The Price of Insurance Against Lethal Coconuts: What You Need To Know
Friday, May 15, 2015
A friend pointed me to an old article about a danger that kills many people each year. I'm not speaking of tornadoes, drunk drivers or even avian flu. We've all heard of those. I'm talking about a deadly organism that few know to avoid. I speak, of course, about coconuts: nature's most mysterious killers. I assure you that this is no joke. According to the 2002 article, fifteen times as many people were killed from falling coconuts than from shark attacks. Yet, while insurance against shark attacks is readily available, coconut-related insurance appears to be unavailable as a packaged offering at any price.
Why would insurance companies offer coverage for a less likely, but equally deadly force? As you might expect, it all comes down to pricing - specifically a mispricing of risk on the part of consumers.
Coconuts don't look all that scary. They don't have sharp, pointy teeth. They don't hunt. They are often found in drinks with little umbrellas in them. In fact, if we think about all plants (not just coconuts), there are few works of fiction that involve plants that kill - The Day of the Triffids and Attack of the Killer Tomatoes are the two most famous that come to mind. Meanwhile, sharks are a common villain in many famous films such as Jaws I - IV, Deep Blue Sea, Finding Nemo, and (my personal favorite) Sharknado I and II. Cartoons and slapstick comedy have further desensitized folks to the dangers of blunt force trauma, while fears of animal attacks are rarely made light of in such works.
To all my readers, I offer the following advice: stay away from offering coconut insurance. The "blue ocean strategy" would suggest that coconut insurance might be a great product to sell. Imagine it! With zero competitors, you could own the entire market - just by entering it! While such offerings would greatly benefit the families of those who will be injured by this most lethal plant, the market would force insurers to massively underprice the cost of this important service. The lack of fear toward dangerous fruits would cause folks to underestimate the value of this insurance and be willing to pay less than they "should" as a result.
While some businesses can remove distortions to economic markets, the cost of educating consumers would likely be far above the profit available to the entire coconut insurance market. As such, we will have to live in a world where this product will continue to be absent from the market. Yet one more quirk in the business world that can be explained by pricing and monetization.
Found this interesting? My book The Software Pricing Handbook examines all of the important topics in pricing to ensure that your software is priced to best take advantage of the realities of the market.
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