Will Mark Zuckerberg Reinvent The Insurance Industry? – A 2011 Prediction

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Maria Ferrante-SchepisI predict that Time magazine’s 2010 Person of the Year is going to reinvent the insurance industry. Not sure if he knows this yet, but that’s just because he is still young enough to be insured under his parents’ health policy. Perhaps on his birthday in 2011, when he is no longer covered, he will start thinking about it.

Mark Zuckerberg, the 26-year-old CEO of Facebook and 35th richest person in the U.S., has attracted more than 500 million users to his social networking empire. Indeed, Facebook—depending on who you believe—may account for as much as 7 percent of all Internet traffic.

So why do I think someone like him will revolutionize insurance? That’s simple. The insurance industry is facing challenges that make it ripe for a “Napster Moment,” the moment when some other industry steps in and redefines the game.

You understand why the moment is nigh. The industry faces shrinking distribution, increasing regulation, public scrutiny and market dynamics that nobody can seem to keep up with.

Many are looking to tangential industries for the answer…investments, banking, even retail. But no, I do not agree. I am betting on the dark horse, Zuckerberg.

Why? Facebook/Social Media has three key elements that are required for insurance to work:

  1. A large, diverse pool of people
  2. The ability to track and store large amounts of data and make predictions from it
  3. Social awareness of the burden of uninsured risks

And it has four things that today’s insurance industry does not have, but probably wishes that it did:

  1. Significant levels of involvement and engagement by users
  2. Viral marketing power
  3. Instant feedback about what people like, dislike and what is attracting the most attention at any given moment
  4. A hedge against antiselection (Yes actuaries, lean into this one.…)

Hang Onto Your Hats

Here is a relevant piece of history that leads me to this conclusion. Back before insurance was created, communities dealt with the threats of risk and destitution with a method that was affectionately known as “pass the hat.” When the breadwinner of a family died or became severely sick or injured, communities would respond by taking up collections to help the family get by, and thereby avoiding them from becoming a burden on society. In the 1700s, Lloyds of London had the idea to execute this collection process “in advance” of the events versus “in arrears.” It would then take the reliance off of the generosity of others and into structure. They called the contributions premiums, and they set it up so that only those who contributed their fair share would be eligible for any benefits when they needed them. The concept of pooling of risks made this more effective than passing the hat, and the innovation of insurance was born. In the case of life insurance, the government gave incentives in the form of tax benefits to encourage the use of this vehicle for the good of society.

Over time, the industry shifted its focus to older, wealthier people who could afford to maximize those tax benefits, leaving many younger families underserved. In addition, the economic risk of death is not as catastrophic as it once was, causing the product to become less relevant.

If you are to get into the heads of today’s younger people, they would probably be more favorable to the life insurance industry if it defined itself as being in the “lifestyle continuity” business. That is, making sure that any risk of messing up their future plans is covered.

So what happens when a 20-something falls victim to one of these risks like losing a job, getting very sick, wrecking their car or losing their home? They could go home to mom and dad, which is one option. But what if they don’t have parents or their parents don’t have the means to help them? They turn to each other for help. And they are a generation of kids very willing to help those in need. They are interested in social good and sustainability. So they “pass the mobile device.” And they put their troubles out on Facebook, and they ask for help—and often get it. What if this ability was more formally structured? And the method for collecting and distributing funds was simple?

Laughing All The Way To The iPhone

More than $24 million was raised for Haitian relief after the earthquake in January of 2010, and it was all done with text messaging in a matter of about a week’s time. A bank never touched the money. The telecom companies were the ones that got to handle it for a moment.

Now, if you combine that ability to collect and distribute funds quickly with the power of a social network, the “Napster Moment” in insurance is born. Facebook has the opportunity to cover the risks handled by the insurance industry today.

And you actuaries who were waiting for the antiselection hedge, it lies in the transparency of knowing who is contributing and who is receiving benefits, as well as the lifestyles and habits of these individuals. Someone who is a bad risk to the pool (i.e., a particular social network) will be addressed by the group. It’s all out there for people to see. Perhaps they will be voted off the island. Or is that a different piece of pop culture?

So Mark, Are You Reading This?

I suspect Mark Zuckerberg is not reading this article; however, I also suspect that he doesn’t need to in order to come up with the idea. Could an insurance company lead this instead? With the right innovation process and “out-of-the-jar” thinking, perhaps. Maybe I should post this suggestion on Facebook and see who “likes” it.

Wishing you a Happy and Innovation-Filled New Year!

28 thoughts on “Will Mark Zuckerberg Reinvent The Insurance Industry? – A 2011 Prediction

  • Leslie-Ann Drummond

    Thanks for the great post and your ‘think outside the box’ approach. You hint at an interesting concept. Evolution happens all the time, so why not in the insurance industry? I’d love to see the Facebook comments!

