Insurance companies in Germany have, for the most part, been shy to use the Internet to sell insurance and let customers manage their own policies.

But not Friendsurance: The insurance newcomer has based its entire commercial concept on the power of the Internet and Web 2.0 social networking.

"It's a unique business model, not just in Germany but worldwide, as far as we know," said Tim Kunde, one of the managing directors of Friendsurance responsible for product development.

"In general, our service targets all people who want to reduce their insurance costs. But we think it will be particularly appealing to young people who have an affinity with the Internet and social networks."

Keeping it in the family

That could well be the case. Grandmas and grandpas aren't likely to log on and sign up for the service on their own - unless, perhaps, their grandkids persuade them to join. That's the gimmick behind Friendsurance. It relies on communities of trusted family members and friends to share costs and pool resources to reduce premiums.

Currently, Friendsurance offers three types of insurance: home, liability and legal aid. The company plans to add car and health insurance to its product portfolio further down the road.

Here's how the service works: Registered users send an invitation to trusted friends and family members to join their insurance network, which can be up to 15 people, and their selected type of coverage, such as home insurance. Members of that particular group agree to share insurance claims between them for an amount that can range from 30 to 50 euros each. If a claim exceeds their total agreed amount, one of several insurance companies cooperating with Friendsurance kicks in to pay the rest.

The Friendsurance business model focuses on smaller claims that generate significant administrative costs for insurance companies, according to Kunde. And because of its focus on trusted network members, the start-up also promises to reduce fraud, another big problem that costs the German insurance industry several million euros a year.

In return, customers receive bonuses at the end of the year for managing smaller claims among themselves and also for being members of the insurance network.

Savings of more than 70 percent are possible but, depending on the type of insurance and the amount of the claims within the group, they can be much lower, too. In a nutshell, the larger the group and the more its members manage claims among themselves, the greater the savings potential.

Complex policies

The Internet has its place in Germany's huge insurance market, experts agree, but just how big a role it will play remains to be seen.

"Some customers like to use the Internet to inform themselves about a particular product before they meet with an insurance agent," said Daniela Röben from the GDV federation of German insurers, underlining the role of insurers' websites as valuable information tools.

But using the Web to buy insurance is still pretty much in its infancy in Germany, Röben conceded. A major reason why Germans are hesitant to buy insurance online, she said, is the complicated nature of the various policies.

"Some insurance policies are very complex and require an agent to provide advice," Röben told Deutsche Welle. "Others, like car insurance, are fairly standardized with little or no need for consulting." And those, she added, could more easily find their way into online sales channels.

It's way too early to say whether Friendsurance has tapped a winning formula and could eventually prompt Germany's Internet-shy insurance industry to embrace the Web more aggressively.

Indeed, young Germans have flocked to social media networks like Facebook to chat and swap photos. But whether they're prepared to network with each other when money is involved is a completely different story.

Author: John Blau
Editor: Sam Edmonds