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The Concept of 3rd Party Insurance

Author
Caroline Chell
Top Hats And Briefs
#1 - 2012-04-17 01:17:10 UTC
Hello there, I am the founder of Jita Insurance Ltd.

I recently started my corporation, with the aim of providing insurance to freighter pilots during the upcoming Burn Jita event. I saw this as a great oppurtunity to attempt something new in EVE, and would like to hear your thoughts on the subject.

More info can be found in this other post here

Thanks in advance

-Caroline Chell
Shar Tegral
#2 - 2012-04-17 03:55:19 UTC
[cricket chirp]
Graic Gabtar
The Lemon Party
#3 - 2012-04-17 08:01:40 UTC
Happy to hold all funds as a trusted third party if that's what it takes to get this startup over the line.
Vaerah Vahrokha
Vahrokh Consulting
#4 - 2012-04-17 09:34:11 UTC
Real insurance companies insure stuff that statistically does NOT explode. Your business plan is dead before you start.
Acac Sunflyier
The Dysfunctionals
Goonswarm Federation
#5 - 2012-04-17 11:05:55 UTC  |  Edited by: Acac Sunflyier
So 4 posts made, 1 like received, and a character made 5 days ago? LOL Goonswarm, you have to put in SOME effort. D-
Caroline Chell
Top Hats And Briefs
#6 - 2012-04-17 15:05:22 UTC
Acac Sunflyier wrote:
So 4 posts made, 1 like received, and a character made 5 days ago? LOL Goonswarm, you have to put in SOME effort. D-

Not affiliated with Goons or any other alliance. I made this toon to be able to run this project while my main is active in WH space. Thank you for voicing your concerns.
Tanith YarnDemon
Hypernet Inc.
Umbrella Chemical Inc
#7 - 2012-04-17 15:34:55 UTC
Caroline Chell wrote:

Not affiliated with Goons or any other alliance. I made this toon to be able to run this project while my main is active in WH space. Thank you for voicing your concerns.


In the interest of your own credibility, I'm sure you'd want to make your main official and most likely include an API key verifying it, wether it's public or a trusted auditor. No?
Shar Tegral
#8 - 2012-04-17 15:40:34 UTC
Caroline Chell wrote:
Not affiliated with Goons or any other alliance. I made this toon to be able to run this project while my main is active in WH space. Thank you for voicing your concerns.
While my comment is not helpful and may seem condescending, it is a bit I'll admit, the truth behind it was this has been discussed before. The feasibility of this is Hexxx's holy grail.

Additionally, why didn't you just post with your main?
Hexxx
Sebiestor Tribe
Minmatar Republic
#9 - 2012-04-17 16:07:04 UTC
Shar Tegral wrote:
Caroline Chell wrote:
Not affiliated with Goons or any other alliance. I made this toon to be able to run this project while my main is active in WH space. Thank you for voicing your concerns.
While my comment is not helpful and may seem condescending, it is a bit I'll admit, the truth behind it was this has been discussed before. The feasibility of this is Hexxx's holy grail.

Additionally, why didn't you just post with your main?


@Caroline

Having created an insurance product with Sencnes, I can speak to this. What we created allowed for an automatic deposit of funds, the easy purchase of insurance contracts, an automated process for claims, and a method to send funds to the customer within 24 hours (under 12 hours I estimated for 90% of cases). It was priced and packaged in a way that I felt was compelling and profitable. Between Sencnes and I...we sunk about a year and a half of planning and preperation into it if not more, not even counting the months I spent programming the website to support all this.

It failed.

Now, I'm not convinced that insurance as an idea is dead for all time - but believe me when I tell you that the hill is a steep one to climb. The environment right now for a pure insurance offering is such that you'll find very few customers; compounded by the fact that while I don't have a perfect rep, a majority of people do trust me (at least I think they do). You're a rolled up alt with no rep and no detailed plan - not evening mentioning the supporting tools/website to enable the capabilities and processes that such a business requires.