  • Ken Charette

    As an actuary, I’m curious as to what you think anti-selection is and how Facebook has an answer. Thanks!

    And to the user comment, the insurance industry is slow to evolve because of the the amount of regulation on the industry. Let’s say I want to give a discount to students with a college education because they are better drivers. I have to submit a filing to every the department of insurance in every state I want to do this in. 30 of the states will say, this is a great idea and allow it to go through. 10 states will say they need to see the data to support this, 5 states will say that the rates would go up for everyone that doesn’t have a college education and disapprove the filing, 4 states will say it’s discrimination, and 2 states will hold your filing up through the regulatory process indefinitely. Rapid change and overall competition just isn’t possible in this kind of regulatory environment. Look to congress to see how long any change takes to go through regulatory processes and all the bickering that goes back and forth.

  • Maria Ferrante-Schepis

    Hi Ken, thanks for writing…. I will answer your anti-selection question first and then address the regulation issue you mention.

    On anti-selection, I see the use of social media as providing both transparency and “natural selection”. So imagine for a moment that a social network forms an insurance pool and they “allow” people to join just by being part of the network. After some time passes, there will be a certain amount of lifestyle data that is collected through the natural social networking process (ie who is traveling, engaging in extreme sports, partying, changing jobs, etc) as well as claims data, (ie dipping into the pool more or less frequently than others, mobilizing the network for additional funds) etc. After a while, it will become transparent to the network that 1) insurance works when many people contribute and only some people use it and 2) who is a bad risk. Those who are a bad risk will end up being asked to contribute more, or leave the pool. So while that is the way insurance works today, the carrier is often viewed as the “big bad company” when it just does its job. In this case, the network will want to keep people out of the pool just based on knowing they are, or could be a bad risk. Today’s process is not transparent at all, and if people really understood why older, sicker, more accident prone people need to pay higher rates, there would be far less bad press for the industry. Granted, this has to be harnessed the right way.

    Secondly on regulation, if Facebook decided to create insurance pools, I think it would be hard for state regulators to stop them from doing that. They would be able to amass so much support that it would change the game. It would be something like Napster, with the record industry fighting the regulatory fight while Apple is off in the corner reinventing the game. Who won? In this case, with so much attention being put on how broken the health insurance/health care system is in particular, there would be a lot of appetite for change.

    By the way, I will go into more depth on both of these subjects in the webinar on the 26th, so if you can tune in, please do!

    Thanks for writing!

    Maria

  • Maria Ferrante-Schepis

    Leslie-Ann Drummond said: Thanks for the great post and your ‘think outside the box’ approach. You hint at an interesting concept. Evolution happens all the time, so why not in the insurance industry? I’d love to see the Facebook comments!
    Here is one FB that just came in….I value it because it comes from someone in a completely different industry, in an area of the country where many people are under-insured. A story from this person’s network is what inspired the idea in the first place…. And his point illustrates the low level of involvement/engagement with insurance. That’s Faebook’s biggest advantage, extraordinarily high levels of involvement/engagement.

    “Very insightful Maria. I’ve never before in my life read an article front to back about insurance but I di this time:)”

  • David Woods

    Hi, Maria –

    I, too, applaud your “out of the jar” thinking. And I agree that social networking could (and is) have a signficant impact on the life insurance business. But, as you know from our conversation, I’m not sure it will happen the way you are suggesting.

    I agree that FB etc. do connect the 20 and 30 somethings when they fall victim to risks like losing a job, getting very sick, wrecking their car or losing their home. But those are “me” issues as opposed to life insurance which is a “somebody else” issue and “I don’t really have to worry because I’ll be dead”. So I have a hard time imagining 20 or 30 (or 40 or 50 etc,) somethings using FB or something else to buy into a pool or something similar. The motivation to pay money now for something that they will never benefit from is tough enough to overcome face to face, never mind via Face Book or LinkedIn or Twitter etc.

    Consider this: in response to a survey in 1950, 12% of high school seniors said they felt they were important. In 2008 that number was 80%. I’m not making a judgment about that, but for a marketer or sales person not to acknowledge that the prevailing attitude has changed is, in my view, a mistake. It takes salesmanship to overcome that.

    Social networking is ideal as a market development tool. Prospecting, leads etc, can be developed in a very efficient and targeted way. But the right sale, the appropriate sale, the sale that would pass scrutiny under a fiduciary or suitability or best practices standard, can only be made by professionals meeting face to face. Otherwise it’s just a commodity sale and not a very atrractive one at that.

