How Insurance Companies Make Money (vs How Life Engineering Makes Money)
RM0 monthly for RM1 million annual medical protection? There’s gotta be a catch somewhere. What about the longstanding words of wisdom, if it’s too good to be true, it probably is? In our case, we proudly roll up this saying and shove it into the mouth of the one’s saying it. Yes, ask any of our existing Sharers, they’ll swear by how affordable this program is you’d think we bribed them. No, we absolutely did not.
Ok then, aren’t we a Sendirian Berhad (Private Limited) company though? How do we even survive when during most months Sharers make RM0 payment? In this article, we leave no tables unturned. Read on to find out.
Same Goal Different Approach
Life Engineering aims to put the ball in the basket just like any health insurance company. The difference is where others are competing to rank in a basketball league, we just have our own ball and our own basket to put it in. We don’t have coaches, we don’t wear the same coloured sleeveless tops with matching strips, and we don’t have to bounce and dribble the ball towards the basket.
Life Engineering is NOT an insurance product, we are an independent Crowd Sharing platform. Thus, we play by different rules compared to insurance companies even when we both bent on helping the public to reduce the suffering of paying an arm and a leg for necessary medical treatments.
How Insurance Works, How do They Make Money?
Insurance works on the principle of Pooling of funds and thereby Sharing the risks. Let’s use an example:
Let us assume there is a total of 1000 citizens in a country, and every one of them is of the same age and lead the same lifestyle. They are minions of some sort. And there’s just one medical center serving the whole minionites community and the cost per treatment is RM10,000, regardless of the severity of each medical case. (I know, just bear with me for now)
Approximate medical cases occur in a year is 10 out of 1000 minions. So, the total medical cost a year derived to be 10 x RM10,000 = RM100,000.
In a year, every minion contributes RM100 into an insurance policy, hence RM100 x 1000 minions works out to be RM100,000 which is an exact amount to cover the total medical cost for the year with absolutely no profit or loss. Hence the 1,000 minions pool RM100 for insurance to mitigate a common risk, that is medical treatment cost.
Up to this point, Life Engineering is very similar to insurance except when we delve into the money making part, that’s where the road diverges in a yellow wood.
This RM100 contribution in insurance term is the Premium that you pay for a certain health insurance policy. The amount of the Premium or the policy price is calculated to be as close as possible to a 1:1 ratio with the total claims paid plus operational cost. Higher than that, it is considered overpriced, and vice versa. Very little profit, if any is made through underwriting (Premium) alone, instead the Premiums collected are being channeled to fund an investment pool. Return from these investments is where the big money is.
By increasing their Premium income, companies enlarge their investment pool thus increasing their return on investment. At the same time, they could reduce the number of claims (where adjusters come in) and decrease their operational cost for greater margins.
Unlike Insurance, Life Engineering DOES NOT Invest the Sharing Deposit
We learned about Premiums in insurance. In Life Engineering, the “Premium” is the Sharing Deposit that Sharers put in at RM100 upon signing up. This pool of Sharing Deposit is bagged and put away in a Trustee managed account. It can only be touched when there’s a hospital bill that needs to be paid off when any one of the Sharers is admitted.
Initially, if 1000 Sharers put in their Sharing Deposit, the collected amount will be 1000 x RM100 = RM100,000 will be available for crowd sharing purpose. It will remain at that if there’s no medical bill to be paid because it’s not linked to any investment, nor used for other expenditures.
For example, in a particular year, let’s assume the compounded medical bills of a few unlucky Sharers who fell ill that year have shifted RM60,000 from the Sharing Deposit. RM60,000 divided by 1000 Sharers is RM60. This means that RM60 will be deducted from each sharer’s RM100 Sharing Deposit, leaving behind RM40 unused.
How Does Life Engineering Manage Sharing Deposit?
In the big book of Life Engineering 11 commandments, at any time when Sharers’ deposit balance falls below RM50, it is incumbent upon them to top the balance up back to RM100.
