I am reading a lot about innovation in insurance lately, sometimes related to what we are calling insurtech, sometimes “just” from the point of view of challenging the way we see the business and we face its needs thus opportunities. It is obvious that there are changes coming to a business where things always seem to move quite slowly, although this perception has probably not been fair.
I did not know Teambrella.
For what I can see in their website and in a very interesting white paper where they give details about their proposal, there are two main cornerstones in their differential model:
- The fact that they remove the insurer.
- The use of Bitcoin (and other cryptocurrencies in the coming future) to store the “premiums”.
Reading through that white paper these are the questions that come to my mind:
Peer-to-peer insurance starting point
The document starts putting the issue in context and proposing the solution:
Most insurance services are currently both inefficient and nontransparent. We propose a way to solve these issues by implementing a system that provides peer-to-peer insurance.
I am not quite sure that the way to face inefficiencies and lack of transparency is to change the model, because any other model you define can have processes leading to exactly the same issues.
I believe that the way to face issues is just that: to face the issues in their source. Let’s work to remove inefficiencies and bureaucracy, let’s work to make processes and decision making transparent. That is what is really innovative. That is what is really transforming.
Teambrella’s starting point seems to me like: We can not fix the problem, so let’s get rid of it.
Unfairness and bad faith
Teambrella’s documents say:
The reasoning behind the calculation of premiums is not disclosed and, therefore, cannot be considered intrinsically fair by customers.
What they propose to eliminate this lack of fairness in premium calculation is to do the calculations based on a “risk coeficient” that takes into account the probabilities that the group and the individual have a claim, but, as calculating the risk probability of the individual is impossible, this probability will be decided by a voting system among the other members of the group:
A new teammate’s risk coefficient is initially set via voting by other teammates.
So, to avoid the lack of visibility of the actuarial analysis of the insurance companies, they adopt a voting system based in (theoretically) more transparent criteria: the personal opinion of the members of the group.
The documents also say that general public have a bad perception of the insurance industry because there are standard behaviors that prove the bad faith of the insurance companies what leads to a general tolerance towards fraud.
What they propose then is a P2P system that would mitigate these issues through the votes of the members:
Both unfair prices and bad-faith practices can be significantly mitigated by implementing a peer-to-peer (P2P) insurance organization. Peers control via voting each and every decision and are free to instantly delegate their votes to other peers, creating chains of trust.
They say that the conflict of interests disappears because those who have to decide whether to pay or not each claim, who are the members of the group, have a spacial interest in deciding what they consider to be fair because this settles the rules in the case they are the ones who claim.
The author of the analysis that led me to discover Teambrella (who in Linkedin presents himself as a lawyer focused in insurance) doubts that a group of individuals would take fairer decisions than an insurance company:
There’s no guarantee your friends and family will treat you better than a stranger (one who is heavily regulated, can be sued, and gets you access to a state guarantee fund in the event of insolvency).
To correctly evaluare this doubt (that I share) there is the need to clarify something not mentioned in the white paper but in Tembrella’s website: there are no premiums at least in the tradicional way. Group members only pay when there are claims, so each vote about claims payment is a vote about payments by each member:
There are no set premiums. When your team settles a teammate’s claim you may need to pay your part of reimbursement directly to the teammate.
The argument that as insurance companies only spend in claims hala of their income, members can save 50% on average, can be valid just with big numbers (what is the essence of the insurance, by the way: the bigger the group, the more diluted is the risk), but in 8 people groups (that is one of their examples) I am not quise sure that math would add up.
The peer groups concept
They define the team as a community of users that set their own rules. and these groups can be formed under any criteria.
When someone wants to join a group would have to negotiate its “insurable value” with the group according to the value of what they want to insure or the amount they want to pay when facing a claim. As mentioned before, members’ vote defines the risk coefficient, meaning the economic conditions under they would be able to be insured: premium (when there are claims to face) and coverage level.
Another interesting concept is the value of the votes. There is no “one man one vote” system, but a weighing according to the amounts paid in the previous period. What means that you have as much power as you pay.
Voting management is another interesting matter: If a team member does not want to be voting constantly (the bigger the group the more likely it would be), they can delegate their vote. This is why the system, to incentive the vote, defines de possibility that who votes may receive a payment:
To make voting more appealing, the team may set a rule to pay a sum equivalent to a fraction of reimbursement amount as compensation to those who do cast a vote.
And those who receive the confidence of many team members to vote in their name, can earn as much as to see this as an actual job, so to earn the confidence they could end up doing… basically the job of the employee of an insurance company.
The concept of “insurance without insurer” sounds terribly innovative to me. so innovative that is just how insurance was born before the appearance of the first insurance companies: local communities that joined to face possible disasters, community barns to face plagues or bad harvests…
I took a look at the Teambrella team profesional profiles and I can see individuals with a vast technical experience but none of that experience seems to be in the insurance market. I do not see this as a bad thing itself, it could even be positive because it could mean that they are coming with a fresh mind, but I rather have the impression that they have designed a solution and then have looked for a problem to implement it instead of doing the opposite: Facing an issue and then looking for an answer.
In the coming months I am pretty sure we are going to see huge innovations in the insurance market, and P2P is going to be at the heart of many of them just like it is in Lemonade, Guevara or Friendsurance either from the intermediary side either from the insurer one. Or center in mobility as Trov or including blockchain as Consuelo. But to I do not think the solution is to propose to eliminate the insurer with the objective of solving the bureaucracy and the lack of transparency that we perceive as the main problems of the current players.
It might be that I’ve been so many years in insurance that I can’t see the forest for the trees. Who knows.