Friendsurance is an insurance intermediary and from its launch in 2010 Friendsurance is now sustaining a monthly customer growth figure of 20%.
The founders decided to launch the proposition in Germany, the largest non-life insurance market in Europe that is mature enough to introduce a distinctive proposition to differentiate itself from other offerings. Friendsurance is a social product that is now considered the pioneer of what one day may be called “social” or “person-to-person” (p2p) insurance. The idea is to more efficiently replicate for a group of friends what traditional insurance companies do for a large number of strangers.
In the current model, the members of an insured group are anonymous to one another. The insurance company acts as the go-between and determines how individuals should be grouped together for optimum effect. The anonymity between group members and the mystery surrounding the pricing of the product created additional negative emotions toward insurance (many consumers do not understand why they pay so much, particularly if they do not suffer any claims). Friendsurance estimate that only one-third of costs goes towards paying the cost of large claims. The balance is spent on administration costs, marketing&sales costs, fraudulent activity, and negligence resulting from careless or risky behavior.
FRIENDSURANCE 1.0 (2010.2012)
If a large enough number of individuals band together with a common interest, they can lower the effect of unforeseen losses to any one person in the group. Each customer acquires an insurance policy from an insurer of their choosing and they then invite friends, family, and acquaintances to join their insurance network. This unique group agrees to share a common deductible amount among themselves. Once a month, users can add/invite additional members or deselect existing ones from their community. Small claims are paid by this peer network and if, at the end of the year, the group has had no claims, members receive the maximum amount of cash back as a refund (estimated to be 40% of premium). If the network has some small claims, but not enough to exhaust the common deductible amount, the net amount is distributed across the group as a cash back benefit. Any large losses that exceed the network deductible levels are paid by the insurance company. Friendsurance reduce the cost (through removing inefficiencies) and connect the client more closely with the risk (to create a greater sense of ownership). The end result is a proposition capable of reducing claim costs caused by fraudulent and poor risk behaviors by up to 40% while still delivering high quality service. Unlike traditional insurance, the “social network” principle behind Friendsurance motivates acceptable claimant behaviors resulting in greater transparency, self-policing, and an improved alignment of incentives, allowing individuals to save money and the insurance companies to profit.
There are four forces to release this additional value:
- there is a decrease in claims frequency and expense because is harder to cheat your friends and relatives who know you and what you own. The result is a lower fraud rate than in a traditional risk pool. In addition, the network self-polices itself for good risk behavior.
- the amount of money received at the end of the year is based on the claims experience of the network. In this model the risk pool is improved. The desire to maximize cash back supports careful recruitment.
- Growth of the network, customers become ambassadors of the company, actively communicating with their social web to help it grow, lowering marketing and sales acquisition costs.
- network effects, mall claims are paid from the shared deductible by the network. Thus, there are no costs for administering, investigating, and controlling them and Friendsurance covers any excess.
FRIENDSURANCE 2.0 (2013-2015)
During the years the company remained fixed on the central value proposition: return cash to users and a user-centered development approach but many innovations were introduced until now. Friendsurance automatically suggest individuals to add to customer network based on multiple characteristics, trough the new model employs an emerging best practice of analytic management combine analytics with human judgment to optimize results. Today however, to participate in the cash back system is not necessary to buy new policies from Friendsurance, in fact a consumer can join the program with their current policy, build a deductible-sharing network and, if all goes well, receive cash back. Also the initial target which included young people, university-educated and urban professionals has been extended. Thanks to the marketing partnership with Bild, a German newspaper, Friendsurance has established a high level of trust that helped to expand the target group to an older, middle-aged consumer. At last, the Friensurance partners collaborate to develop and optimize the company interface.