Building a brighter insurance future and creating a full paradigm shift for the insurance industry happen in use cases. It does not come as a surprise that the industry is rife with pain points for those buying insurance, so taking a look at slices of the industry allows us to zoom in on a microcosm of the industry and apply those findings to the larger system.

When I first started thinking about a better insurance system, I thought of all the many pain points I heard during a 23-year career in the insurance industry. Believe me, there were many. My time as a musician and as a graduate of Berklee College of Music led me to focus on the pain points faced as musicians struggled to insure their gear; claims denied, appraisals inaccurate, an overall lack of understanding of the market. I settled on music equipment as a good place to start researching a better insurance system.

Ultimately, there is one fundamental goal of insurance - to make someone whole after a loss. This is the principle of indemnity. The idea that you should be put back in the position you were prior to the insurance claim. Not necessarily in a better position but certainly not in a worse position. So, if you were playing a 1965 Fender Stratocaster before it was stolen - you should be playing a 1965 Fender Stratocaster after the claim is settled. In the opaque world of insurance, with long contracts, exclusions, buy-backs, rising premiums, and more - this is easier said than done. Let’s look a little closer.

When is a Stratocaster not a Stratocaster ?

Let’s agree to call it a Strat, ok? A quick search will show you that you can get a used 1965 Strat for around $2,500 - $5,000. Great - claim settled? 

Keep searching and you’ll see those prices rise to $10,000, $20,000, $30,000 and more. There are many factors that determine the value of the guitar including provenance, history, upgrades, and condition. 

A traditional insurance policy may be written on agreed value or it may be written on appraised value. However, there are many times that the policies are written as Actual Cash Value. 

Actual Cash Value is defined as “the amount of money needed to replace damaged or stolen property, minus depreciation at the time of loss”. In our example, that means the value of the materials used to build your 1965 Strat minus the depreciation of almost 60 years. That would result in pennies on the dollar. That won’t work. Not only is this not putting the insured back in the position they were prior to the loss, it raises the question:

Would a typical insurance buyer necessarily understand the implications of Actual Cash Value? 

This is a completely different argument for another article, but consider a typical 50+ page insurance policy with its exclusions and definition and legalese. Now, consider the commercials you see on tv of insurance companies saving the day and replacing damaged cars and houses, and settling claims. Typically these commercials will take polarized approaches - campy humor or gut-wrenching seriousness. Both approaches leave the viewer feeling like buying insurance means you are “fully covered”. I can tell you from my time in the industry - “fully covered” is a myth. Yes, the onus is on the insured to review the legal contract that is an insurance policy, but which do you think truly has a lasting impact on the average person: the advertising messaging that insurance is here to protect you when you need them most or the 50+ page legal document that outlines all the ways they may not be there when you need them most? 

Let’s get back to the use-case at hand…and move on to Appraised Value.

When is an Appraisal not an Appraisal ?

We can agree that getting pennies on the dollar is not what we expect from an insurance policy while we hold space for the implications of laying these details out in a long-winded contract. A better alternative to Actual Cash Value is Appraised Value. 

Appraised Value, in our use case of music equipment,  means that your Strat insurance value is based on a professional appraiser's determination of its value.  This raises a few additional pain points including the additional cost of getting the appraisal borne by the insured, availability and location of appraisers, and - one often overlooked - the static nature of appraisals. 

An appraised-value policy is based on the value at the time of appraisal. In most cases, a claim isn’t filed days after an appraisal or even a year after an appraisal. In addition, insurance for music equipment has a very low loss ratio - meaning that only a small portion of premiums received payout losses for damaged equipment. This Appraised Value creates a snapshot of the value of your guitar, but does not adjust that value over time. 

The value of music equipment should be thought of more like art. Is the market hot for that Strat right now? Did the floor drop out on the value of your Strat? 

In the case of the market being hot, you’ll find yourself underinsured at the time of the loss.

In the case of the market being cold, you’ll find yourself paying too much money for insurance. 

The solution is to continually monitor the value of your Strat and get new appraisals as the market conditions shift or as new details on your guitar come to light. This is not a reasonable ask for an insured nor is the cost associated with multiple appraisals something that should be required of the insured.

Enter the dynamic appraisal - an appraisal that reflects the conditions of the market, the individual piece of equipment, and more. At Nimblr, we believe that one solution to this is what we call Snappraisal. Snappraisal allows the insured to take photos of their gear for an initial appraisal while simultaneously creating a digital twin of that gear. That appraisal is now connected to the greater Nimblr ecosystem and leverages the vast amounts of data and information both within Nimblr and outside of Nimblr to continually update the value of the appraisal. 

The result  is an appraisal connected to your insurance policy that fluctuates with the market conditions leaving you with the insurance policy coverage you want, a more efficient premium, and the right amount of coverage at time of loss.. 

Speaking of losses….

When is a Loss not a Loss ?

We discussed indemnity earlier - the concept of making one whole after a loss. The best way to make someone whole is to not have the loss, right? Of course, we can’t bubble wrap the world, nonetheless music equipment, but insurance should take steps to mitigate risk. 

The world of blockchain is fascinating in many ways. From transparency to trust to objectivity to data sources. A decentralized insurance system like Nimblr is built on top of these premises. A system that is open and transparent can help prevent claims by notifying insureds of adverse claims, by providing additional options that can be triggered on and off by the users or by geolocation, and by asking for support from the other like-minded members of your music equipment insurance community.

Insurance ++

Using music equipment as a use case, we are able to see the many shortcomings of the current insurance process. The good news is that these problems are solvable. Most musicians or music equipment collectors cherish their gear. They don’t want to make a claim. For some, it is their livelihood. A stolen or damaged guitar is not just an unfortunate event, it could mean not getting paid until it is replaced. Nimblr can help that musician find a replacement guitar quickly, without missing a gig, and ensure that the claim is settled just as fast. 

The future of insurance looks drastically different than this history of insurance. And, it is so bright……well, you know.