Capitalism, Meet Cooperative Capitalism: And a New Imperative for Facebook?

First: Apologies for hijacking the title of this excellent article by Robin Chase and for hubristically hoping to improve it by adding an old, old but, for most people, a very new perspective. Ms. Chase, herself the founder of Zipcar and Buzzcar, obviously knows whereof she speaks in writing about the new cooperative capitalism:

The Internet, smart phones, electronic payments, GPS, online ratings, and social media have transformed the way we can build businesses, the way we can use assets, and who we can collaborate with. Uber and Airbnb, along with Skype, oDesk, elance, TaskRabbit, Blablacar, GetAround, Lyft, Skype, WhatsApp, MeetUp, Etsy, YouTube, Facebook, DuoLingo, Quirky, TopCoder, Enigma.io — this list could go on for paragraphs — are building companies very efficiently, and differently, than in the past.

Fully in line with Schumpeter’s well-known concept of the creative destruction endemic to capitalism — for what it’s worth, a fundamentally Marxian concept — Chase extols how the “new ideas and new ways of doing things” are impacting, indeed revolutionizing, our “far from perfect” status quo. She concludes with the hope that we can “figure out how we can move to a more cooperative, sustainable, and equitable form of capitalism.”

To which I would add, we should simultaneously look to the very old but also “more cooperative, sustainable, and equitable form of capitalism” known as mutuality. This form of organization, best instantiated in the form of life and property/casualty insurance companies, actually stems from the pre-capitalist days of the Dark Age, during which the principles of mutual insurance were developed in Europe by the feudal guilds. In the modern age, we can point to Benjamin Franklin’s Philadelphia Contributionship for the Insurance of Houses from the Loss by Fire in 1752 and, almost a century later, The Mutual Life Insurance Company of New York, “chartered as the first American company to operate as a mutual society, issuing 4,000 policies during its first five years of existence.”

Today, as the above-cited Wikipedia article succinctly puts it, a “mutual insurance company is an insurance company owned entirely by its policyholders. Any profits earned… are rebated to policyholders in the form of dividend distributions or reduced future premiums. In contrast, a stock insurance company is owned by investors who have purchased company stock; any profits generated by a stock insurance company are distributed to the investors without necessarily benefiting the policyholders.” While accurate, this is nonetheless an unfortunate description in that it defines mutuality essentially by what it is not: a publicly-owned stock insurance company. (Even the largest mutual insurance company in the U.S., New York Life, sadly chooses to define itself in this unnecessarily negative, narrow and, therefore, distorted way. See another example of this weak understanding of mutuality.)

What is so sadly lost here is the very essence of mutuality, its social aspect, its grounding in reciprocity and collaboration. No one has more keenly registered this than Maria Ferrante-Schepis, formerly Maria Umbach, in an article first published in 2011 titled The New Mutuality:

Back when insurance was an innovation, the working class understood it as a way to pool money to help those in need. That is after all, how the word “mutual” became associated with insurance companies. Everyone participated to each other’s mutual benefit. Ms. Ferrante-Schepis goes on to explicitly note how this concept of mutuality has been distorted over the years: Its definition in spirit is about reciprocity. She then asks, very much along the lines of Ms. Chase quoted above, is it possible to bring back reciprocity in a world that is all about me?

The answer, of course, is Yes; this is indeed the essence of our current “cooperative capitalism,” which appears to be, to the dismay of our “far from perfect” status quo, unstoppable.

What seems clear, however, is that it probably won’t be our few remaining mutual insurance companies, with their narrow fiscal view of mutuality, that will “bring back reciprocity.” Maybe, though, just maybe, it will be social networking; maybe it will be Facebook! Let me therefore conclude this post with a nod to another piece by Ms. Ferrante-Schepis, “Will Mark Zuckerberg Reinvent The Insurance Industry? – A 2011 Prediction.” Okay, so we know her 2011 prediction hasn’t panned out — yet. But, given the cooperative capitalism of Uber, Airbnb, and so many others, are we willing to gainsay that Facebook has the opportunity to cover the risks handled by the insurance industry today?

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10 Responses to Capitalism, Meet Cooperative Capitalism: And a New Imperative for Facebook?

  1. Barry Rabkin says:

    Peer-to-peer insurance, eh? Possibly it could become more than a flea bite on a large elephant. But there are many aspects of insurance from creating the insurance product to ensuring it has the requisite capital underpinnings to selling it to customers (actual customers who pay for it rather than agents who distribute it) to servicing the customer to ensuring it complies with state, federal, and international regulations.
    Could FB be a distirbutor? Yes. Could FB enable peer-to-peer funding, service, and possibly even claim payments? Yes to all three but with significant operational and regulatory caveats. Should there be someone or a groups of someones who “vet” the entire process (you know, like regulators)? I think so.
    Would I get involved in a true peer-to-peer insurance purchase opportunity? Never.

