Well, in truth this is an operational model which can be used to run any kind of business really, and not just insurance. I simply went with insurance as a part of the financial sector because that’s what I know and unlike in many other sectors, you actually need to comply with some rather stringent regulations to operate in the financial sector. So my use of an insurance business as the case study example is simply to drive the point home that you can get around the most stringent of regulations if you put your mind to it and if you can garner up enough interest and participation from as many people as possible.
So how do you go about legally operating an insurance company without the series of headaches that come with trying to get accredited and licensed?
Trade as a general trading enterprise
I don’t know if Close Corporations still exist in some countries, but the trend over the past 10-15 years has been to do away with the CC and have people who want to register a company going the private company route. Anyway, the CC type business is what’s required to get around regulations, legally of course and the trick to it is not to make any reference or claim that you’re going to be an insurance company. You’re not officially going to be an insurer, which brings into focus exactly how this works.
Pooled profits and affiliate sales commissions
Pretty much every business these days makes use of the very effective marketing channel of offering commissions to anyone who refers buying customers to them and this is what you’re going to make use of to generate profits. Additionally, your general trading enterprise company might engage in all manner of businesses through which a profit can be made, but the key to it is that this business is being supported by a customer base which seeks to benefit out of the business via services such as insurance cover or anything else for that matter.
So if I was to walk through an example of this in action, let’s say 1,000 people need to pay insurance premiums for some cover they want. That group of 1,000 people engage in economic activity which flows through the company you’ve set up, such as all of them ordering their wedding save the date postcards from the business, just so that the business can earn referral commissions. In this particular instance, save the date templates would be used to create the products, but then the business would also engage in the same enterprising activity aimed at the general public. This is where any additional profits will be generated.
Bringing the insurance service back into the picture – the profits generated from the operation of the business are then used to cover the premiums each member needs to pay, whether they choose different insurers to take up a policy with or if the “company” essentially enters into a bulk insurance deal with just one insurer.
As you can see, this requires one to formulate links between businesses, products and services where none may seem to exist, as well as getting the critical mass of participants to adopt the model. So it’s not just insurance which can be catered to.
