Mutual insurance concept doc
Mutual Insurance Fund — Concept Paper
A systems entrepreneur plays the critical role of connecting stakeholders in their local small business ecosystem in order to unlock opportunity and help small businesses succeed. Each of these system entrepreneurs are working with the thesis that entrepreneurship is the path to wealth building in marginalized communities, where underserved populations face numerous barriers to employment. This role of a systems entrepreneur or “community quarterback” was first described by David Erickson of the Federal Reserve in San Francisco.
Derrick Braziel, who co-founded MORTAR in Cincinnati, plays the role of a systems entrepreneur. At MORTAR, Braziel supports underrepresented entrepreneurs by connecting them to the tools and resources — a business training accelerator, pop-up retail space and loan capital — designed to start and/or scale businesses. In 2015, Braziel was given $30,000 from the Christ Church Cathedral to weave together his local ecosystem in partnership with Neighborhood Economics. Since then, their partnership has led to $4.1 million in public sector, donor, and investor funding for Cincinnati’s burgeoning entrepreneurial ecosystem; including $2.1 million to support MORTAR’s own accelerator, retail space and loan fund.
OVERVIEW:
Many of the systems entrepreneurs in the Neighborhood Economics network have begun raising capital for individual funds that will invest in underserved small businesses. What each of these funds needs most however, is access to the capital that can pay for the pre and post-loan technical assistance that helps business owners succeed. But what if the entrepreneurs we serve were given the opportunity to invest in themselves in a convenient way to get the support they need. The Neighborhood Economics network is proposing that a mutual insurance product be designed to create a fund that would pay for technical assistance for each business working with a system entrepreneur within the network. By taking 1% of the interest from every loan and investing that in the support that our entrepreneurs are asking for we de-risk loans across the network. Each dollar raised into the mutual insurance-like pooled TA fund, goes towards providing culturally-relevant, tailored TA for entrepreneurs across the country. Additionally, the first $100k raised could enable members of our risk pooling consortia, including Mortar, Ujima Boston, Food Labs Detroit and Cooperation Jackson and others to raise matching capital from venture philanthropy investors and impact investors with patient capital.
MECHANICS:
Each business applying for a loan from one of the funds in the network would be asked to pay an additional 1% of interest on their loan. This money would pay into the mutual insurance pool. This pool would be used to cover all or some of the costs associated with providing technical assistance to that entrepreneur.
ISSUES TO ADDRESS:
To build this product we would need to determine the average size of each loan given out by the funds. We would also need to estimate the volume of loans given out through the network in a given year. This information would allow us to know how much money each business would pay as a monthly premium. Once the size of the monthly premium was determined as well as the volume of lending, we can determine the the size of the pool that makes up the TA Fund. Based on the size of the pool, the insurance company would then decide the amount of coverage each policy can offer towards funding a TA provider.
We are looking to design this product with an insurance company familiar with mutual insurance models that has an interest in supporting small business lending across the country.
