Ensuring the Future. Insuring People.
By William Genesen, Anca Timofte, Kemie Iko, & Meg Saunders
Executive Summary
The world that we live in today is more unpredictable than ever. An increase in the number of natural disasters, such as the wildfires that have devastated California in recent years, has made it evident that a new approach to insurance is needed. The COVID-19 pandemic has also shown us that there are risks unknown or unimaginable to us and which are not covered under the existing insurance system. For relatively predictable events, those who want insurance find themselves navigating a fragmented market and having to keep track of their health insurance, home insurance, life insurance, car insurance, legal insurance….and the list goes on.
The Problem
A large insurance gap remains in place worldwide. 67% of homeowners are underinsured by 22-60%. 43% of patients are underinsured. 63% of renters do not have renters insurance. Further, the insurance industry is losing billions of dollars every year because of an increase in the number and magnitude of claims.
A new way of looking at insurance could help address these issues both for the (under)insured and for the insurers. Through interviews and the design process, we’ve investigated the causes for the most critical challenges that need to be addressed in redesigning the insurance industry.
Our Proposal
What if we insure people - not things - against anything that might harm them? We propose a new type of insurance product covering an insured person’s well-being holistically instead of covering a defined set of life events. Our insurance product would have four distinct features:
It assumes people are the #1 most valuable asset to protect and insure.
It offers basic minimum coverage, sufficient to get someone back on their feet right away.
It aims to cover essential human needs for security, safety, physical, mental and social health.
It rewards early preventative action for reducing risk and incentivizes a proactive approach.
Insurance Mechanism
A first step to bring this vision to life might be to rethink the existing insurance premium model. Today, actuaries and underwriters determine the cost of insurance per individual using complex models that are often driven by factors outside of the control of any individual applicant. We imagine a world where existing insurance models and Artificial Intelligence enable insurance companies to structure premiums in a manner that prioritizes accountability and promotes risk reduction. Institutions, like businesses and the government, would be responsible for premium contributions, not just individuals.
People we insure would not be held accountable for the risk that they did not create. Further, all parties are held accountable for the risk that they do create, particularly when that risk-contributing behavior leads to damaging outcomes for others.
Instead of focusing on an individual’s geographical location or medical history, insurance companies would determine individual and institution premium amounts considering:
Socioeconomic situation: Financial situation - and therefore ability to contribute financially - and need for protection.
Historical context: Established historical factors that potentially hinder individuals or institutions from avoiding identified risky behaviors.
Risk for profit: Examples might include incentivized contributions from chemical waste introduced by manufacturing, carbon emissions from airline providers, and community displacement related to real estate development.
Impact
We believe that our solution will impact users, insurance agencies, and “risk-creating” entities in ways that bring about beneficial behavior changes in all three groups of stakeholders. For users, imagine if they had access to simple coverage that included holistic services, which supported them with funding and advice to take early steps to build resilience in all aspects of their lives. For insurance agencies, imagine if they were provided with a stable source of funding and the mechanisms to encourage users to invest in resilience, saving future costs.
Finally, for institutions that currently contribute to risk, imagine if they had direct access to the data they need to inform how they could best adapt towards less “risk-creating” behaviors and clear incentives to innovate towards a future that is safer for all?
This is the future that we imagine, where each person has their own basic social, mental, and material needs covered to ensure that they are protected and healthy. It reinvents the boundaries of what we consider insurable, scrapping a system that oversimplifies basic needs into limited categories.
On June 3rd, 2021 the Redesigning Finance students presented their work via Zoom to a panel of experts working in the finance sector.
