworld.org

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  • Joshua Kidd

    Out of curiosity, what types of insurance does everyone see a web 2.0 betting market approach working for?

    The first one I thought about was car insurance in the UK. However, I quickly realised that an enormous hurdle would be the legal side. If an insured party accidently killed someone in a crash, the insurer would have to pay out millions of pounds. Thus, even if someone were able to invest this sort of cash to insure another person, there return on investment would be such a small percent that it would be pointless to say the least.

    I’d love to hear what others thought about this.

  • http://www.obermaninsurance.com Justin Oberman

    Just a thought a couple of months later. Perhaps Insurance Brokers had a much better opportunity for social media… since its there job to be on the side of the Insurer…

  • Joshua Mark

    Jeff great question, you’ve got a new fan here

    The Insurance 2.0 model with the most opportunity for success today is medical. Not counting major medical, I’m speaking specifically of preventative care. Seeing the number of uninsured flood the ER rooms in hopes of beating strep throat or a sprained ankle, I can see the emergence of an army of “RediClinic” like facilities emerging in the near future.

    It occurred to me the other day about what the percentage must be of uninsured/underinsured Americans who participate in healthy lifestyles/Fitness Clubs, working to stay safe – stay fit. Yet, like myself, how many of these uninsured club goers have had a cholesterol or blood screening in the past 6 months? A year perhaps?

    Homeowner’s insurance is quite expensive, yet renter’s is easily attainable for most. Why cant preventative care be modeled the same way? Give the 18-35 demographic a simple menu plan of preventative care and common sickness remedies tied to these anywhere clinics where you’re in and out in 30 minutes? Put some facilities in fitness clubs, and give members discounts as to how active they are at staying healthy. Real, tangible results could be viewed immediately not just with your appearance, but your health and risks as well?

    There are fitness clubs in shopping malls here in my community, and vision care stores. Why not health care?

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  • Michael

    Hello,

    I’m very late to this discussion, having come here by way of WWGD? which I’m just finishing now.

    From my POV as an insurance agent and financial advisor, I personally can provide much better service to my clients the more knowledge they have.

    As mentioned above, using Web 2.0 to learn how to self-mitigate risk is a very good idea. Guess where you can start? Industry web pages such as iii.org explain many ways that people can DIY/DIO to lower their risks and, consequently, pay less in insurance premiums.

    Here is the most important thing you can do to be a wise consumer of insurance: Read Your Policy! It explains in semi-clear language what is covered and what is not. If you don’t understand, call your agent, then call a rival agent. The rival will do a much better job showing you the gaps in your policy than will the agent who sold it to you.

    Another thing that makes your insurance work better: File every claim. You still have the right to refuse the payment, thereby removing the claim from your history. What you get when you file the claim is a free evaluation, aka claims adjustment, of the cost of restoring you to the state you were in before the loss. You can then decide if it is worth paying out of pocket or having the insurance company cover the loss. Also, the sooner you file, the easier it is for the adjuster to give you an accurate evaluation. Again, just because you file does not mean you have to accept the payment.

    The III has a great home-inventory tool for collecting your own data about your property so that if you do have a major loss, you can help the adjuster pay the most you are eligible for. Interestingly enough for this discussion, the data can be stored securely in an offsite web location hosted by Amazon.

    Above, I’m talking about property and casualty insurance. In a very WWGD? way, for P&C insurance, good information = good results. The more information you have about your own property and the more information you share with your agent, the better she can do in recommending a good policy that will cover what you want covered and ignore what you don’t want.

    With your home and auto policies you also get liability insurance. This is what protects your wealth. It is what will cover your assets when/if you do something very stupid and hurt someone or destroy their property. An important component of liability insurance is what is known as “duty to defend.” What this means is that you get the use of the insurance company’s lawyers to protect you from having to pay when you are not legally liable, and from having to pay more than you a liable for when you really are at fault. The limit on this protection is whatever upper limit of liability insurance you have purchased. (Which is why it is important to have liability insurance at least equal to your net worth.) “Duty to defend” is a very WWGD? concept in that it is leveraging the expertise of others for your benefit.

    When it comes to disability and life insurance, these are also insurances that protect your family wealth. Disabilty coverage replaces part of your income when you can’t work. It works in conjuction with L&I insurance, but is better because it covers non-work injuries as well. The actuaries have collected mountains of data about what kinds of work activities are more or less likely to lead to injury (and therefore, claims). You can use this information yourself to help you understand what the risks of injury are for you job and mitigate against them.

    The data collected in connection with life insurance probably has the most visceral interest to people. Insurance actuaries cannot predict exactly when you’ll die, but they cen make a pretty good guess based on over a century of data regarding gender, age, weight, health, and lifestyle. When the information is inexpensive enough to collect and process, insurance actuaries will look at genetic determinants of longevity, in a “GATTACA” way. You’ll notice I said “will.” If there are laws to the contrary, they will quickly be eroded by the industry and by consumers who realize that an insurance company that can exclude people with certain traits will charge a lower premium to those it does include.

    Life insurance is one of the few products where you could potentially get some or all of your premium back if you beat the odds and live beyond the age most people in your peer group achieve. This is entirely dependent on what kind of policy you write – which requires either your direct knowledge of policies and how they work, or for you to leverage the knowledge of an insurance professional to find the policy most suited for you.

    Medical “insurance” is primarily group purchase plans for medical care. This is not “insurance” like any other meaning of the word. While people can buy true insurance to cover catastophic medical issues, what most people mean by medical “insurance” is – in the most cyncial sense – a Ponzi scheme where lots of people pay in a little and a few get out a lot.

