Insuring high-risk customers.How?

Fred Wilson's 'Making My Personal Health Record Public' is inspirational, though I am not completely agreeing (or disagreeing). Privacy matters aside, I think the insurance issue is a very interesting one. The biggest project I did as a strategy consultant was about insurance, making the first online insurance in Korea (and one of the first globally, as we could not give the clients any success case when they strongly demanded one) and strengthening the existing agent-based insurance business. The project involved auto and life insurances.

This is same in the auto insurance. No one wants to insure a truck or a motorcycle in Korea. So a lot of them go uninsured, or get alloted to insurance companies by some rules (part government, part self regulation).

I have discussed with an exec that there may be a business opportunity to create an insurer who specializes in high-risk vehicles. Fundamentally, insurance exists because there are risks. Unless the risk is systematic (meaning accidents tend to happen together), they are insurable. The problem is, then the price may be quite high.

The other solution is to make an insurance company that says 'we have one price for everyone regardless of the risk profile'. The key will be to pool risks widely and to forego the costly underwriting process (which means they don't investigate your track records). The goal is hassle-free, simple, reasonably-priced insurance. The problem here is there might be adverse-selection. Because they give lower price for high-risk cars, you may attract only high-risk cars. The problem will be especially real when the competing insurer says "you are paying for high-risk motorcycles at that insurance company. Come to us and we will offer lower price." So the key is whether the saved underwriting-process costs of the 'one-price insurer' can be as large as saved claims of the 'discriminating insurer'.

The last solution is the government regulation. The government could create one big monopoly insurance company, or ban private insurance companies to discriminate the insured. I don't think this is a great idea. It will became politics, not business.

My example was about auto insurance, but the same is true for health insurance. And my personal opinion? The first one. The second one is attractive, but I am not very positive the cost saving can justify the claims difference.