    We are not far away from Skype sales being increasingly acceptable. When people are talking about the future financial security of their families or businesses at death, disablity and retirement, it takes one on one to close the sale the right way. Skype may get us there. We’ll see.

    But you knew, after almost 50 years in the business, that I was going to say this!! 🙂

  • Ken Charette

    I still don’t understand how you’re solving adverse selection here. The whole reason why adverse selection exists is because there’s information asymmetry between the insurer and the policyholder. If I was going to get insurance through a social network, I’d hide all my unhealthy habits and flaunt all of my healthy habits. If I’m obese, I’d show very little pictures of myself and if I was fit, I’d be all over the place. What you end up with in the end is a pool of unhealthy people where your rates are inadequate because healthy people keep leaving your pool.

    What you suggest sounds like a risk retention group, but that’s for third party coverages so you must be saying a social network should create an insurance company subject to all the rules and regulations. I find it unlikely that any successful company would want to take part in an industry where there is a huge negative stigma.

    A correlation between life habits and losses isn’t usually enough to use it to rate people. You’ll find that credit scoring is one of the most relevant statistics in predicting someone’s future losses. There’s a big issue of “fairness” that consumer advocates fight for.

    An even more obvious example, people living on the coast of Florida are much more likely to get their homes destroyed. These people also think that they shouldn’t have to pay much more than anyone else. In fact, they’re trying to set up a multi-state program where everyone else pays for their hurricane losses. Almost every other state shot down that idea. Right now, the people in the safer areas of the state have to pay extra for the extra risks the coastal people are taking. Sounds “fair” doesn’t it?

  • Irwin Hipsman

    Maria-

    Did not know you were at MD. If you like, we can promote your webinar to Brainshark’s insurance customers.

    I recently bought some term insurance and was shocked at the process. It was very transactional and nobody asked me what my goals were. I might have purchased some other product but term was the oath of least resistance. On the other hand it took forever to get approved. I may be naive, but like a credit card or mortgage I would think there could be some level of pre-approval. Even though it was a transactional sale, they gave me way too many opportunities to back out, which I understand is a big issues in selling insurance.

    Irwin Hipsman

  • Maria Ferrante-Schepis

    Ken Charette said: I still don’t understand how you’re solving adverse selection here. The whole reason why adverse selection exists is because there’s information asymmetry between the insurer and the policyholder. If I was going to get insurance through a social network, I’d hide all my unhealthy habits and flaunt all of my healthy habits. If I’m obese, I’d show very little pictures of myself and if I was fit, I’d be all over the place. What you end up with in the end is a pool of unhealthy people where your rates are inadequate because healthy people keep leaving your pool. What you suggest sounds like a risk retention group, but that’s for third party coverages so you must be saying a social network should create an insurance company subject to all the rules and regulations. I find it unlikely that any successful company would want to take part in an industry where there is a huge negative stigma. A correlation between life habits and losses isn’t usually enough to use it to rate people. You’ll find that credit scoring is one of the most relevant statistics in predicting someone’s future losses. There’s a big issue of “fairness” that consumer advocates fight for. An even more obvious example, people living on the coast of Florida are much more likely to get their homes destroyed. These people also think that they shouldn’t have to pay much more than anyone else. In fact, they’re trying to set up a multi-state program where everyone else pays for their hurricane losses. Almost every other state shot down that idea. Right now, the people in the safer areas of the state have to pay extra for the extra risks the coastal people are taking. Sounds “fair” doesn’t it?

    I ask you to pretend you are not the expert you are. In some ways, expertise is helpful and in other ways, it keeps you “in the jar” …Pretend you are Mark Zuckerberg and that insurance is something you don’t really understand at an actuary’s level. If you understand how the world of Wiki works, where the masses decide the truth, this is not far afield from that. Even if people hide their lifestyles, their claims experience won’t be hidden. The key is who knows about it. The social aspect of this means that there is a responsibility to the groups you are a part of to be the best risk you can possibly be. It would take time for the pool to figure it out, but eventually it will. I think the example you gave about the states outside of Florida shooting down the idea ofpaying for the hurricane losses is a perfect example. They are starting to see thru the black box. It may not bode well for Floridians, but they have the choice to move, or to pay exhorbitant rates.

