WASHINGTON–Techies with an affinity for creating Web-based networking communities could soon replace insurance companies, especially those that are secretive about their pricing models for hard-to-place specialty risks, two technology experts suggested last week.
Drawing a parallel to a Web-based lending model–an example of a user-powered community that is now part of an expanding Internet environment known as Web 2.0–the technology experts extemporaneously brainstormed the creation of "Lloyd's 2.0."
The on-the-spot conceptualization took place during a session titled "Web 2.0: Is the Future of the Internet Insurable?" at the Professional Liability Underwriting Society's 2007 International Conference held here last week.
"What is Web 2.0? It's MySpace. It's Facebook. It's YouTube. It's blogging sites," said panel moderator Adam Sills, lead underwriter for Darwin Professional Underwriters in Farmington, Conn.
Giving a more formal definition from a Web 2.0 site–Wikipedia–Mr. Sills said, "Web 2.0 refers to a perceived second generation of Web-based communities and hosted services–such as social-networking sites, wikis and folksonomies–which aim to facilitate creativity, collaboration and sharing between users."
Throughout most of the session, insurance and legal experts delved into the emerging exposures for developers and facilitators of Web 2.0 services, comparing and contrasting them with known risks for other types of media and Internet firms.
Toward the end of the session, Luis Derechin, chief executive officer and founder of JackBe, a company that develops software applications for social networking communities, described a Web 2.0 site he did not create known as Prosper.com in an effort to deliver his warning that insurers could be easily replaced.
He explained that the Prosper.com site attempts to open up the "black box process" through which banks authorize loans for prospective borrowers. People seeking loans go to the Web site to post descriptive information about themselves and explain why they need loans and for how much, say $1,000. In response, others go to the site and offer partial loans, in perhaps $50 and $100 increments, Mr. Derechin explained.
"All of a sudden you have your own bankers. You, me and everyone else are becoming bankers to people who were previously unbankable."
"Is that going to happen in the insurance industry?" he asked, challenging insurers to open up their own black boxes. "Let people understand what's going on in your industry in those cubby holes where there a lot of things that are happening that we don't understand."
Another panelist, Jeremy Epstein, senior partner, community manager for Microsoft, revealed that he's a frequent lender on Prosper.com, adding that his average rate of return is over 15 percent. "The guy paying 15 percent is winning. The credit card companies charging 19 percent are losing. We're disintermediating the banks and we're diversifying risk," he said.
"Theoretically, you can turn the whole thing on its head and say I'll insure someone" in the same way, he said, and Mr. Derechin quickly chimed in to dub the concept "Lloyd's of London 2-dot-0."
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