I've no issue with taking you up on the details, trust me - I've dealt with them before.
Shar Tegral
#10 - 2012-04-17 16:09:21 UTC
Hexxx wrote:
Stuff

So, I reiterate:

[cricket chirp]
Caroline Chell
Top Hats And Briefs
#11 - 2012-04-17 16:50:57 UTC
Hexxx wrote:
Shar Tegral wrote:
Caroline Chell wrote:
Not affiliated with Goons or any other alliance. I made this toon to be able to run this project while my main is active in WH space. Thank you for voicing your concerns.
While my comment is not helpful and may seem condescending, it is a bit I'll admit, the truth behind it was this has been discussed before. The feasibility of this is Hexxx's holy grail.

Additionally, why didn't you just post with your main?


@Caroline

Having created an insurance product with Sencnes, I can speak to this. What we created allowed for an automatic deposit of funds, the easy purchase of insurance contracts, an automated process for claims, and a method to send funds to the customer within 24 hours (under 12 hours I estimated for 90% of cases). It was priced and packaged in a way that I felt was compelling and profitable. Between Sencnes and I...we sunk about a year and a half of planning and preperation into it if not more, not even counting the months I spent programming the website to support all this.

It failed.

Now, I'm not convinced that insurance as an idea is dead for all time - but believe me when I tell you that the hill is a steep one to climb. The environment right now for a pure insurance offering is such that you'll find very few customers; compounded by the fact that while I don't have a perfect rep, a majority of people do trust me (at least I think they do). You're a rolled up alt with no rep and no detailed plan - not evening mentioning the supporting tools/website to enable the capabilities and processes that such a business requires.

I've no issue with taking you up on the details, trust me - I've dealt with them before.

Thank you for this information. I am currently typing this on a phone, and I will get to responding to these a little later.

Thank you once again for your (and everyone else's) comments.
Esan Vartesa
Samarkand Financial
#12 - 2012-04-17 16:59:55 UTC
Vaerah Vahrokha wrote:
Real insurance companies insure stuff that statistically does NOT explode. Your business plan is dead before you start.


This is painfully false. Insurance companies love insuring stuff that does explode, as each 'explosion' further cements the client's belief that they are benefiting from purchasing insurance, and so continues to do so.

Insurance companies just have to know the statistics, regardless of what they are. That allows them to charge appropriate fees to cover their 'expenses'.

Did you know that most insurance companies have between a 97.5% and 102.5% ratio of premiums to payouts?

Insurance is not a profit-margin business.
Caleb Ayrania
TarNec
Invisible Exchequer
#13 - 2012-04-17 17:49:42 UTC
Waiting for Shar Tegral to start singing Jiminy Crickets song. "When you wish upon a star"

If Wishes were Horses...

Caroline Chell
Top Hats And Briefs
#14 - 2012-04-17 20:05:40 UTC
In response to Hexxx:

I do understand that insurance businesses are difficult to set up and run with a profit in EVE. I feel like now is the perfect time to experiment with this business. Obviously, real life insurance systems (like State Farm and what not) can't exist in EVE; the business model doesn't work here.

What makes this different, and why I think it can do well, is that the insurance is offered during an event (Burn Jita) which lasts for a limited time. During Burn Jita, there will be quite a lot of ganking, which will cause many players to fear losing their ships. Esan Vartesa commented on this in an earlier post.This fear (which is much greater than at a normal time) is what I believe will drive sales for us. I believe that insurance in EVE will work best when it is for short periods of time, like Burn Jita, Hulkageddon, etc.

This is mainly an exploratory project, to test out the idea. I believe that this business model will work, and hope to offer insurance for similar events in the future. Even though it is exploratory, I am fully committed to this project. I want to see this grow.

P.S. Shar Tegral, please sing us a song.
Hexxx
Sebiestor Tribe
Minmatar Republic
#15 - 2012-04-17 21:02:59 UTC
[
Caroline Chell wrote:
In response to Hexxx:

I do understand that insurance businesses are difficult to set up and run with a profit in EVE. I feel like now is the perfect time to experiment with this business. Obviously, real life insurance systems (like State Farm and what not) can't exist in EVE; the business model doesn't work here.

What makes this different, and why I think it can do well, is that the insurance is offered during an event (Burn Jita) which lasts for a limited time. During Burn Jita, there will be quite a lot of ganking, which will cause many players to fear losing their ships. Esan Vartesa commented on this in an earlier post.This fear (which is much greater than at a normal time) is what I believe will drive sales for us. I believe that insurance in EVE will work best when it is for short periods of time, like Burn Jita, Hulkageddon, etc.

