Social networks, like MySpace, FaceBook, LinkedIn, and Twitter, are going to occupy an increasingly important role in our lives.  Recently published patent applications are showing us that significant long term resources are being invested in figuring out how to measure, control and insure a wide variety of risks using social networks (e.g. email, blogs, wikis, auctions).  It’s a new frontier and the early pioneers are staking their claims.  

Here are a few examples.

US2008/0228531, “Insurance Optimization Analysis and Longevity Analysis”, by Kenedy et al., describes how social network analysis can identify certain personal attributes that correlate with genetic data common within groups in the social network.   With this correlation, statistical analysis can be done to determine the strength of the association between the specified attributes common to a group and specific outcomes related to medical or life risk.

The inventors use their method to help individuals select appropriate types of insurance coverage based on outcome implications of their attribute profiles.  Coverages are recommended based on which would be most likely to result in benefit payments.  If this invention becomes widespread, it could have an impact on adverse selection.  Insurance companies would then have to make their own inventions in order to adapt accordingly.

The patent application has been assigned to Expanse Networks, Inc.  Expanse Networks is a technology development and licensing firm.  Charles Elderling, one of the inventors, indicated in a recent discussion with us that he felt that developing intellectual property in the social network space was one of the best long terms investments his company could make.

US 2009/0037470, “Connecting Users Based on Medical Experience”, by John Otto Schmidt, describes the use of social networks by patients suffering from chronic diseases so that they can better manage their health and share their experiences.  Specific provision is made for patients to share information about their insurance providers so that they can better manage their relationships with them.  In particular, users of the social network can assign grades to their medical insurance providers.  The insurance companies, in turn, would be able to search for the grades and comment as they saw fit.

Schmidt appears to be an independent inventor with a web site, GenerationMed.com, under development.

US2008/0172257, “Health Insurance Fraud Detection Using Social Network Analytics”, by Bisker et al. describes a method that the inventors feel could significantly reduce the estimated $200 billion per year inUS health care expenditures that is lost to fraud, abuse, and waste.  This loss corresponds to 10% of all US health care costs. 

Fraud would be detected by constructing social networks to find linkages between individual participants (typically physicians and other health care providers) in order to establish patterns of behavior which might be indicative of fraud.  These observed patterns are then used to more efficiently focus investigative efforts on situations in which fraud is more likely to occur.  Results are then fed back into the process to improve the pattern analysis.

This application is assigned to IBM.

US2007/0136105, “Insuring Decisions within an Organization”, by Huberman, et. al., describes an invention aimed at solving a problem caused by the divergence of employee and employer interests with respect to business project risks.  The proposed solution is ”project insurance”.  Project insurance pays a benefit if an insured project fails.  Through project insurance, employees are encouraged to undertake riskier projects which may have greater payoff potential to an employer rather than sticking to safer projects with less potential.  The employee’s interest is aligned with his employer’s by having the employee pay the premium for such insurance protection.  The economics of the project insurance structure are established so that the employee is better off financially if the project succeeds than if it fails. 

 The moral risk in this approach is addressed, in part, by the construction of social networks.  Social networks based on executives’ email communication patterns are then developed.  The social networks serve in an oversight role to monitor and verify that insured employees engage in behavior beneficial to the employer.

This application is assigned to Hewlett Packard.   

The inventions described in these patent applications point the way to how our economy in general and the insurance industry in particular might change in the years ahead.  Social networks create a source of information and market influence that may drive that change.