OK, I can’t hide this. This article is the 2.0 to the last one I wrote called What if the Insurance Industry Worked on Tips? While that idea was inspired by a Friday night with an industry colleague who had designs on reinventing the compensation system for insurance agents, we still had the rest of the weekend to figure out what the next generation of product would potentially look like.

And then it hit us—airlines, credit cards, retailers, etc., work on this “point” thing that has everyone figuring out whom they want to be loyal to, so they get points to either buy more, or use as a currency for other things they want.

As they say at Guinness…“brilliant.” But we were drinking something else.

How the heck does that apply to insurance?

Well think about this.

Suppose, just suppose, that individuals, particularly those who don’t think they can afford much insurance, whether it be health, life, auto, home, etc., etc., funneled their “points” into an insurance “fund.” And then they paid whatever they could on top of it. I don’t know…$10, $20 a week? And then they were able to dip into that pool for “claims” at a benefit rate that was commensurate with the amount they paid, and the amount it is worth as converted to the risk. More on this in a minute.

So if you break it down, points have a value that is fairly easy to calculate, like around $1 per 100 points, but nobody really bothers to do that. Why should they? They have these charts and apps that help them determine how many points they need for a free plane ticket, a hotel stay or a shiny Movado watch. (BTW, don’t go for the Movado watch. You will end up paying full price for that; you may as well use your regular money instead.)

Let’s translate this to insurance.

I have a hunch that younger consumers today do not really distinguish much between “types” of insurance. They just want to know their risks are covered. And that is more than just a hunch; it is borne out in much of the research we have done around Gen Y and insurance.

So if that is the case, then don’t bog them down with buying so many different kinds of policies; just get into the “lifestyle continuity” business and define your product as one that makes sure their plans are not messed up. After all, that’s what they care about. So what might that look like?

How about this?

Suggest that young people contribute $20 or $30 a week to a “risk”-reward points account. (Oh boy that name sounds too good to be true.) And then maybe dump in the additional points that they earn from credit card spending, and so forth. At the end of a couple of years, they could have 500,000 points accumulated in that time frame, which translates into only about $5,000, but who cares? The denomination doesn’t matter; it’s what you do with it that does…. Read further.

Then suppose there is a situation where the person has a “lifestyle continuity” issue. It could be anything—illness, car breakage, job loss, computer crash, illness of a relative, unplanned pregnancy, a flood in the basement—anything. They could even get cash for whatever they think is a nuisance.

They could then go to their Risk-Reward points account and redeem some points for cash or services. The value of the service would vary depending upon the same variables that go into pricing insurance but perhaps with slightly less precision to add to the ability to create a panty hose chart out of it. All women know what I mean. Like this:

(For illustration purposes only. I don’t want any actuarial challenges or nitpicky pricing geek comments, or questions about assumptions or why I stopped at 400,000, or technicalities about panty hose, OK?)

And yes, no application—just one rate per age band or some other distinguishing thing that would help this pricing make profitable sense. And, of course, an iPhone app to make this a whole lot easier than looking at a panty hose chart. Of course, you wouldn’t be able to be covered for everything at once for this kind of pricing, but you use the account to cover the first thing or two that happens until the account is drained.

Hmmm, could this be the young person’s insurance starter kit? Upgradeable to the real deal sometime in the future…for points? Cash? Social currency? Think about this.

Maria Umbach, MBA, CLU, is managing principal, insurance and financial services, for Maddock Douglas in Norwalk, Conn. She specializes in helping large brands innovate new products, services and business models. Maria has spent 25-plus years as a marketing executive in the life insurance space and is now focused on “what’s next” for the industry. She is a frequent speaker and the author of the upcoming book series “Flirting with the Uninterested: Innovation in a Sold Not Bought Category.” For more, visit her blog at www.soldnotbought.com, or email her at maria.u@maddockdouglas.com.

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