This is mainly an exploratory project, to test out the idea. I believe that this business model will work, and hope to offer insurance for similar events in the future. Even though it is exploratory, I am fully committed to this project. I want to see this grow.

P.S. Shar Tegral, please sing us a song.



Because your window of time is short, you may be right - the actual risk may be lower than the perceived risk. That's what you're betting on. That actual risk (loss percentage) is a qualitative number that you've come to based on antecdotal evidence. That isn't a slam, I did the same thing because there is just so little good data available. The danger you face is not writing enough contracts to take comfort in the Law of Large Numbers (http://en.wikipedia.org/wiki/Law_of_large_numbers). If you haven't modeled out an acceptable loss ratio yet, you better do that ASAP. You need to understand the bet you're making and how tight your profit margin is based off your key assumptions.

So there are your first two problems; the unknown risk of actual loss probability and the risk of not having enough contracts sold to mitigate the risk a volatile rate of claims. Those are the same problems we had when we launched our insurance service. Careful readings of the Dev Blogs and Fan Fest presentations helped, as did underwriting the entire potential liability of the insurance contracts we sold. You could underwrite the contracts yourself by using a third party escrow service and your own ISK.

The underwriting is actually the easy part.

Problem is - most people don't see the value in insurance. It's an abstract idea that they seldom have to deal with and that's partially addressed in game already. It isn't clear to most people what the value proposition is...and you haven't tried selling the value proposition yet. You're probably thinking; "Hexxx, what in the hell are you talking about??"

Let's talk fungibility.

For example: the fungible nature of ship loss. You can have five shuttles and one insurance polciy; whichever shuttle gets blown up gets the claim. Much cheaper than buying insurance in-game when insurance in-game is tied to a single ship; you'd have to buy five policies to get that kind of coverage. Sounds like a great deal right? Maybe to us, but not to most of EVE.
Liberty Eternal
The Scope
Gallente Federation
#16 - 2012-04-17 21:20:30 UTC
Esan Vartesa wrote:

This is painfully false. Insurance companies love insuring stuff that does explode, as each 'explosion' further cements the client's belief that they are benefiting from purchasing insurance, and so continues to do so.

Insurance companies just have to know the statistics, regardless of what they are. That allows them to charge appropriate fees to cover their 'expenses'.

Did you know that most insurance companies have between a 97.5% and 102.5% ratio of premiums to payouts?

Insurance is not a profit-margin business.


**One or more of the above statements may not be true
Caroline Chell
Top Hats And Briefs
#17 - 2012-04-17 21:29:46 UTC
Hexxx wrote:
[
Caroline Chell wrote:
In response to Hexxx:

I do understand that insurance businesses are difficult to set up and run with a profit in EVE. I feel like now is the perfect time to experiment with this business. Obviously, real life insurance systems (like State Farm and what not) can't exist in EVE; the business model doesn't work here.

What makes this different, and why I think it can do well, is that the insurance is offered during an event (Burn Jita) which lasts for a limited time. During Burn Jita, there will be quite a lot of ganking, which will cause many players to fear losing their ships. Esan Vartesa commented on this in an earlier post.This fear (which is much greater than at a normal time) is what I believe will drive sales for us. I believe that insurance in EVE will work best when it is for short periods of time, like Burn Jita, Hulkageddon, etc.

This is mainly an exploratory project, to test out the idea. I believe that this business model will work, and hope to offer insurance for similar events in the future. Even though it is exploratory, I am fully committed to this project. I want to see this grow.

P.S. Shar Tegral, please sing us a song.



Because your window of time is short, you may be right - the actual risk may be lower than the perceived risk. That's what you're betting on. That actual risk (loss percentage) is a qualitative number that you've come to based on antecdotal evidence. That isn't a slam, I did the same thing because there is just so little good data available. The danger you face is not writing enough contracts to take comfort in the Law of Large Numbers (http://en.wikipedia.org/wiki/Law_of_large_numbers). If you haven't modeled out an acceptable loss ratio yet, you better do that ASAP. You need to understand the bet you're making and how tight your profit margin is based off your key assumptions.

