Crowdsourcing and insurance may not seem like a likely pair, and AIG’s latest move to offer “Crowdsourcing Fidelity” to protect investors on crowdfunding platforms against fraud could be erroneously interpreted as an attempt to capture attention via the embrace of the latest technology trend.
But what is insurance if not the oldest form of crowdsourcing in the world? The insurance industry has always understood the purpose of pooling capital resources across many individuals in order to manage towards the greater good.
AIG’s “Crowdsourcing Fidelity” offering is not, of course, the use of crowdsourcing for insurance purposes, but rather a protection for people who make equity investments through those platforms. So far the occurrence of fraud in the crowdsourcing arena has been very low, making such a product a good bet for AIG, though these trends can always change as crowdsourced projects grow more common. Plus the line between a fraudulent effort and a simple failure by a crowdsourcing project may be difficult to discern, especially when the spurned investors have a deep-pocketed third-party to look to for indemnification. AIG won’t be paying out just because you invested in a foolhardy venture as long as they can claim the team building the prototype put in a good faith effort to make your dreams for a holographic dog-sitter come true.
On the other side, it seems like there is also an opportunity to sell a D&O product tailored to entrepreneurs who are funding their business via a crowdsourcing site. If an equity crowdsourcing site automatically covers to cost of the fidelity insurance, one can expect that the fund-seeker would want or be required to have the complementary protection. It makes sense that a crowdsourcing site looking to build trust might even demand proof of such coverage before allowing a project to raise investments.
It’s also only a matter of time before more startups or even entrenched players start looking at crowdsourcing sites as way of building the insurance risk pool itself. In fact, peer-to-peer insurance startups, such as Lemonade, are really doing just that. Once again: what’s old is new. Just because it’s presented in the language of disruption and Silicon Valley and modern entrepreneurship doesn’t really mean the concept is a radical transformation of the insurance business. Insurers need to be flexible and agile enough to take advantage of new business models and distribution channels, but the concept of collecting premiums to create a pool of capital to balance risk across a diverse group of investors is as old as the industry itself.
