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.
Guaranteed Impact: Social Impact or Your Money Back
1. GUARANTEEDIMPACT “Social Impact or Your Money Back” Submitted by Daniel Blumberg, Dave Goodsmith, Anna HurleyZicklin School of Business, Baruch College, CUNY
2. A New Mindset 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? 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. Stock market investors demand a return on their investment. However, many charitable donors do not. Guaranteed Impact would change that mindset.
3. The $230 Billion Need $230 Billion is Given Away by Individuals No guarantee that these gifts will make a positive impact No use of market efficiencies to leverage this money’s power
4. Solution:Impact Insurance Existing Resources: Utilize $230 Billion scope by allowing donor-investors to pay a small premium to pool the risk of failed impact. The Guarantee: Donor purchase of insurance guarantees impact of their funds. Accountability: The power of donor funds is leveraged in a market Organizations must meet impact metrics in order to receive the full donation and earn low donor-premiums.
5. Turning Donors into Social Investors Decision: Jane wants to donate $10,000 to fight poverty. She uses Guaranteed Impact to locate “Game Changer,” a new organization. Dilemma: Jane is excited about Game Changer’s potential, but is afraid of wasting money on an unproven organization. Solution: Game Changer is a “Guaranteed Impact” organization. Jane is offered “Social Impact or Your Money Back.”
6. The Impact Audit 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.) Impact Audit: After 1 year, Guaranteed Impact (or a respected 3rd party) will determine whether Jane’s money has been spent wisely. 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. 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.
7. Additional Benefits to Organizations Exposure – Highly effective, but less known organizations will attract capital that might otherwise go elsewhere. 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. Performance – Advancement of performance standards will promote measurable improvements in service delivery.
8. Profitable for All Insurersprofit by investing premiums and applying economies of scale Donorspool their risk to ensure the impact of their funds. Organizationsincrease their revenues by guaranteeing impact and appealing to savvy “safety first” investors.
9. Risk Modeling Evaluate Past Data Pastimpact is a good predictor of future impact Ample data is available from GIIRS, Guidestar, GiveWell, Philanthropedia, RootCause, etc. Determine Factors of Effectiveness Ample models exist including Constituency Voice, Social Return On Investment, Forces for Good, etc. Actuarial methodologywill add to existing efforts by Charity Navigator, Keystone, etc. to determine expected organizational impact Model the Future Collaborative rate-making by leveraging technology, probability and statistics. Educate Financial Planners so they can explain the models to socially engaged investors.
10. Organizations Are Insurable Effective organizations are insurable according to actuarial standards Large number of exposure units Objectively measurable risk Limited risk of catastrophic loss Value to insurance buyer
11. Highly Scalable Increased growth will lead to decreasing premiums for the donor, increasing profitability for the insurer, and increased access to capital for organizations Market-making technology (i.e. from LiquidNet and others) can provide reduced cost modeling infrastructure for kick-starting while supporting exponential growth.
12. Additional Benefits Enables more risk-taking: Guaranteed Impact encourages donors to give to innovative, but less well known, organizations. 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. 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. 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.
13. Social Impact: Guaranteed Financially Revolutionary: Insurance revolutionizes human behavior and institutions by pooling risk. Impact insurance is past due. A Feasible Model: The billions currently available to fund philanthropy make impact insurance a profitableoption. Matchmaking Heaven: Impact Insurance connects donors and organizations who share a core value: impact is what matters!
14. Next Steps 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) 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. Establish Brain Trust: Gather high-impact organizations, major philanthropists, and marketers to serve as advisors. Make It Happen.