So there are your first two problems; the unknown risk of actual loss probability and the risk of not having enough contracts sold to mitigate the risk a volatile rate of claims. Those are the same problems we had when we launched our insurance service. Careful readings of the Dev Blogs and Fan Fest presentations helped, as did underwriting the entire potential liability of the insurance contracts we sold. You could underwrite the contracts yourself by using a third party escrow service and your own ISK.

The underwriting is actually the easy part.

Problem is - most people don't see the value in insurance. It's an abstract idea that they seldom have to deal with and that's partially addressed in game already. It isn't clear to most people what the value proposition is...and you haven't tried selling the value proposition yet. You're probably thinking; "Hexxx, what in the hell are you talking about??"

Let's talk fungibility.

For example: the fungible nature of ship loss. You can have five shuttles and one insurance polciy; whichever shuttle gets blown up gets the claim. Much cheaper than buying insurance in-game when insurance in-game is tied to a single ship; you'd have to buy five policies to get that kind of coverage. Sounds like a great deal right? Maybe to us, but not to most of EVE.


Thank you very much for this information. I'm going to take a look at my numbers again, as I think they can be better optimized. As you said, there isn't much evidence to go on in terms of ship loss rates.

As for people valuing insurance, I think that they will want some sort of security during Burn Jita. That's just my theory, anyway.
Vaerah Vahrokha
Vahrokh Consulting
#18 - 2012-04-17 21:30:36 UTC  |  Edited by: Vaerah Vahrokha
Esan Vartesa wrote:
Vaerah Vahrokha wrote:
Real insurance companies insure stuff that statistically does NOT explode. Your business plan is dead before you start.


This is painfully false. Insurance companies love insuring stuff that does explode, as each 'explosion' further cements the client's belief that they are benefiting from purchasing insurance, and so continues to do so.

Insurance companies just have to know the statistics, regardless of what they are. That allows them to charge appropriate fees to cover their 'expenses'.

Did you know that most insurance companies have between a 97.5 and 102.5 ratio of premiums to payouts?

Insurance is not a profit-margin business.


I know there are lots of shoddy insurance companies whose only reason to exist is to turn money and hope on wholesale capital turnover discount, but I refer to those working under this model.

Anthony Derien
Institut de Science Financiere et Actuarielle
Universite Lyon 1

Page 6

Quote:

The most commonly used pricing method is in practice the actuarial model.
Premiums are equal to the expected present loss plus a risk loading. The risk loading is used as a buffer for having an acceptable ruin probability. This model depends positively on the variance of losses and negatively on the capital. As
the constraint capacity model, it is a short term model.
Actuarial model has been chosen by the CEIOPS to asses insurer solvency level.


This paragraph is how I do my EvE insurance policies, like this one.
Esan Vartesa
Samarkand Financial
#19 - 2012-04-17 22:20:01 UTC
Vaerah Vahrokha wrote:


I know there are lots of shoddy insurance companies whose only reason to exist is to turn money and hope on wholesale capital turnover discount, but I refer to those working under this model.

Anthony Derien
Institut de Science Financiere et Actuarielle
Universite Lyon 1

Page 6

Quote:

The most commonly used pricing method is in practice the actuarial model.
Premiums are equal to the expected present loss plus a risk loading. The risk loading is used as a buffer for having an acceptable ruin probability. This model depends positively on the variance of losses and negatively on the capital. As
the constraint capacity model, it is a short term model.
Actuarial model has been chosen by the CEIOPS to asses insurer solvency level.


This paragraph is how I do my EvE insurance policies, like this one.


I was referring to insurance companies in the real world. Large firms, especially in the health sector, maintain risk reserves orders of magnitude larger than that paper suggests. While I agree with your use of the term "shoddy", that actually describes the vast majority of the industry.

Even with more reasonable risk reserves, the lag time between premium payment and insurance claim makes for some of the most lucrative investment capital in the world. Insurance is all about capturing interest-free loans.

If anyone is going to successfully launch an insurance service in Eve, they need to understand that.

Then they need to lobby Concord hard for an Individual Mandate... (I keeed!)

Oh, also... Science Financière?

That's cute.
Hexxx
Sebiestor Tribe
Minmatar Republic
#20 - 2012-04-17 22:30:31 UTC
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