  • Maria Ferrante-Schepis

    David Woods said: “Hi, Maria – I, too, applaud your “out of the jar” thinking. And I agree that social networking could (and is) have a signficant impact on the life insurance business. But, as you know from our conversation, I’m not sure it will happen the way you are suggesting. I agree that FB etc. do connect the 20 and 30 somethings when they fall victim to risks like losing a job, getting very sick, wrecking their car or losing their home. But those are “me” issues as opposed to life insurance which is a “somebody else” issue and “I don’t really have to worry because I’ll be dead”. So I have a hard time imagining 20 or 30 (or 40 or 50 etc,) somethings using FB or something else to buy into a pool or something similar. The motivation to pay money now for something that they will never benefit from is tough enough to overcome face to face, never mind via Face Book or LinkedIn or Twitter etc. Consider this: in response to a survey in 1950, 12% of high school seniors said they felt they were important. In 2008 that number was 80%. I’m not making a judgment about that, but for a marketer or sales person not to acknowledge that the prevailing attitude has changed is, in my view, a mistake. It takes salesmanship to overcome that. Social networking is ideal as a market development tool. Prospecting, leads etc, can be developed in a very efficient and targeted way. But the right sale, the appropriate sale, the sale that would pass scrutiny under a fiduciary or suitability or best practices standard, can only be made by professionals meeting face to face. Otherwise it’s just a commodity sale and not a very atrractive one at that. We are not far away from Skype sales being increasingly acceptable. When people are talking about the future financial security of their families or businesses at death, disablity and retirement, it takes one on one to close the sale the right way. Skype may get us there. We’ll see. But you knew, after almost 50 years in the business, that I was going to say this!! :-)”

    David, thank you for posting!! It would be impossible for the industry to take any big leap forward without people as passionate as you about making a difference. As we have discussed for years, I want the same thing you do. I wish that more young people would accept this profession as the noble one that it is, so that more people can be reached. And since that hasn’t happened, that is the reason I predict a “Napster Moment”. Whether it is 2011 or 2020 or 2050 remains to be seen. And whether or not it looks like this, also remains to be seen. However, unless the industry steps up and does something VERY different to cause the needle to move, we will end up with more of the same, making ourselves ripe for someone else to step in and change the game. It has happened like clockwork in so many other industries. So, I would like nothing more than for your opinion to be right. And so far, nothing has made a dent. The bottom line is, getting more people responsibly protected against risks. Risks that are the most relevant today. How it happens is less important than having it happen. So if the current model, some variation or another breakthrough model does the job, I am happy. I know you would be too! – Best, M

  • Jim Vitali

    Good Morning, Maria!

    What an interesting perspective! I believe we will all be watching closely for developments in the insurance industry. It’s ripe for an overhaul as Ken implies in an earlier post when he refers to filing with each state DOI.

    I was disappointed to hear about Irwin’s experience when he recently purchased term insurance. A needs assessment, even a basic one, is insurance 101.

    Keep us thinking, Maria!

  • Maria Ferrante-Schepis

    Jim Vitali said: “Good Morning, Maria! What an interesting perspective! I believe we will all be watching closely for developments in the insurance industry. It’s ripe for an overhaul as Ken implies in an earlier post when he refers to filing with each state DOI. I was disappointed to hear about Irwin’s experience when he recently purchased term insurance. A needs assessment, even a basic one, is insurance 101. Keep us thinking, Maria!”

    Thanks Jim! Thanks for posting. Yes, our job at MD is to keep people thinking and then find the ones willing to act, then help them do that deliberately and effectively. The DOI model is a great example of a structure that no longer has relevance. Think about it, state regulation is 100+ years old, the world we live in today is a global society. Do those borders make as much sense as they once did? I don’t think so. This goes way beyond the federal charter idea. Social media/the web has already destroyed the borders. The new structure is already in place, it is just a question of who acts on it.

  • Will Sutton

    Maria –

    As an actuary I actually do like your idea in regards to anti-selection. Your discussion brings to mind a local pizza-maker. His last two establishment have burned down. He has rebounded and opened a third, which he proudly named “The Fire House”. Now to an underwriter at a national property insurer this could seem innocuous, but locally it is common knowledge the high risk this restaurant poses. Now any facebook page maintained and commented on by local patrons would undoubtedly make reference and how the name is connected to an infamous past. In this way, facebook and other social-media do seem like an interesting way to get the word-on-the-street on the risks you insure.

    Keep these thought-provoking articles coming.

  • Maria Ferrante-Schepis

    Will Sutton said: “Maria – As an actuary I actually do like your idea in regards to anti-selection. Your discussion brings to mind a local pizza-maker. His last two establishment have burned down. He has rebounded and opened a third, which he proudly named “The Fire House”. Now to an underwriter at a national property insurer this could seem innocuous, but locally it is common knowledge the high risk this restaurant poses. Now any facebook page maintained and commented on by local patrons would undoubtedly make reference and how the name is connected to an infamous past. In this way, facebook and other social-media do seem like an interesting way to get the word-on-the-street on the risks you insure. Keep these thought-provoking articles coming.”

