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Next for Insurtech: Product Diversity

As the sharing economy continues to evolve and the autonomous revolution emerges, consumers’ insurance needs are changing, requiring new types of coverage to ensure adequate protection against new risks.

Insurers have begun partnering with insurtech players to build the digital basics, streamlining the quote-to-issue lifecycle and positioning insurers to engage with the 73% of the market who are looking to purchase coverage online. Now, insurers are pushing partnerships to the next level, focusing on product diversity to meet the growing array of customer coverage needs.

Product Diversity Is the Way of the future

Technology has made astronomical leaps in the last two decades, taking society from a pre-internet world of engagement to an environment of connected devices and services. Service providers such as Zipcar and AirBnB have opened a new sharing economy, where individuals using web and mobile apps can share their personal services or amenities, such as a car or a home, on an as-needed basis.

The sharing economy, however, creates risks not typically covered under traditional policies.

See also: How Diversity Can Stoke Innovation  

According to New York Times article, AirBnB offers $1 million in liability coverage to hosts using its platform, but the coverage is secondary to the homeowner’s personal policy, where commercial operations are not usually covered.

“There are also other issues with Airbnb insurance,” said Robin Smith, CEO of WeGoLook, “including the fact that it does not provide coverage if a guest shows up early or stays late. This can potentially be disastrous.”

Risks like these are behind the growing demand for innovative product types. Accenture predicts a decline in the demand for personal auto, starting in 2026, but says that autonomous vehicles will net the insurance industry $81 billion in new premiums over the next eight years.

“Three new business lines — cybersecurity, product liability for sensors and software algorithms and public infrastructure — are going to drive billions in new insurance premiums for the U.S. auto insurance industry in the coming years,” said Larry Karp, global insurance telematics lead in Accenture Mobility, part of Accenture Digital. “Forward-thinking insurers are already putting these new products at the top of their agenda as they look to capitalize on the first-mover advantage.”

While future-thinking carriers may benefit from the autonomous trend, insurers that have not yet built the digital, D2C base will witness declining profitability as demand for key products falters.

“Right now, 70% of the market is asking to buy insurance online,” said Eric Gewirtzman, CEO, BOLT. “When you consider the impact of the sharing economy and the autonomous revolution on encouraging consumers to become technology-savvy, that number is going to grow.”

That puts direct-to-consumer distribution in a new light, making digital capabilities critical to gaining wallet share as well as share of market by supporting greater product diversity.

Why Digital Is So Important to Product Diversity

According to Rick Huckstep, industry influencer and editor on insurtech at The Digital Insurer, before the rise of the internet, insurers bought policy admin systems. Each product had its own core system costing millions of dollars and taking years to implement.

These legacy systems now stand in the way of insurers as they seek to strengthen channel and product diversity. “Engagement with customers and the development of products are defined by the limits of the policy admin system,” Huckstep said.

He then outlined a plan where insurers partner with insurtech players to rapidly adopt digital capabilities while using existing investments in IT. Direct-to-consumer channels of engagement put insurers’ products in front of more consumers and enable more efficient distribution, but partnerships in digital innovation also provide insurers with access to an unprecedented range of new coverage types without the need to take on additional risk or obtain their own carrier appointments.

According to Bain, insurers are leveraging new ecosystems. These synergistic partnerships build on an insurer’s digital foundation and allow insurers to deliver the products and services their customers want or need.

“With ecosystems, we see insurers offering more of the core products and ancillary services consumers require, such as home, auto, business, pet and travel or the ability to compare auto repair shops and book appointments online,” Gewirtzman said. “Making the consumer’s life easier leads to greater customer loyalty for insurers and is an important factor in remaining competitive in the current and future market.”

Overcoming the Challenges of New Product Innovation

To meet consumers’ growing demands for personalization, EY predicts that insurers will need to offer a wider portfolio of products. Digital, direct-to-consumer capabilities become a big part of this equation, giving insurers the opportunity to act in real time, identifying needs and recommending coverage options while the customer is in the act of buying.

According to Huckstep, “Digital speed to market has never been more important,” a statement that is particularly relevant for insurers currently selling exclusively through external agent channels.

See also: Reinventing Life Insurance  

For insurers still seeking a digital identity, insurtech partnerships allow them to leverage existing investments in IT, while making a rapid move toward D2C distribution.

Building on strong digital capabilities to offer products from an ecosystem of insurance carriers, a leading insurer improved quote conversion rates 4% over a single quarter. Another insurer sold 1.6 more of its own products every time it bundled a solution that included another carrier’s offering.

“It’s successful digital transformations and partnerships like these that prove the case for D2C and product diversity,” Gewirtzman said. “As additional insurers come on board, we’ll start to see more than a few carriers excelling at meeting customer needs. We’ll see an entire industry operating from a customer-focused perspective.”

What’s the role of product innovation and diversity in your customer acquisition and retention strategy?

Metromile: Pioneers in Digital Engagement

Imagine a world where the insured has a continuous digital engagement with the insurer. Where the “insurance product” is a value-add service that offers more than just financial protection. In this world, the insurance brand becomes “sticky,” and churn becomes a function of product development, not promotional pricing. In fact, price is no longer the only buying criterion. This is the world of Metromile, the pioneers of digital engagement insurance.

To find out more for InsurTech Insights, Rick Huckstep spoke with Dan Preston, the CEO of pay-per-mile auto insurer Metromile.

SAMSUNG CAMERA PICTURES

Value trumps price, hands down, every time!

