How Captive Insurance Technology Can Change the Future
Zoe is a young professional working for a startup company in Atlanta, Georgia. Although she prefers to take public transportation, the realities of living in a metropolitan area afflicted with urban sprawl necessitate some personal transportation. She calls an Uber to take her to work in the mornings. The automated car arrives and picks her up and makes one stop at a local café before heading to work. She pays for her coffee using a Bitcoin app and tips the barista electronically. The car’s fee is dirt cheap as she does not have to pay or tip a driver. In fact, Zoe does not even own a car. However, she checks her phone and is pleased to see that her streamlined automobile insurance policy debited a small fee from her account for the privilege of having insurance for less than an hour.
After working a long day, Zoe declines to spend the remainder of her evening in the cramped office and decides to go home. Atlanta is beautiful in the spring and it takes her about 45 minutes to walk from her office back to her house. She checks her phone again and smiles at the health insurance discount she received for deciding to walk home.
An Innovation in Insurance
The future of captive insurance technology is not as far away as you might think. Of course, fully automated cars still remain in the realm of sci-fi for at least 3-5 more years, but we are closer than ever to fully unbundled insurance options which afford the users near-complete autonomy with regard to when and where they are covered. The use of smart phones and similar devices in providing real time data to insurers provides the insurer with flexibility relating to the pricing of premiums and the creation of micro-coverages narrowly tailored to the insured’s needs.
Captive insurance is more flexible than traditional insurance and may lead the way in innovation. A large enough company may determine that it wants to design a health benefits plan to place into a captive insurance company. Any company creating a health benefits plan should implement wellness programs. Phone apps can provide real time feedback for the captive insurer and assess whether an employee should receive discounts on health products or a reduced premium for achieving certain health-related milestones.
Insurtech and captives have not spent much time together yet. Part of the reason for this is that a good portion of the captive insurance promoters emphasize the tax implications of setting up a captive insurance company. The more premium you pay into a captive reduces the amount of taxable income for the parent company. As tax efficient as this may be, the tax tail should never wag the dog, and technological innovation can lead to breakthroughs in the insurance industry.
Gather Small Business Insurance
However, there is a captive insurer pushing the boundaries of insurtech. Gather is breaking into the captive insurance technology space as a startup that empowers small businesses to self-insure ‘business insurance.’ The business insurance products offered provide coverage for general liability. The company also provides self-insured health insurance products as well. Although they do not specify online, Gather appears to help companies create group captive insurance programs which operate in a similar manner to P2P insurance. They may use a protected cell structure with a core company, but, again, the website provides limited data on the actual insurance mechanism.
Gather’s concept is that premiums are placed in a community pool. Gather, essentially acting as the captive manager, then handles claims for the community but does not keep the money if the claim is denied. The premium left after paying claims plus interest earned is then remitted back to the business owners. This model is very similar to what we saw with Friendsurance. However, there is a clear difference in Gather’s model. Gather is not offering cut rate insurance based on hoping your peers decline to file insurance claims. Gather pools businesses together and organizes an ownership interest in the company. Whereas Friendsurance gives back a percentage of unused premium at the end of the year, the businesses with Gather actually own the insurance company. This leads to higher profit potential for the entrepreneurs.
While the overall business model is nothing new, the promise of ‘one-click solutions’ for captive insurance is very innovative. We are very excited to see what Gather bring to captive insurance technology in 2017.