    That’s it, Will! The point exactly. You would be surprised at how Facebook is being used for all kinds of things like solving crimes and so forth. Being a bad risk isn’t necessarily a crime, but it is certainly something that the same technology can influence. Thank you for reading, and thank you for your dedication to the profession. I think Zuckerberg is going to need a few really good, fresh thinking actuaries! Best, Maria

  • David Woods

    Terrific dialogue, Maria! Three quick comments:

    1) I’m inclined to agree with Ken on the anti-selection issue. I understand your view that eventually the group would weed out the bad risks, but that leaves at least two questions:
    a) Where does the capital come from to get them through the first several years of sorting it out? There will be claims and the first time a claim is not paid the whole thing falls apart.
    b) Which leads to the second question and that is how and by whom is the pool organized and managed? Once that happens it will be impossible to avoid the regulators and legislators. You’re really suggesting a virtual version of the old community pools you described. But they led to regulation and the structure we have today.

    2) With regard to your comment that young people aren’t coming into the business, I suggest your own background would be revealing in that regard. When your former employer, Prudential, was a mutual life insurance company they were highly successful recruiters. When they became a public company and had to report to Wall Street they saw they could not afford the cost of recruiting and training new agents and simultaneously satisfy the quarterly earnings demands of Wall Street. So their agent force was decimated.

    On the other hand, your next employer, Guardian, is a mutual company without the quarterly demands of Wall Street so they continue to recruit new producers. Other mutuals like New York Life, Northwestern and MassMutual have seen strong growth in their agent forces. And strong life insrance sales have followed not only among the affluent but also in the middle market. And sales of whole life have jumped. Admittedly that is due in part to the market crash, but without agents to help people see the value of whole life in its various forms people would not buy it. It has taken a focused marketing campaign such as you led at Guardian to make it happen.

    3) I’m not sure how Irwin bought his term insurance, but if it was through an agent I agree with his comment that the agent did not do his/her job. But if he bought it directly or online he makes the point of the value of a professional and qualified agent.

    You’ve stirred things up. Keep it going!

  • Jim Drake

    Maria – I have read your Facebook-Insurance scenario and the comments. State regulation is entrenched and with the fiscal problems many of them are facing they will fight having to give up premium taxes. It is a painless way of collecting tax revenue, with the insurers building it into the premiums and the state collecting one check from the insurer rather than having to go after each insured.

    Having said that, the concept of Facebook-Insurance is interesting. As an insurance agent, please include some commissions.

    Jim Drake

  • Kelly

    Hi Maria,
    Very insightful. Social media certainly has the power to change anything it touches. I can also see big impact (positive and negative) for current distribution concerns as well. I suppose change is coming whether we invite it or not.

    I like to say, if you can see where the parade is going… run to the front and act like you led it there. 😉

  • Maria Ferrante-Schepis

    Kelly said: “Hi Maria, Very insightful. Social media certainly has the power to change anything it touches. I can also see big impact (positive and negative) for current distribution concerns as well. I suppose change is coming whether we invite it or not. I like to say, if you can see where the parade is going… run to the front and act like you led it there. ;)”

    I love that idea!!! Get me my baton. 🙂 To your point, change is coming, invited or not!

  • Maria Ferrante-Schepis

    Jim Drake said: “Maria – I have read your Facebook-Insurance scenario and the comments. State regulation is entrenched and with the fiscal problems many of them are facing they will fight having to give up premium taxes. It is a painless way of collecting tax revenue, with the insurers building it into the premiums and the state collecting one check from the insurer rather than having to go after each insured. Having said that, the concept of Facebook-Insurance is interesting. As an insurance agent, please include some commissions.”

    Well thank you for giving me the power! I didn’t know I had it, but then again, neither did Dorothy…. 🙂 I hope you will tune into the webinar on Jan 26, I will talk more about the way this could play out…

  • Maria Ferrante-Schepis

    Irwin Hipsman said: “Maria- Did not know you were at MD. If you like, we can promote your webinar to Brainshark’s insurance customers. I recently bought some term insurance and was shocked at the process. It was very transactional and nobody asked me what my goals were. I might have purchased some other product but term was the oath of least resistance. On the other hand it took forever to get approved. I may be naive, but like a credit card or mortgage I would think there could be some level of pre-approval. Even though it was a transactional sale, they gave me way too many opportunities to back out, which I understand is a big issues in selling insurance. Irwin Hipsman”

    Thanks Irwin! I think someone from the team will reach out to you on the promotional idea. Sounds like a good one! We have many people in this blog wishing you didn’t have that experience. I too am sorry it happened. You are right about the process, it is pretty painful, even on a good day. Speaking of good days, one time many years ago, I wanted to make sure some of my uninsured friends did what they were supposed to do, so I held an “insurance party” at my house and had the paramed come take care of all of us at once. It made it a little easier to tolerate giving them the “red, yellow and green” (if you know what I mean) that they needed to get the job done! 🙂 And we had to wait until he left before we could break out the wine, but we needed to do something to take the sting out!!

