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Long Term Education Insurance

What if families could purchase insurance that would pay the cost of college when a child attends in the future?

Photo of Jim Rosenberg
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Who is the target audience for your idea and how does it reimagine the cost of college?

This concept is targeted at insurance and financial industry product developers, and at parents. It would reduce the average cost of college for families by creating a risk pool for expenses in place of individual savings, much like healthcare and other insurance.

Today families and students prepare for the cost of college by saving money each year starting in childhood, and / or taking on debt. What if we could create a third option? What if families could purchase "long term education insurance" that would pay the cost of college when a child attends college in the future? 

The Concept

My idea is a new financial product. It tackles the huge problem of families and students trying to save enough money for college or payoff large loan payments. It addresses the problem through a new type of higher education insurance that, like health and other types of insurance, spreads the costs across a population or "risk pool" so an individual family doesn't need to cover the full cost of a degree on its own.  



The Benefit: Lower Costs for Families

Education insurance is a complex financial product with new rewards and new risks for families. Our experiments suggest a solution is possible and worth further exploration. A purely market-based solution could provide families with a more affordable solution for college -- as low as 1/2 to 1/5 the cost of using savings or school loans, with options that could be as inexpensive as $25 to $100 per month for lower income families. A large-scale insurer that negotiates tuition prices with universities could help curtail tuition inflation and generate further savings. A hybrid market/government or market/donation solution could extend education insurance to reach every family at any income level.  

The Solution at Scale

Education insurance would create a new, large scale, powerful player in the education market. The financial product -- insurance -- provides the mechanism for funding education at a lower cost for each family. The insurance provider's position as the financial agent for tens of thousands of families creates something even bigger: a new collaborative system for financing higher education that brings powerful institutions and families into a single community. You can think of the full scale solution as a very large "insurance company" or as a "tuition co-op" serving thousands of members (both are accurate). 

The concept is scalable to cover all students in the US. In fact it should become more affordable and viable the larger the business scales by 1) spreading risk across a larger risk pool, and 2) creating a powerful new market player that can negotiate controls on tuition on behalf of families and students. Education insurance can be brought to scale as a product offering from an existing financial institution, a new social benefit business, or a government agency.  

Details, Experiments, and Refinements

We have used a series of prototypes over the course of this challenge to explore consumer interest in and the business viability of higher education insurance. The following documents provide all the detail on the experiments and what we learned. 

A Bit More About the Concept

Click the link to read the initial thoughts on the idea of education insurance and its relationship to long term care insurance.

A Lever for Controlling Costs

The initial thoughts on how a large scale insurance organization could act as a cost control on tuition by negotiating prices with universities.

Assumptions and Open Design Questions

We summarize the critical assumptions for the concept that need to be tested. We also capture some of the open design questions identified during this work that need to be explored in further product development.

Human Centered Stories

We look at what the buying experience could be like for a family planning for college for their first child.

Prototype #1 - Consumer Appeal

We use a short video and survey to test consumer reactions to this new approach to financing college. These initial conversations showed the excitement around the idea and the places where there was the most skepticism.

Prototype #2 - Insurance Can Be Offered Economically

We prototype the financial model for an education insurance business to figure out the cost of offering $1 of college insurance coverage. The experiment looks at a for-profit approach, a social benefit business approach, the impact of higher efficiency in operations, and the possibilities for a hybrid market/government or market/donation solution. The write up includes a summary of findings and a link to the full spreadsheet model.

Prototype #3 -- Serving Families of First Generation College Students

We use a survey to understand the financial constraints and priorities of lower income families where the  parents do not have a college education, and test their reactions to the insurance concept. The write up includes a summary of findings and a link to detailed response data.

Prototype #4 -- Pricing for Families of First Generation College Students  

We test the insurance packages and prices that could be offered to lower income families using a prototype for future college costs and education insurance. The write up describes some suggested packages, summarizes findings, and provides a link to the underlying spreadsheet model.

Roadmap for Implementation

A look at where these experiments ended up and where the project should go next.




What early, lightweight experiment can you try out in your own community to find out if the idea will meet your expectations?

(Updated 12/21/15) 1) Test consumer response: how do people react to the idea of insurance vs. savings or debt? 2) Build a prototype actuarial and financial model with an expert or two from the insurance industry to see what the numbers look like.

What skills, input or guidance from the OpenIDEO community would be most helpful in building out or refining your idea?

-- Insurance modeling -- Detailed population and college attendance data -- Ideas on extending insurance to cover families that cannot afford premiums

This idea emerged from

  • An Individual

Are you interested in the Path to Pitching track we've developed for this challenge?

  • No

Evaluation results

22 evaluations so far

1. Does this idea make college more accessible, especially for low income students in the U.S.?

Yes! - 36.4%

To a degree - 50%

Not that I can tell - 13.6%

2. Does this idea think beyond current cost structures of college and activate new sectors or partners?

Yes! - 68.2%

It's attempting to - 27.3%

Not that I can tell - 4.5%

3. How excited are you about this idea?

I'm so excited I just can't hide it! - 59.1%

I'm pretty neutral in my excitement level - 31.8%

I don't feel very excited about this idea. - 9.1%

74 comments

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Photo of Eric Geisterfer
Team

Hi Jim,
Congrats on making it to the final phase. I used to be in insurance and I see a fundamental problem with the insurance route. Approximately 65% of US kids go to college which means you will have an insurance claims rate of 65%. If you look at Property & Casualty insurance, the claims rate is in the single digits and the people purchasing it pay premiums throughout their lives (think how long you'll be paying for auto insurance or insurance on your house - over your entire lifetime). If the claims rate in P&C were in the 65% rate and buyers would only be paying premiums for 17 years (the time frame you use for paying into the college insurance policy) , the premiums for P&C would be much much greater - to the point where they would be prohibitive. The same goes for term life or long term care. You're paying in over a much longer time period, and the older you get the more you pay. Unfortunately, this is the fundamental reason why the insurance concept doesn't work for college tuition. The time period where you collect premiums is too short and the claims rate is too high. I don't want to be negative, I'm just pointing out reality.

Photo of Jim Rosenberg
Team

Hi Eric,

Thanks for the note. Your definitely not being negative, just challenging -- which is what I think makes this community work so well. You are pointing at the critical "technology" question here: is there a financial model for the insurance that can work for the provider and the consumers? Education insurance would fall in the "high frequency, high severity" bucket which I've learned is a tough space to make insurance work (e.g. the current challenges in long term care insurance). My current thinking is that it could only work in a nonprofit model (forgoing profits and using investment returns to lower premiums),  perhaps only for the population with lower college attendance rates (families where the parents do not have college educations), and perhaps then still needing subsidies. Even with those limits, education insurance or a "co-op model" (the same concept) may still be a more effective way to bring together personal investment and public investment to lower the cost of college for families. If a large scale insurer / co-op creates a powerful player that can represent family interests and negotiate against the large annual tuition increases we see, then we have another benefit.  

It's definitely very speculative at this point. My next step is to talk with more industry people and see if we can build (or rule out) a real financial model.  Did you have a chance to look through my prototype on costs (https://docs.google.com/document/d/1AESbY_6nQtUfPGJ5fHapCCO11cOGgcM10kFp7-nonUA/edit)? I'd love to hear any further thoughts on that, to help me see the holes.

Thanks!

Jim 

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