“Form of Value #11: Insurance”

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What is “Insurance”? (Form of Value #11 of 12)

“Take calculated risks. That is quite different from being rash.” — General George S. Patton, commander of the U.S. Third Army in World War II

Key Points:

• Insurance focuses on transferring a risk from purchaser to seller in exchange for a series of payments. If something bad happens the insurer is responsible for the bill, and if it doesn’t, the insurer keeps the money.
• The keys are:
  
  
  
  • Create a binding legal contract that transfers the risk of a specific bad thing happening from the policy holder to you.
  • Estimate the risk of that thing happening using available data.
  • Collect the agreed-upon payments over time.
  • Pay out legitimate claims upon the policy.
• Insurance protects the purchaser from a downside risk.
• It works because it spreads the risk over a large number of purchasers.
• Insurers focus on maximizing payments while minimizing claims, and must be on the lookout for “bad risks” and fraudulent activity.

Questions for Consideration:

• Does delivering value via offering insurance make sense for your business idea?
• If so, what do you need to plan for to make it successful?

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