  • Maria Ferrante-Schepis

    David Woods said: “Terrific dialogue, Maria! Three quick comments: 1) I’m inclined to agree with Ken on the anti-selection issue. I understand your view that eventually the group would weed out the bad risks, but that leaves at least two questions: a) Where does the capital come from to get them through the first several years of sorting it out? There will be claims and the first time a claim is not paid the whole thing falls apart. b) Which leads to the second question and that is how and by whom is the pool organized and managed? Once that happens it will be impossible to avoid the regulators and legislators. You’re really suggesting a virtual version of the old community pools you described. But they led to regulation and the structure we have today. 2) With regard to your comment that young people aren’t coming into the business, I suggest your own background would be revealing in that regard. When your former employer, Prudential, was a mutual life insurance company they were highly successful recruiters. When they became a public company and had to report to Wall Street they saw they could not afford the cost of recruiting and training new agents and simultaneously satisfy the quarterly earnings demands of Wall Street. So their agent force was decimated. On the other hand, your next employer, Guardian, is a mutual company without the quarterly demands of Wall Street so they continue to recruit new producers. Other mutuals like New York Life, Northwestern and MassMutual have seen strong growth in their agent forces. And strong life insrance sales have followed not only among the affluent but also in the middle market. And sales of whole life have jumped. Admittedly that is due in part to the market crash, but without agents to help people see the value of whole life in its various forms people would not buy it. It has taken a focused marketing campaign such as you led at Guardian to make it happen. 3) I’m not sure how Irwin bought his term insurance, but if it was through an agent I agree with his comment that the agent did not do his/her job. But if he bought it directly or online he makes the point of the value of a professional and qualified agent. You’ve stirred things up. Keep it going!”

    Stir stir stirrrrr!!! So you picked up on something I was hoping to save for the webinar…it has to do with where the initial capital could come from and/or where deficit would be made up from. I will show more on that. As far as who manages the pool, that’s a good question. I suppose an insurance company could do it, or it could be done privately by each social network, similar to the way a charity’s assets might be managed. Or, of course, Mark Z could probably hire someone to do it… 🙂 I am thinking a young, social network savvy actuary/finance person. (maybe Will in this blog might apply!) You are right that the old pool turned virtual is the idea, however I think there are lessons in the world of Wiki that can be used to govern this. How yet, I do not know, but the virtual world makes it possible for the kind of transparency we did not have back in the day.

    And on the agent recruiting and my former companies, and other companies in the mix…I think that you can look at each one individually and draw conclusions accordingly, yet from my point of view now, (which is why I am sitting in this seat!), I am just looking at the net net as an industry. The net net is a decline overall, evidenced by the average age and tenure of an agent. That trend started even before many companies went public. So no matter how great a job any one company does in bringing in new recruits, it isn’t “lifting all ships” if you know what I mean. I wish it did. So do my friends in the industry. Public and mutual.

    And thanks for the nod on the WL campaign. It came at the right time, and I appreciate all your help with it as well. Still again, I wish there were a way to put that on steriods too, the needles are just not moving fast enough to avoid the Napster moment! The industry still measures itself in premiums, at some point it is about reach. Counting noses. That’s where large networks come in. You should see the response from the 30 somethings on Facebook and Linked in to this…it’s wild. Thanks so much for all the thoughtful comments. I hope you will join the webinar on Jan 26!

  • CharleyB

    As a 31 year old, I love the post. I grew up assuming I would have to pay for an insurance company. I also accepted the “fact” that the insurance industry would naturally value it’s bottom line much more that my well-being.

    Based on principles of open source sharing, globalization, and increased consumer information I would hypothesize that higher transparency between vendors and consumers appears to help find a legitimate price/value for an offering. In the case of the music industry, a larger amount of people having increased access to music through Napster, increased the number of choices one had to own music. Consumers drove the marketplace to value a song, .99cents as well as an albums, $15.

    Your proposal of diversifying a social network like “facebook” to include insurance gives me hope that one day I will actually “feel” like I get a fair value from insurance. Ken brought up an important point that people may become more discretionary about what information they display. As true as this is, facebook has found a highly effective way to incentavize users to provide the same information that the insurance companies would have to pry from my cold dead hands.