    Reinterpreting medical group buying plans charitably, they are an option for people to pool resources and get bulk rates for medical care, drugs and equipment. In this sense, it should be very easy to use Web 2.0 – information gathering and processing capabilities to help people find the services and goods they need at the prices they are willing to pay.

    The two most imporatnat imepdiments to freeing up medical care group buying plans are that they are 1. currently linked to employment and 2. regulated to the point of near collapse.

    If medical care group buying plans were de-linked form employment and made more along the lines of credit-union memberships – either by industry (as labor union medical care group buying plans are) or geographic location or being related to someone already in the group, then I personally believe that most of the issues with over-priced, under-paying plans would be cleared up.

    The remaining problems stem from the fact that the various States have mandated a long list of treatments that must be covered. As someone noted above, there is an excess expense added to policies that must cover chiropractic, for example, even if only 5% of the subscribers have any interest in it. When subscribers can make a list of the things they want covered and to what extent – as they can do with homeowners and auto insurance – they will have much more freedom and will be able to control the cost of their care more effectively.

    However, there is still the problem of negative selection, which has been talked about above, but is a very complex issue that requires more discussion than has appeared on this blog (but is available throughout the web – just start with a Google search).

    If anyone is even looking at this page anymore, I’d like to discuss the WWGD? ways insurance can be bought and sold to give more power to the consumer, which actually empowers us agents along the way!

  • Freida

    Hi Mike:
    I am NOT in insurance – despite the fact that I’m working on a social media marketing plan for a client who is an insurance broker. But, one of my recommendations is that her focus be on educating clients. Do easy to understand Q & A type communications (blogs, reports, etc) in a way that lay-people know what she’s talking about.

    You (insurance industry) make it hard to understand what you’re talking about, and the distrust level is sooo high — especially since we’re always hearing stories about how people are cheated by their insurance companies.

    For me, when you talk about social networking – sharing information in a way that people understand what they’re buying, protecting, or not protecting – what you’re providing is very ‘social’ and meaningful. The challenge is that even when insurance professionals are breaking stuff down and think they’re making it easing to understand – often, because insurance is so complex, the information is not as understandable as insurance-folks think it is.

    Anyway – I thought your comments were interesting and possibly offer some solutions. But…I must admit, I only undersood about 50% of what I read :-)!!

  • http://parent-rights.blogspot.com/2010/02/ulysses.html Karateka

    I’ve almost finished reading WWGD, and find it to be a very interesting and very compelling work. I thought the part about social insurance was very fascinating, but you have overlooked a major data point of social insurance.

    The FLDS and various other Mormon offshoots have been practicing social insurance for ~150 years, almost continuous. Because it is based on rather uncommon religious beliefs, and not venture capitol or online connectedness, I can certainly see how it passed under the radar. But, they have been a largely self-sufficient community, with the care of the elderly and sick provided for by the other members of the group. It may be the largest example of what you are trying to talk about. But, they have a land trust that is now valued at over $100 Million – not exactly small change.

    Perhaps not surprisingly, government and religious bigotry have combined to attack the organization. The State of Utah, citing possibilities instead of data, took over the land trust, and has been running it into the ground, losing millions per year. The FLDS are now in court fighting to get it back.

    http://www.truthwillprevail.org/index.php?parentid=1&index=173

  • RRafael

    Hello,

    I’m reading a book WWGD (CNG – Polish edition), and I drew attention to the problem of insurance 2.0.

    I am afraid that the insurance system based on knowledge (of the total and true knowledge) on the health status of clients, was to be imperfect.
    Why?

    When insurance is treated as a ‘bet gambling’ it can be compared to the struggle of two boxers.
    One of them is a heavyweight boxer, and the other is very light weight. Then you can bet 20:1 that will win a stronger (ie heavier). Thus, in order to win the same amount of money, we should bet on for a more stronger (heavier) competitor for example $ 20, and for a light weight boxer enough to $ 1.

    Logical, but are the insurance customers wants to be treated like that?

    Imagine that compares two insurance conditions customers:
    The first client is healthy and its dna genes are ‘perfect’, and the other is unhealthy and the dna genes shows the risk of diseases such as Parkinson’s.

    Both analogy to obtain the same amount of compensation should insure themselves in different amounts, such as 20:1. That is the first pay 20 times less than the second.

    However, people who have a genetic basis for the illness, do not disclose it to not pay higher rates. Everybody wants to be treated as a standard healthy man.
    If the insurance 2.0 will be controlled too much information , that can lead to a situation where is a ‘discrimination’ group of people with worse example of dna code.
    .. And where are the positive aspects of an omniscient insurance agency?
    Perhaps only for its own sake – because some people, regardless of their conduct will be condemned at the beginning of the worse conditions of insurance.

    The only indication in this situation was that to create the procedure which helped to reduce these differences between customers. So a person with the worst dna should proceed according to a ‘procedure’ of life (formally developed and launched such a procedure was to prevent the unfortunate consequences of the disease).
    for example, if a patient with parkinsonism should avoid drugs that weaken the action of dopamine, is that such a procedure is described as a ban (is also a separate question of proving that the client fills these procedures in practice).
    Then the insurer with knowledge of the patient could reduce the payment for insurance when the client will live ‘wise’ and ‘healthy’, ie according to the procedures.

    Otherwise I see no benefit to customers with insurance 2.0 when the insurer had to know everything about the client, even based on the entire network of web2.0 informers .

    ps. sorry for my english

  • http://www.canadainsuranceplan.ca/ Canada Insurance Plan

    @2e1e1c1afbd1f5ef6b73896f86a5f27c:disqus well said Mutual Insurance has been around for a while. Web 2.0 can bring better
    communication among its members, and make it more efficient and cost
    effective for its policy holders.

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