Is Crowdfunding Insurance the Next Great Idea?

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The one issue that has held crowdfunding back more than any other is the risk that comes with running a campaign. There is no guarantee that a campaign is going to be fully funded. It isn’t just a business issue. Backers are finding that more projects are failing to deliver on their promised results. Creativity can implode and in the past, this has meant that an investment would be lost. If a project is a complete scam, than the backer’s money is thrown down the drain.

Because of these risks, Indiegogo has started to test a new type of service that is aimed directly at backers. If a campaign fails to deliver a project that they have purchased within a certain amount of time, then they can have their money refunded to them. In a way, it’s like an insurance policy for the crowdfunding backer.

This is Huge Risk For Indiegogo

Many of the projects that have been authorized to run on Indiegogo tend to have more risk than other platforms. This is probably the reason why crowdfunding insurance is being tested by the platform. It’s a way to establish more trust with the average backer. The only problem is that this is a huge risk for Indiegogo to take. Here’s why.

1.Robot Dragonfly achieved funding of $1.14 million and their promised rewards are now over 12 months overdue.
2. Smarty Ring had an estimated delivery date of May 2014 and raised around $1 million.
3. Healbe raised over $1 million, had a delivery date of June 2014, and still will not be able to work as the campaign promised even if they can achieve a final product.

Three projects. $3 million. If everyone purchased insurance policies for this, then Indiegogo would be out a huge sum of cash. On the other hand, if insurance is being purchased at $15 per campaign, the successful projects will help to offset the costs and it could be a wildly successful venture for the crowdfunding platform.

How Does Crowdfunding Insurance Work In This Scenario?

It’s basically like any other type of insurance that consumers purchase. Backers would be able to pay an optional price that is on top of the amount that they plan to spend in order to back a campaign. If the campaign falls through, then the backing amount is refunded. The insurance policy premium isn’t refunded.

The first test campaign is for Olive. It’s a stress monitor wristband and Indiegogo is giving backers a 90 day window of waiting past the anticipated delivery date. If Olive doesn’t deliver by then, the backers can file a claim on their insurance policy and be able to get some of their cash back.

Will this apply to campaigns that are allowed to stay open indefinitely to receive funding? What about campaigns that give whatever amount that is raised to the company, even if the total goals aren’t fully reached? A lot is riding on this individual campaign. If Olive does well and meets their delivery date, then Indiegogo might increase their testing. If not, then crowdfunding insurance might be an idea that dies quickly.