    There is a story, that in Ancient China, people would pay their doctors ONLY if they were healthy at the end of the year. If they got sick the price of the cure would come out of the doctor’s pocket. This may be a little too simple for today’s standards but it certainly would make me more willing to give information that would both help me stay healthy and help the insurance company predict a financially sustainable price.

    If Facebook could cross-reference the personal data I give it against the cost of staying healthy, it would make a compelling argument to pay to stay healthy instead of paying for when I get sick.

    The part that is hard for me to imagine is to how Facebook would help me to understand that I really am paying a fair price. Having been friends with an actuary I have a respect for the incredibly complicated practice. The billions spent on a “Facebook” insurance company may be equally effective if the insurance companies paid the same amount to help their customers understand why the price they pay is legitimate. A lot more positive customer service wouldn’t hurt either.

  • Joe Wilds

    I love this idea in the health insurance sector. Facebook certainly has a unique market position and a wealth of data upon which to base novel actuarial models. Adding the dynamism of self-selecting/regulating risk pools together with the transparency and relatively real-time nature of Facebook interactions could go a long way toward up-ending the existing market.

    I wonder, though, does the efficiency of the system you propose actually exacerbate the paradigm fueling premium growth? That is, if any Facebook insured user could effect the composition of their risk pool in near real time, wouldn’t high-cost participants find themselves quickly ‘outcast’ to a risk pool with disproportionately high premiums? The net effect might be a cheaper average premium but at the expense of a small proportion of the Facebook population who needs higher acuity health coverage.

    I suppose regulation is the answer to ensuring the ecumenical management of of that conundrum, but jeez, Facebook + a bunch of regulators + 400 of my closest friends helping me manage my health care . . . makes the ‘big-bad’ insurer suddenly seem like a slightly safer option. I’ll be anxious to see where this goes and I, like your other readers, applaud your outside the jar thinking.

  • Maria Ferrante-Schepis

    Thank you Will! If the notion of this would help consumers understand insurance better and trust the “big bad” insurer more, we will have done our job, then it is up to the insurers to figure out ways to perpetuate the transparency, and also extend/delight customers in new ways. Right now, they are not in a position to do that.

  • Katherine Rible

    Maria – I am so glad I had the opportunity to listen to your webinar. I think that you are on point about where this industry is poised. You would think with years of experience in creating new products that we could move from the 19th century to the 21st in how we conduct business! Your examples of “Napster Moments” makes it very easy to see how a FB-like entity could come in and start picking up the under-served and eventually be right there as a top competitor to the traditional markets. On the P&C side I would hope it would be the Surplus Lines industry moving into the space as this is how they were created in the first place and they are the least regulated at this time. It could be an entity in another country accumulating the “friends” worldwide that make up the “insured” population. Or it could be another button on FB to click on to join the insurance group network. There will be serious hurdles to overcome such as how to handle and prevent fraud and abuse. There will implications from loss of some privacy. Hopefully firms like yours and good industry leaders will beat the government bureaucrats to the solutions. I would really love to see us (the insurance industry) change our label without losing what is in the jar! You have me thinking.

  • David Woods

    Maria – Looks like I missed your webinar. I apologize.

    You know me to be a 50 year veteran of this profession and that is both a negative and a positive. The negative, of course, is that I may well be wedded to and stuck in “the way we used to do it.” On the other hand, the positive is that I have seen almost everything and have a pretty good sense of what works and what doesn’t.

    A case in point is Facebook. As we are seeing in the Arab world, Facebook (and Twitter etc.) can be used to start and spread revolution across borders, across the world perhaps. In that incarnation it is doing what it does best. In marketing terms we would call it product awareness and market penetration. And that is, in my opinion, its highest and best use in our profession.

    But as a source of transparency to establish price points between buyers and sellers of “non-demand” insurance products like life insurance it can’t do much. In my 50 years and for the 100 years before that and, I believe, for the next 150 years life insurance will not be a demand product. Life insurance has been available online for probably 20 years and by direct mail for decades before that. But over the last 30 years the number of policies bought each year has declined from over 17 million to fewer than 10 million. And that’s despite a 13 million increase in the number of households with children. Why?

    Primarily because greater price transparency among insurers compounded by the need for the many formerly mutual companies to demonstrate ever increasing earnings to Wall Street drove policy profitability down and down. That meant that the investment in the asset that had been responsible for the 17 million policies – the agent – declined dramatically. And simultaneously, as premiums per thousand dropped dramatically those producers whq were active were force into the increasingly more affluent market to make a living.

    Here’s a case in point. Until the late 1970s and 1980s a $100,000 whole life policy would cost a 35 year old about $2,000 per year. That same policy can be had now for $700 plus or minus. 20 year term policies, which were primarily riders were in the $600 range for that same amount and age. Today a $100,000 20 year term policy is probably in the $300 range.

