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Indiegogo tests crowdfunding insurance to give backers peace of mind

posted Dec 3, 2014, 12:46 AM by J Shaw   [ updated Dec 3, 2014, 12:50 AM ]
Getting money back from crowdfunding failures could get a lot easier if Indiegogo decides to offer optional insurance plans.

According to TechCrunch, Indiegogo is testing insurance on at least one project, the stress management wearable Olive. On the campaign page, backers can add an insurance plan for $15, guaranteeing their money back if Olive doesn't ship within three months of its estimated November 2015 delivery date. The page makes clear that Indiegogo, and not Olive, is providing the insurance.

Indiegogo confirmed to TechCrunch that it's testing insurance, but only for this one campaign. There's no word yet on whether Indiegogo will expand the offering, or how it would work with a broader range of projects.

Why this matters: It's no secret that crowdfunded projects can end in failure, as inexperienced creators fail to hit their milestones or make promises they can't keep. But right now, backers assume all of the risk, and must resort to lawsuits or direct refund requests to project creators when things go wrong. Insurance would shift some of that risk back to Indiegogo, while letting backers buy a little extra peace of mind.

Complications and questions

While crowdfunding insurance sounds good in theory, it does raise some questions about the process.

When a project fails, will Indiegogo simply eat the cost, or try to get some of its money back from creators through legal action? Do projects that offer insurance get additional vetting from Indiegogo, whose standards are seen as more lax than those of Kickstarter? Will the cost of insurance depend on the price of the finished product, or are there other factors?

The answers to those questions could drastically change the dynamics of crowdfunding on Indiegogo. If Indiegogo absorbs the full cost of failures, for instance, it could encourage more ambitious projects that have a lower chance of success. On the other hand, the threat of legal repercussions from Indiegogo itself could cause creators to be more conservative. And if a project didn't offer insurance at all, that alone could be a red flag to potential backers.

Then again, it's not clear that the risks of crowdfunding have discouraged people frombacking questionable products in the first place. And even if insurance was available, people may still be more comfortable taking on all the risk themselves, rather than paying a little more up-front.

In the case of Olive, for example, only two backers have opted to pay the extra $15, even as the project has far exceeded its funding goals.

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