Method and apparatus for bundling insurance coverages in order to gain a pricing advantage

• US 20060074724A1
• Filed: 12/09/2004
• Published: 04/06/2006
• Est. Priority Date: 09/24/2004
• Status: Active Grant

• Current Assignee: James Dennis Schwartz
• Original Assignee: James Dennis Schwartz
• Inventors: Bakos, Tom, Schwartz, James Dennis
• Granted Patent: US 7,246,070 B2
• Time in Patent Office: Days
• US Class Current: 705/4
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A method for reducing the lapse rate of a first insurance policy comprises the step of offering to sell a rider to said first insurance policy, said rider comprising benefit features, said benefit features configured such that the combination of said rider and said first insurance policy has a higher switching cost than the switching cost of said first insurance policy alone and said rider is constructively attached to said first insurance policy, whereby said step of offering to sell is at least in part performed by technological means. The first insurance policy may be a homeowner'"'"'s policy. The rider may be a pet health insurance rider.

Claims

1. A method for reducing the lapse rate of a first insurance policy, said first insurance policy documenting insurance coverage provided by a first insurance company to an insured entity, said insurance coverage comprising at least one of homeowner, auto, human health, or life insurance coverage, said method comprising the steps of:

a) offering to sell to said insured entity a rider to said first insurance policy, said rider comprising benefit features, said benefit features configured such that;

i. said rider provides pet health insurance coverage which covers a pet of said insured entity, said pet being a given type of pet,

ii. the combination of said rider and said first insurance policy has a higher monetary switching cost than the monetary switching cost of said first insurance policy alone; and

iii. said rider is constructively attached to said first insurance policy such that said rider is only in force if said first insurance policy is in force,

b) accepting an application from said insured entity for said rider, said application comprising sufficient information so that said rider may be underwritten;

c) underwriting said rider such that said application may be accepted or rejected by an insurance company providing the pet health insurance coverage described in said rider;

d) providing to said insured entity a quotation for the premium for said rider, said premium to cover a term for said rider, said premium being based at least in part on an anticipated reduction in said lapse rate of said first insurance policy, said term being a period of time that said rider is in force;

wherein at least one of said steps is at least in part performed by an information system comprising at least one of a computer, telecommunications device, printer, automated telephone answering system, or monitor.

5. The method of claim 1 wherein said premium is in the range of 1 to 10 times the average health care cost of said type of pet, said average health care cost being for said term of said rider.

6. The method of claim 1 wherein said rider pays a benefit equal to the difference between the actual covered medical costs of said pet and a deductible, said deductible is being at least twice the average health care cost of said type of pet for said term of said rider.

9. The method of claim 1 which further comprises the step of administering a multiplicity of said riders using a general purpose computer.

10. The method of claim 9 whereby said step of administering a multiplicity of riders comprises processing or tracking claims against said multiplicity of riders or premium payments for said multiplicity of riders.

12. The method of claim 1 wherein at least one of said steps is performed by a web site.

13. The method of claim 1 which further comprises the step of issuing a pet health insurance ID card to said insured entity.

14. The method of claim 1 wherein said rider comprises a deductible corresponding to said premium and wherein said premium for said rider is greater than or equal to a reference premium, said reference premium corresponding to a reference deductible, said reference deductible being greater than or equal to said deductible of said rider, said reference premium and said reference deductible belonging to a set of reference premiums versus reference deductibles, said set of reference premiums versus reference deductibles being calculated by the steps of:

a) identifying a class of pets comprising said type of pet to be insured;

b) estimating the distribution of average annual veterinary expenses for said class of pets, said average annual veterinary expenses occurring within a first geographic region, occurring to pet owners in a first demographic category or occurring during a first time period;

c) adjusting said distribution of average annual veterinary expenses to account for the extent to which the pets in said class of pets were covered by pet health insurance policies, said adjusting yielding an adjusted distribution of average annual veterinary expenses;

d) adding a provision for expenses to said adjusted distribution, said expenses being those that would be incurred by said first insurance company in order to provide said rider, said adding of said provision for expenses yielding a set of average premiums versus deductibles;

e) adjusting said set of average premiums versus deductibles to account for inflation from a point in time during said first time period to a subsequent point in time during said term of said rider, said adjusting yielding a set of inflation corrected premiums;

f) adjusting said set of inflation corrected premiums to account for a difference between said pet to be insured and the average pet of said class of pets, said difference being with respect to at least one of the age of said pet to be insured, the size of said pet to be insured or the breed of said pet to be insured, said adjusting of said set of inflation corrected premiums yielding a set of actual premiums to be charged for said pet to be insured;

g) discounting said set of actual premiums by an amount governed by the vaccination frequency of said pet to be insured, said discounting being larger for lower vaccination frequencies, said discounting of said set of actual premiums yielding a set of discounted premiums versus deductibles;

h) adjusting said set of discounted premiums to account for the fact that said term for said rider may be different than a year, said adjusting of said set of discounted premiums yielding a set of term-adjusted premiums versus deductibles; and

i) reducing said term-adjusted premiums by the savings per rider anticipated by said first insurance company due to said anticipated reduction in lapse rate of said first insurance policy, said reducing yielding said set of reference premiums versus reference deductibles.

15. The method of claim 1 wherein said first insurance policy and said rider are a single insurance policy.

16. The method of claim 1 wherein said first insurance policy and said rider are separate insurance policies.

17. The method of claim 1 wherein said anticipated reduction in lapse rate is 3% or more.

18. The method of claim 1 wherein said anticipated reduction in lapse rate is equal to or greater than the reduction in lapse rate observed with other insured entities who have added said rider to said first insurance policy.

19. The method of claim 1 wherein said increase in monetary switching costs has the potential for being more than said premium for said rider.

20. The method of claim 1 wherein the monetary switching cost of said combination of said first insurance policy and said rider has the potential for being more than 80 times greater than the switching cost of said first insurance policy alone.

21. The method of claim 1 wherein said entity is a natural person.

22. The method of claim 1 wherein said entity is a legal entity.

23. The method of claim 14 wherein said amount of said premium discount governed by the vaccination frequency of said pet to be insured is greater than or equal to 6% if said vaccination frequency is less than or equal to once every three years.

2. (canceled)

3. (canceled)

4. (canceled)

7. (canceled)

8. (canceled)

11. (canceled)