Fever Insurance

Posted: May 4, 2010 in Crazy ideas, General, Random nonsense
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The idle mind is a speculator’s workshop. When insincere attempts at reading fail, the mind darts off into speculation land.

What follows is pure speculation, a product idea that’s probably worth some mindspace. The product does not exist currently, at least in the world of my meager and rather limited knowledge. In case something like this exists already, I’d gladly want to hear more about it…and discover my ignorance in the process.

Mortality risk can be hedged away by purchasing life insurance. Auto, fire, health, property insurance likewise hedge away specific risks. But what about the risk of a school student falling ill just before exam D-day? The costs of missing that important exam are far higher than missing classes due to prolonged illness, for example. Health insurance covers the monetary costs of illness but students still bear the non-monetary risk (of a missed exam). I think this is a risk most students would likely gladly hedge, if given an opportunity. (Indeed, one can argue philosophically that no price is too high to pay to mitigate this risk, but we won’t get there…)

A fever insurance could probably be that product.

The basic construct is fairly straight-forward, but some differences exist. Students pay a fever premium for a set period, say, a month leading up to exams. But unlike conventional life/health insurance, the provider is not an insurance company but the school. The school bears the ‘risk’ of student(s) falling ill prior to exams. And unlike conventional insurance, the pay-off in a fever insurance is non-monetary. The pay-off is that the covered student is allowed a resit at a later date. In addition to benefiting the student, this product could also form a recurring alternative revenue source for schools (premium inflows before every exam).

From a student’s perspective, a tiny amount that fully hedges away the non-zero probability of illness before an exam would be a welcome idea. For a school, the monetary inflow but non-monetary outflow nature of the product should be a consideration-worthy proposition. I suppose the probability of a 100-strong class, all falling ill at the same time would be low. Now some students would likely fake illness to postpone the exam, but the school would be indifferent to this (they already have got hold of the fever premium!). And unlike most conventional insurance providers, there is little incentive for a school to refuse to honour the contract.

Hmm…

Thoughts, especially those that expose my ignorance, would be most welcome.

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