Our monkey brains guide our bodies through medieval governmental structures while manipulating the technology of the gods. This inherent tension creates endless contradictions, power struggles, and confusion in our world. There is little debate that technology rules commerce. Even governments fail to contain quantum leaps of technology. Uber famously decided to upend the taxicab industry without asking for permission. After a few years of operation, the company displaced the vast majority of the existing regulatory framework around public transportation simply by daring to do whatever it wanted.
When asked if he thought Facebook above the law, Mark Zuckerberg smirked before delivering a rehearsed answer. Facebook is above the law. If any country decides to break it up, enforce meaningful regulations, or otherwise kill the golden goose, then Mr. Zuckerberg can relocate his offices and talents to another location. Tech firms are as mobile as they get. I’m sure Facebook has a backup in the cloud somewhere.
Which brings us to insurance. The insurtech marketplace is exploding all over the world with new startups bent on disrupting the game of insurance. One of the side effects of this renaissance in the financial services industry is the relative loss of power of the government over the insurance industry. The captive marketplace is well-suited to deliver the libertarian promise of new insurance startups.
For example, an insurtech company that creates a seamless application for on-demand insurance with claims paid via smart contract without any adjusting should be able to solicit applications and bind policies via mobile application. Whether state or federal governments license this company is not relevant – even in the United States. Remember, the US Supreme Court stated in Allgeyer v. Louisiana that a policyholder has the right to procure insurance from unlicensed insurance companies – caveat emptor. Consequently, a Maltese protected cell company providing an online insurance product can generally ignore state and local insurance requirements.
This is not legal. This is reality. Just what power does the State of New York have to regulate a digital insurance carrier with a corporate and insurance license issued by an alien government? Assuming the captive’s policies are price competitive, then there is little the New York insurance carriers can do other than compete. And as we saw from Uber, new technology makes it difficult for the old-style insurance carriers to compete.
Clearly, the old guard insurance industry is here to stay. No one is replacing AIG, Allianz, or AXA quite yet. Regardless, new technologies and the widespread adoption of online insurance transactions have paved the way for low friction, very low-cost insurance model. It’s not strictly legal. It doesn’t have to be.
About J. Matthew Queen
Insurance Executive with a history of working in captive insurance & specialty risks. Skilled professional well-versed in risk financing, tax consulting, insurance brokering, and corporate governance.