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    • khittel says:

      All legitimate questions, Barry — and, thanks to you, some possible answers. I confess that much of this — all the “how” questions — are beyond me. But I do think there is a legitimate subject here, not least the trivialization of mutuality by those who hide behind this structure but no longer remember its original and still very live-giving meaning, or simply foreswear it. We have the conceptual model in place with the cooperative capitalism businesses mentioned, and the admittedly still quite-unproven insurance examples that I didn’t (yet) bring into the discussion: friendsinsurance in Germany, entre nous (if i remember correctly) in France, Freelancers Union Health Insurance (which I understand is actually doing quite well) and Christian Health Care Insurance in the States. Maybe these are the Napsters who themselves will fade away — but I don’t doubt that the insurance industry is till awaiting its Napster Moment, to steal Maria’s phrase. For the time being, though, I will hold on to my existing coverage…

      One other thing worthy of discussion: The life insurance industry has been granted important, compelling tax advantages based on acceptance of the social salutariness of its products, AND the assumption that life companies would find ways to make these products available to all citizens. This they no longer do, however: The LIMRA numbers of American uninsured and under-insured citizens get worse every time they’re updated. For all intents and purposes, the industry is leaving it up to A.L. Williams (or whatever they’re called nowadays) to insure the great unwashed. Does the industry still deserve the inside build-up privilege? I would say, no. Is there at least a conceptual opportunity for a truly mutual, cooperative, peer-to-peer organization to seize the opportunity to insure the uninsured? I think so, yes.

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  2. Hi Ken, thanks for the great article and for the nod. Much appreciated.

    It’s amazing how much traction those two articles have gotten in my world, and what’s even more fascinating is how far its come in just a few years. What may not be evident to many in our business is that these sharing models for “random sucky things” (i.e. stuff insurance might cover) are actually growing, but they are not on the radar of regulators because they are not insurance. (such as GiveForward.com). Others might be on the radar, but the element of crowd funding is separated out from what’s regulated (i.e. Friendsurance in Germany). Finally, and this blew my mind, we are seeing sharing ministries in religious organizations growing, and they do exactly the same thing insurance does, but the contract is based more in trust of community and in God. But what I found most fascinating about these models is that the Affordable Care Act is exempting people from the requirement of health insurance if they are a member of the ministry (check out the Q&A for Samaritan Ministries). So its like it is seen as a reasonable substitute for insurance, but not insurance. Yet it works basically the same way. This is how Napster Moments (i.e. David Beats Goliath Moments) happen. [BTW, Sometimes flea bites on elephants can become infectious, and cause the elephant to get sick, and not even realize it was actually a flea that caused the massive change in the elephant’s overall health…just sayin]

    Here is another way to look at collaborative consumption as an opportunity in insurance. After all it is the original collaborative consumption model, and we get no credit for it. We can make it fashioinable. http://www.lifehealthpro.com/2014/01/02/insurance-is-weird-can-this-brutal-truth-improve-c

    Keep up the great work! Best, M

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    • khittel says:

      Maria, thanks very much for weighing in; I truly appreciate your comments and your perspective. I couldn’t agree more that mutuality is a serious subject for the industry, especially given the trivializing way that the mutuals themselves are treating it. Indeed, let’s make this fashionable once again.

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  3. Good post as always Ken. The original concept of mutuality was to bring like-minded people together to support each other on the premise that “for the grace of god, go I”. Hence we saw the growth of mutual and fraternal societies such as Foresters, Thrivent and the Woodmen. As times have passed, mutuality has all but disappeared and insurers, even mutual companies such as New York Life, operate largely as any other large corporation.
    Social media and the internet can bring mutuality back because it connects groups who can create their own risk pool. Maria talked about Facebook as an insurer but Facebook is really an enabler that helps groups combine. Mutuality returns with self-defined groups and members with a personal interest in keeping claims at a low level.
    But let’s not rule out commercial enterprise. Insurance companies as we know them today are frankly very poor at sales. They operate with antiquated distribution models and largely unwilling to change. But they are good at underwriting risk and this is their role.
    You mention Friendsurance as a self-defining group but the same case can be made for telematics auto insurance where people choose to have their behavior monitored believing they are “good drivers”. If they are indeed good drivers, this unbalances the risk pool and other groups will combine to leave the pool. Equally Amazon for Moms (a prime like service for new moms) will soon likely be the best database of new moms in the country representing the best groups of new life insurance candidates.
    Insurers will underwrite, regulators will protect, retail will sell, groups will grow for the mutual benefit of members and so we start the whole process again.

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    • khittel says:

      Thanks much, Terry. It’s obvious we’re seeing lots of insurance-like models that have yet to bear fruition, but need they, at least right away? Napster didn’t itself make it but none can deny what it did to the music industry. So, while there are many nuts yet to be cracked — Barry identified most of them in his comment — it would be silly to think that insurance is somehow immune from the new cooperative disruption. And aside from these self-starter operations, like friendinsurance or the Freelancers Union Heath Care Insurance model, I’d be willing to bet that even the big peer companies are at least starting to think about cooperative skunk-works operations.

      Compiling a Directory of these? Sounds like something right up your alley…:)

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      • I have been keeping tabs on these potentially disruptive options. Not as organized as I should but it is starting to be time to do so. It would be irresponsible for the big insurers not to be exploring and experimenting.

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        • khittel says:

          Yes, someone is definitely needed to catalog and keep track of these developments, and I think you have a head start on the rest of us. As I’ve said before, no one of these “potentially disruptive options” may itself end up in the winning column, but anyone of them might, like Napster did with the music industry, lead to something that will. Actually, Google may even be the better analogy here: By the time Google started up and eventually put into good practice the not-at-all-novel idea of pay-per-click, there were already plenty of well-established search engines (though no real “search engine industry”). Good old grand-daddy Yahoo, after all, was just the acronym for “Yet Another Hierarchically-Oriented Oracle”! Google really just added one little feature to what all the other search engines already did perfectly well and before you knew it — I remember this vividly — you could walk down the street, in my case Broadway, and overhear people talking about how they had just “Googled” something or other — and boom there was a new winner (in a contest that few knew even existed, viz., Microsoft) and a new industry and a wholly new tech landscape. Maybe something like this will happen with Friendsurance or the Freelancers Union or MetLife’s life insurance in a box.

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