August 2017

Insurance As A Social Enterprise

By Nicholas Yeo

Insurance is an important tool to manage risk. To be successful, a social insurance enterprise must function effectively and channel profits toward the attainment of long-term social goals. This is in contrast with the goal of for-profit insurance, which is maximization of shareholders’ return on capital, typically over a short time horizon. Both models exist and under certain circumstances they could supplement each other, serving different sectors of society. There are many ways of setting up an insurance company as a social enterprise. Below is one possible path:

  1. Establish the social enterprise as a for-profit company with nominal equity held by a socially responsible and benevolent party. We do not advocate the establishment of a not-for-profit organization for this purpose.
  2. Prohibit equity transfers and require that dividend must be paid only to the benevolent party which must use them to generate additional social benefits.
  3. The insurance company should be managed by a professional manager.
  4. The insurance company should be funded with social debt instruments.

Key features:

Competition—The enterprise should compete with other insurance providers to the extent that such competition creates long-term social benefits. Barriers to Entry—The enterprise should encourage and support the entry of similar social enterprises to increase social benefits.

Investments/Asset Liability Management—Monies should be invested in instruments that support socially responsible projects.

Management—The team should be required to embraces the social enterprise concept and acts accordingly. The team should be required not to cut corners, adhere to risk management practices, and adopt a long-term view.

Capital Providers—As any investor, they will benefit if the enterprise succeeds and lose if the enterprise fails. Traditional capital market instruments and reinsurance should be avoided.

Distribution ChannelDirect to consumers to provide good service (which should be monitored) and minimize costs. Traditional channels such as agents, brokers and banks should be avoided.

Financial Model—Underwrite risks to maximize the chances of generating profits. Aim for high retention rates, low adverse selection and reduced levels of moral hazard. Growth goals should be realistic and sustainable. Aggressive financial targets should be avoided.

Nicholas Yeo, FSA, FIA, is the founder of Nicholas Actuarial Solutions. He can be contacted at