A toast to personalized insurance
- Posted on September 18, 2015
Over 15 million toasters were sold last year. As everyone knows, toasters toast bread, but among those 15 million purchase events there is a particular breed of individual who, when the mood strikes for warm bread, want their bread warmed to perfection. These self-proclaimed ‘toast snobs’ don’t buy from the local big box store, they shell out hundreds, even thousands for fancy, commercial, chain-driven, digitally-controlled models with infa-red heating elements and they themselves glow with pride when they are put on a four-week wait list.
Now let’s imagine our toaster elite, given their innate proclivity, feeling compelled to protect their investment in bread warming gear. In our scenario, they reach out for coverage to fictional digital insurance startup KitchNAssüre (KitchNAssüre was founded by three West Coast engineering students and became famous for being the first specialty carrier to offer Bluetooth monitoring of household devices). In just their first year of business, the upstart insurer rolled out a revolutionary pay-by-the slice (PBS) policy, which became a huge hit with the public.
The smart people at KitchNAssüre also started to apply analytics to find patterns between usage and claims, and right away found two very interesting things. First, they found that the likelihood of claims correlated directly to the amount of time the product was being used. They compared these findings to the mean time before failure (MTBF) studies from each manufacturer and saw a strong similarity. They also found by monitoring shock sensors in the toaster that some people treated their toaster like an honored member of the family, while others often confused the device with a game of ‘whack-a-mole,’ considerably shortening the expected service life.
Armed with this insight, KitchNAssüre developed and implemented time-dependent pricing models that were specific to the quality characteristics of each manufacture’s product and specific to the environment in which the product was actually used. In this way, KitchNAssüre was able to minimize cross-subsidization between those likely to make claims and those who were not likely to do so, while still offering reasonably priced coverage in the event of unanticipated cold bread.
Sure, it took our compulsive bagel-grilling crowd a while to get used to personalized premium schedules that look more like life insurance policies than home-owners policies, but now at the point of purchase, the full cost for the useful product life is completely transparent. And to an extent it can even be determined by the purchaser – no guesswork involved. Micro-premium payments are authorized through PayPal accounts, and in general our demographic segment now thinks the whole approach is better than, well, (come on, you knew that one was coming) sliced bread.