Sharing Deposits are kept safe and at any given time, any Life Engineering Sharer or Life Engineering Guest can log in to our mobile app to review how much Sharing Deposit balance there is, how much have been crowd shared for each month, down to the last decimal point (remember RM2.91 June Crowd Share?), who involved, which hospital, so on and so forth.
In the rare event if the medical cost for a month is way higher than the accumulated crowd sharing deposit, wouldn’t we go bankrupt then? No, we’ve prepared for that. The life Engineering program has been reinsured by local and international insurance companies to provide temporary loss coverage to protect the community’s deposit. Yes, insurance companies are our friends.
With this level of transparency, there’s very little reason to remain skeptical. For the pious, there’s no worry as this platform is a certified Syariah Compliant Crowd Sharing program.
So, How Does Life Engineering Make Money?
By crunching the numbers from the above example, we can now understand how each sharer only had to share RM60 for the whole year or averaging a mere RM5 “premium” a month.
Alas, as a company we need to pay bills, salaries and we need to move around. We also need to pay for the continuous development of our mobile app, our partner’s services, namely e-Mas who manages patients’ hospital admission processes and audits medical cases. And then there’s marketing and advertising, equipment, rental, office upkeep, stationery, dart board, cookies and snacks, toilet papers…ok, let’s not labour the point anymore. Suffice to say, all those require money.
To join the community as a Sharer, a person is required to pay RM100 annually as a membership fee. This fee goes to a separate account which the company has access to. This fee is enough to cover all our expenses and the leftover is what becomes our profit.
For example (we can never run out of examples, can we?), let’s say we managed to reel in 100,000 Sharers who each bring RM100. Our total earning from annual fees alone will amount to RM10,000,000 per year! That’s just 0.3% of the Malaysian population and considering half a million babies are born each year, the future seems bright indeed.
Apparently, sustainability is not an issue for us even doing without any investment using the Sharing Deposit. In short, we only need a commitment from Sharers for their RM100 annual fee and RM100 Sharing Deposit for Crowd Sharing purpose. That’s RM200 to enter, plus RM2.99 for online transfer charges.
For a total of RM202.99 entry fee and almost no monthly payment, you’ll get RM1,000,000 medical protection. What more can one ask for?
We shall KISS (Keep It Small and Simple)
Of course, 100,000 Sharers is a bit of a long shot from current ~1000 Sharer count. But like any millionaire backstory you read, the first million is always the hardest. Once you get past that, the second and third million will find its way into your bank account through a much shorter route.
With that said, we always keep our operational cost at the minimum. Our product is digital, so no raw materials and fabrications needed. Automated database cuts cost down for human resources, online marketing is much cheaper than tv and radio advertisement, and we don’t even lay carpeting on our office’s floor. Practical and efficient is the name of the game.
What Does the Future Hold for Medical Cost Crowd Sharing?
Life Engineering seeks to gather support from every Malaysian because health protection is a right, not a privilege. Lowering the cost of good medical treatment is beneficial for all and only with the backing from the masses would turn this vision into a reality.
How low can we go? As low as FREE. Yes, you read that right. (it’s in all caps, duh). Our mission is free medical protection for all once we have nurtured and grown a large enough community. When we reach that critical mass, it will open a whole new realm of possibilities. You are already enjoying platforms such as Facebook, Instagram and Twitter for free all this while. There’s no reason we can’t do the same, in good faith, for a healthier Malaysia.
Insurance or Crowd Sharing?
Why not both? Well, it really is totally up to you. You can choose whether you want to brace the traffic to go out for an RM40 piece of steak for lunch, plus 10% service charge, and 6% of whatever tax it is now, or you can order a hearty RM12.90 lunch set through Foodpanda (plus RM0.10 rider’s tip) and you get to keep the parking space you fought so hard for this morning. In the end, you get your tummy filled. One is not better than the other depending on the way you look at it.