An entry in LiquidNet for Good's contest to create smarter charitable donor / investors. Daniel Blumebrg, Dave Goodsmith, and Anna Hurley envision "impact insurance" as a means to guarantee social impact.
Transcript of "Guaranteed Impact: Social Impact or Your Money Back"
GUARANTEEDIMPACT<br />“Social Impact or Your Money Back”<br />Submitted by Daniel Blumberg, Dave Goodsmith, Anna HurleyZicklin School of Business, Baruch College, CUNY<br />
A New Mindset<br />In our society we guard against all sorts of risks—car accidents, illness, floods, job loss—so why not guard against the misuse of our charitable donations? <br />By offering Impact Insurance, we acknowledge the reality that giving money away is risky, just as it's risky to invest in the stock market. <br />Stock market investors demand a return on their investment. However, many charitable donors do not. Guaranteed Impact would change that mindset. <br />
The $230 Billion Need<br />$230 Billion is Given Away by Individuals<br />No guarantee that these gifts will make a positive impact<br />No use of market efficiencies to leverage this money’s power<br />
Solution:Impact Insurance<br />Existing Resources: Utilize $230 Billion scope by allowing donor-investors to pay a small premium to pool the risk of failed impact.<br />The Guarantee: Donor purchase of insurance guarantees impact of their funds.<br />Accountability: The power of donor funds is leveraged in a market <br />Organizations must meet impact metrics in order to receive the full donation and earn low donor-premiums.<br />
Turning Donors into Social Investors<br />Decision: Jane wants to donate $10,000 to fight poverty. She uses Guaranteed Impact to locate “Game Changer,” a new organization.<br />Dilemma: Jane is excited about Game Changer’s potential, but is afraid of wasting money on an unproven organization. <br />Solution: Game Changer is a “Guaranteed Impact” organization. Jane is offered “Social Impact or Your Money Back.”<br />
The Impact Audit<br />Premium: Jane pays 5% to Guaranteed Impact. (The percentage is based on the charity’s expected impact. Higher premiums will be paid for unproven or low impact organizations.)<br />Impact Audit: After 1 year, Guaranteed Impact (or a respected 3rd party) will determine whether Jane’s money has been spent wisely.<br />If Jane’s money IS spent wisely: Guaranteed Impact will give half of Jane’s premium to Game Changer and keep the remaining half to cover administrative costs, payouts on other policies, and make a small profit.<br />If Jane’s money is NOT spent wisely: Jane has a choice. She can reclaim her $10,000 or give it to another Guaranteed Impact organization. Either way, it is the insurance company, not the charitable organization that will refund or re-gift the $10,000.<br />
Additional Benefits to Organizations<br />Exposure – Highly effective, but less known organizations will attract capital that might otherwise go elsewhere.<br />Signaling – Guaranteed Impact organizations will be held to a very high standard. Membership will signal to potential donors that their money will be spent wisely.<br />Performance – Advancement of performance standards will promote measurable improvements in service delivery.<br />
Profitable for All<br />Insurersprofit by investing premiums and applying economies of scale<br />Donorspool their risk to ensure the impact of their funds.<br />Organizationsincrease their revenues by guaranteeing impact and appealing to savvy “safety first” investors.<br />
Risk Modeling<br />Evaluate Past Data<br />Pastimpact is a good predictor of future impact<br />Ample data is available from GIIRS, Guidestar, GiveWell, Philanthropedia, RootCause, etc.<br />Determine Factors of Effectiveness<br />Ample models exist including Constituency Voice, Social Return On Investment, Forces for Good, etc.<br />Actuarial methodologywill add to existing efforts by Charity Navigator, Keystone, etc. to determine expected organizational impact<br />Model the Future<br />Collaborative rate-making by leveraging technology, probability and statistics.<br />Educate Financial Planners so they can explain the models to socially engaged investors.<br />
Organizations Are Insurable<br />Effective organizations are insurable according to actuarial standards <br />Large number of exposure units<br />Objectively measurable risk<br />Limited risk of catastrophic loss<br />Value to insurance buyer<br />
Highly Scalable<br />Increased growth will lead to decreasing premiums for the donor, increasing profitability for the insurer, and increased access to capital for organizations<br />Market-making technology (i.e. from LiquidNet and others) can provide reduced cost modeling infrastructure for kick-starting while supporting exponential growth.<br />
Additional Benefits<br />Enables more risk-taking: Guaranteed Impact encourages donors to give to innovative, but less well known, organizations.<br />Carrot & Stick: (Carrot) If an organization performs well, it receives half of the insurance premium paid by the donor. (Stick) If an organization does not perform well, its insurance premium will increase.<br />Guarantees are impressive: The marketing value of a guarantee is very strong. Even people who do not elect to pay for impact insurance will be impressed by the “Social Impact or Your Money Back” guarantee.<br />Raises awareness of impact metrics: Guaranteed Impact will use the latest social impact evaluation metrics. We are guaranteeing social impact. We are not necessarily promising low overhead or other potentially removed measurements. <br />
Social Impact: Guaranteed<br />Financially Revolutionary: Insurance revolutionizes human behavior and institutions by pooling risk. Impact insurance is past due.<br />A Feasible Model: The billions currently available to fund philanthropy make impact insurance a profitableoption.<br />Matchmaking Heaven: Impact Insurance connects donors and organizations who share a core value: impact is what matters!<br />
Next Steps<br />Create a Micro Pilot: Work with existing impact investing platforms (e.g. Kiva, MicroPlace, Mission Markets) to create a simple pilot: Charge premiums to guarantee the impact of small investments (i.e. with a total guarantee pool of up to $15,000)<br />Identify Actuarial Expertise:Leverage resources of LiquidNet, Hope Consulting, Charity Navigator and other partners to assemble a small team of practitioners from the insurance industry that can verify feasibility and identify insurable metrics.<br />Establish Brain Trust: Gather high-impact organizations, major philanthropists, and marketers to serve as advisors.<br />Make It Happen.<br />