It's probably not the section that most of you will be focusing on, but the "Insurance" section seems to be written by someone who doesn't know the industry. Insurers are absolutely already starting to monitor driving habits[1] and offering discounts for home monitoring devices[2]. Large property/casualty insurance companies are sophisticated competitors that don't hesitate to invest in promising new technologies or techniques many years before they pay dividends. The industry is anything but "stodgy".

The idea of a crowdsourced insurance company is not a good one (to put it mildly). The expected returns of an insurer are highly correlated with the returns of the broader market[3], because a typical large insurance company makes little to no money writing policies and generates most or all of its income from investments[4]. But maybe he's thinking about crowdsourcing the insurance risk itself, not the whole insurance company with its massive portfolio of stocks and bonds (although that's not what he said). In that case, you get an investment that yields X% a year until and unless the underlying insurance contract is triggered, in which case you lose your principal. These securities actually exist[5], but as you might imagine they are not typically purchased by individuals.

I do think the insurance industry can be disrupted. It's harder for a startup to gain traction because economies of scale work differently in insurance than they do in other industries, but a Google or an Amazon could do some real damage if they wanted to invest the resources to do so. There are a lot of interesting problems to solve. But this article totally misses the point.

[1] http://www.progressive.com/auto/snapshot/ [2] https://www.statefarm.com/insurance/home-and-property/homeow... [3] http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/... [4] https://static1.st8fm.com/en_US/content_pages/1/pdf/us/2013-... [5] http://en.wikipedia.org/wiki/Catastrophe_bond

user:	actuary
created:	July 11, 2012
karma:	21