A startup plots to trim the fat in the insurance industry

When 30-year-old Ou Zhiqi became an entrepreneur after a stable career at the Ministry of Education, his friends’ perceptions about him changed.

“People don’t see me as doing a startup, they just see me as an unemployed person,” he says.

Ironically, his Singapore-based startup, Bandboo, sells unemployment insurance. But here’s the twist: it promises to make insurance cheaper and more transparent than ever.

“The insurance industry has too much fat in it. The profits may be a bit excessive for the insurance companies, and they’re not as efficient as they can be,” he says.

Bandboo is unique in two ways. First, it’ll return unused premiums back to the insured within a year. That’s unlike traditional insurers, which keep the premiums you’ve paid and in many cases don’t return them, even if you didn’t claim the money.

The only money Bandboo keeps from its unemployment insurance plan is a membership fee, which costs S$9.99 (US$7.20) a month. Ou reckons this fee is enough to make Bandboo profitable, but not excessively so.

On top of that, customers pay a monthly premium of S$35 (US$25). Now, assuming you’ve kept your job, would you get all of it back?

That depends. Bandboo pools people into groups of a thousand each. Your insurance activates only when your pool reaches that number. When one person is retrenched, the cost of the claims is shared with the entire group. Whatever isn’t claimed goes back to your pocket. So when the economy is soaring, the insured pay less.

Traditional insurers, meanwhile, are forced to keep their premiums high because they can’t lower their rates during good times, claims Ou. That’s why unemployment insurance hasn’t been successful in Singapore.

Copycat galore?

The question though, is whether Bandboo’s business model can survive an economic catastrophe on the scale of what happened in 2008. Ou claims the sum of its monthly premiums can weather that.

And wouldn’t traditional insurers simply copy his idea? He thinks it won’t be easy.

Incumbents are incentivized to reduce payouts because it directly affects their bottom line. Bandboo’s model doesn’t have this conflict.

The insurer’s shareholders and top management will need a lot of convincing that a model like Bandboo’s “is necessary for preserving market share or even their survival,” he says.

From Army buddies to co-founders

Ng was crucial in developing a customized version of Ethereum – a type of blockchain. “It took him many sleepless nights,” says Ou.

Long, nervous wait for government approval