    And so despite premium rates that are literally 30 – 40% of what they were 20 and 30 years ago and the wide availability of exam free life insurance online and elsewhere, sales to the middle market continue to drop. In fact, in every age bracket below age 60 they have been falling for the past several years, even before the recession. But the over 60 crowd is increasing their purchases of life insurance by 5% or more per year. And they are buying it from agents. And agents are calling on them because, to use the old Willie Sutton cliche, that’s where the money is.

    So, as a market builder, I think Facebook, LinkedIn etc. are great. If I was still in a clientelle building phase of my career I would be all over them. As it is, I use secure e-mail routinely in service and routine post sale communications today.

    But as an open market for a non-demand product like life insurance I just don’t think the future is there.

    To me, the people who figure out how to use social media to market without giving compliance fits are the ones who will be the biggest winners. This profession is a client building one that is driven by relationships and quality service, not by products.

    Just my opinion.

    Keep it up, Maria!!!

  • Maria Ferrante-Schepis

    I REALLY appreciate your comments, Katherine. They tell me that you understand the point of this. It is not about selling insurance online, it is about totally reinventing the model and keeping what is relevant about it and matching the attributes with market forces who have the goods to do it. Keep thinking, and I hope you will keep sharing your thoughts. If there is anything we can do to be helpful to you, please let me know!

  • Maria Ferrante-Schepis

    David Woods said: “Maria – Looks like I missed your webinar. I apologize. You know me to be a 50 year veteran of this profession and that is both a negative and a positive. The negative, of course, is that I may well be wedded to and stuck in “the way we used to do it.” On the other hand, the positive is that I have seen almost everything and have a pretty good sense of what works and what doesn’t. A case in point is Facebook. As we are seeing in the Arab world, Facebook (and Twitter etc.) can be used to start and spread revolution across borders, across the world perhaps. In that incarnation it is doing what it does best. In marketing terms we would call it product awareness and market penetration. And that is, in my opinion, its highest and best use in our profession. But as a source of transparency to establish price points between buyers and sellers of “non-demand” insurance products like life insurance it can’t do much. In my 50 years and for the 100 years before that and, I believe, for the next 150 years life insurance will not be a demand product. Life insurance has been available online for probably 20 years and by direct mail for decades before that. But over the last 30 years the number of policies bought each year has declined from over 17 million to fewer than 10 million. And that’s despite a 13 million increase in the number of households with children. Why? Primarily because greater price transparency among insurers compounded by the need for the many formerly mutual companies to demonstrate ever increasing earnings to Wall Street drove policy profitability down and down. That meant that the investment in the asset that had been responsible for the 17 million policies – the agent – declined dramatically. And simultaneously, as premiums per thousand dropped dramatically those producers whq were active were force into the increasingly more affluent market to make a living. Here’s a case in point. Until the late 1970s and 1980s a $100,000 whole life policy would cost a 35 year old about $2,000 per year. That same policy can be had now for $700 plus or minus. 20 year term policies, which were primarily riders were in the $600 range for that same amount and age. Today a $100,000 20 year term policy is probably in the $300 range. And so despite premium rates that are literally 30 – 40% of what they were 20 and 30 years ago and the wide availability of exam free life insurance online and elsewhere, sales to the middle market continue to drop. In fact, in every age bracket below age 60 they have been falling for the past several years, even before the recession. But the over 60 crowd is increasing their purchases of life insurance by 5% or more per year. And they are buying it from agents. And agents are calling on them because, to use the old Willie Sutton cliche, that’s where the money is. So, as a market builder, I think Facebook, LinkedIn etc. are great. If I was still in a clientelle building phase of my career I would be all over them. As it is, I use secure e-mail routinely in service and routine post sale communications today. But as an open market for a non-demand product like life insurance I just don’t think the future is there. To me, the people who figure out how to use social media to market without giving compliance fits are the ones who will be the biggest winners. This profession is a client building one that is driven by relationships and quality service, not by products. Just my opinion. Keep it up, Maria!!!”

    Hi David! Thanks for posting your thoughts, as always. I am sorry you missed the webinar. There is a replay available so I can send you a link if you like. It may be helpful to you. There is a very sharp distinction between the “reinvention” that I am thinking about and the use of online/social media to sell insurance. What I am putting out there is that FB has the ability to recreate the insurance product as a transparent, “prosumer” product. I don’t know that it will happen, but all the trappings are there. And I don’t necessarily want or not want it to happen, but what I do want to happen is that the industry recognizes the need to move their offering along the spectrum of involvement and emotion in a positive way, and that will make a big difference. Thanks again!!! See you soon, I hope!