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Articles
Blog Post: The Business of Accountability

If they gave prizes to insurance companies, Friendsurance would surely win. Headquartered within sight of a remnant of the Berlin Wall, the company is based on an ingenious scheme that promises to make its customers safer, healthier, and happier while saving them money. It accomplishes these goals by letting people form their own buying groups for basic insurance products.

The idea taps the age-old concept of group insurance—long used by corporations, unions, social organizations, and others—to spread the risk of big claims across many different buyers. This reduces the overall cost. But Friendsurance also works the other side of the equation, reducing risk through peer pressure that encourages participants to behave themselves. It works because the groups are made up of people who know and trust each other and agree to join together.

Tim Kunde, the young innovator behind Friendsurance––who is featured in our NYT best seller The Athena Doctrine––harnesses the power of friendship to save people money and make their lives less susceptible to losses. “People pay the same insurance premiums at the start of the year and then we give them a payback at the end of the year,” explained Tim when we met. The refunds, which can total as much as 50 percent, are based on the number of claims against the insurance made by your network of friends. “If there are claims, you get less back. If your network is average, or better than average, you get money back.” Insurance underwriters who back the friend groups benefit from this scheme by shrinking their administrative and potential fraud costs.

“What fascinates us is changing an old, traditional industry,” said Tim, who is thirty-one and could have gone into any of a hundred different businesses. (Tim’s the kind of guy who rides his bike to meetings—as he did on the day he met us—despite frigid temperatures and rainy conditions.) “We’re not thrilled by insurance,” he said with a smile. “What interests us is looking at it from an outside perspective.”

From the outside, Tim saw that consumers didn’t understand that they could gain from acting in a responsible way. Much of the cost in the business is related to fraudulent and “gray area” claims that are made when clients fail to act carefully or misrepresent the circumstances of an accident or theft. This kind of behavior is more likely when people see their relationships with insurance companies as anonymous or adversarial. “The insurance company is anonymous. If I commit fraud or it’s in the gray zone, it’s a big company and they won’t notice. People don’t feel accountable,” Tim said.

Friendsurance adds accountability to the insurance process by linking premiums and rebates to one’s network of friends and acquaintances. Auto insurance buyers, for example, can think about their friends and consider who is a safe driver and who takes risks when he or she is behind the wheel. They can then build a group as small as five and as big as sixty to seek the best coverage. Once the deal is made, friends naturally feel a moral duty to behave well, and this feeling is reinforced by peer pressure. No one wants to be the guy whose fender bender (or something worse) wiped out the refunds that would have been paid to the rest of the folks in the group.

Well-knit groups that function in an open and cooperative way are increasingly the byproduct of innovative leaders who understand humanity as much as technology.

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