Metromile was ahead of its time when it comes to digital engagement. This is the world of insurance protection where customers buy insurance cover because of the continuing value it provides, not just because of the price it is offered at.

In recent times, the buying of insurance has become associated with searching for the cheapest price. Online buying guides advise customers to always shop around for the best price and never auto-renew. Even the regulators force statements on renewal notices to advise customers to shop around. This is commoditization in all its glory!

Which is good for consumers, right? Maybe at the point of sale, but, when insurance is sold below premium, it means someone else is paying for it. Until renewal time, when premiums are increased significantly.

All this does is irritate the customer, further diminish trust in insurance and cause the customer to start all over again looking for a new insurer! What a waste of time and effort for everyone!

The case for digital engagement in insurance

The big problem in any price-driven market is that cost of sales is a killer. Price points only ever go down, sales and marketing costs don’t (not at the same pace anyway), and this continually squeezes the whole supply chain. In the intermediated world of personal lines insurance, the addition of friction and inefficiency simply compound the cost (and margin) issue for insurers.

No matter how hard the insurer tries to build and promote a trusted brand, the uncertainty of premium pricing always undermines it.

The building of brand loyalty takes time, and insurers don’t hang on to customers long enough to do so. For traditional insurers, their only opportunity to show value is through the claims experience. However, all too often, the insurer fails to seize the day and ends up disappointing the customer. (Read “Democratizing insurance claims restores trust for customers” and the RightIndem solution)

And yet customer feedback clearly shows they want more in the way of value. And are willing to pay for it!

See also: How Sharing Economy Can Fuel Growth  

Earlier this month, at the Digital Insurer conference in Singapore, James Eardley from SAP Hybris presented the findings of a current report from Ovum, “Driving Engagement through Value Creation.” The report found that customers would pay higher premiums for value engagement.

Interestingly, when you look at the demographics, the Under-35s showed the highest willingness to pay more.

Turning the Insurance Product Into a Lifestyle Product

The advances in digital technology in the last decade have given insurers the means by which they can create “sticky” insurance products. Once they’ve “won” a customer, they can now hang on to that customer. They use enabling tech such as telematics, mobile apps, wearables and IoT devices to create ways of connecting and engaging with customers continuously.

As a result, we’ve seen the introduction of digital engagement products based on new sources of data, personalized to the specific risk conditions of the customer. These new technologies enable insurers to radically shift from being the provider of an enforced product to a provider of a value-added service. The adoption of this enabling technology gives insurers the ability to dynamically improve risk ratings, to personalize premiums and adjust policy conditions on a continuing basis. The traditional approach of a single, point in time questionnaire can be replaced by a continuing assessment and review approach enabled by these new technologies.

As Maria Ferrante-Schepis writes in Flirting With the Uninterested, “Insurance companies, when you really think about it, are not just in the protection business. They are in the ‘lifestyle continuity business.’”

Digital engagement insurance in action

Great examples in life and health are Vitality and Oscar along with insurtech platforms such as Fitsense and Sureify. Here, wearable devices combined with mobile apps enable digital engagement with the insurance brand to promote a healthy lifestyle. In so doing, the app becomes a lifestyle product, part of the customer’s daily routine. This makes it a lot harder to churn come renewal time.

I covered this previously here about wearables and digital engagement in life and health.

In home, the adoption of IoT devices has done more than (just) create a means for digital engagement. The IoT-enabled smart home moves the insurer into the loss-prevention space. Now, insurers can build insurance products that are focused on preventing the loss altogether. (Read about IoT and loss prevention in this article about digital engagement in home insurance.)

The latest example to catch my eye comes from the innovation team at Halifax, the U.K.’s third largest general insurer with 3.2 million customers.

Bringing together a number of insurtechs, the Halifax home insurance app is built on Surely’s insurance platform as a service.

Surely provides the core insurance functions and integrates with third-party data sources to provide loss prevention and mitigation. These data services include Fing to connect all smart devices together, HomeServe Labs, which uses its Leakbot for water leak detection, and Fibaro for fire detection. The platform also connects to presence and entry-detection sensors, such as Samsung SmartThings, and all sensors are integrated into the app and provide the Halifax customer with up-to-date information about his house and home contents.

The Halifax app even takes a weather feed to warn of extreme weather conditions that can affect the home.

Prevention is always better than cure, right!?

Metromile is the pioneer of digital engagement

When it comes to auto, the combination of in-car telematics and mobile phone tech has seen the launch of pay-as-you-go and pay-how-you-drive insurance products. It’s a subject I’ve covered before, including articles like this featuring U.K. on-demand auto insurer Cuvva.

The real expert on this subject at the Digital Insurer is Andrew Dart, who writes our Connected Insurer page.

Which brings me to the main subject of this month’s article – Metromile.

It represents everything that defines #InsurTech as we know it today, and yet it pre-dates the social media tag by half a decade! Metromile is a seven-year-old U.S. auto insurer I first wrote about back in 2015. The business model is based on a pay-per-mile insurance product, which is wrapped with other services to enhance the car ownership experience for customers.

To enable continuous customer engagement, Metromile uses tech in the form of the Metromile Pulse (a device that plugs into the car’s on-board diagnostic port) and a smart driving app on the customer’s mobile. The company recently announced Series C and D investment rounds that took the total money raised to $205 million. It’s an impressive sum that puts the company in the insurtech fundraising upper quartile.

You can watch the firm’s CEO Dan Preston explain the Metromile insurance product in this short YouTube video.

The thing that struck me about Metromile is that it doesn’t say anything about “insurance” when they describe what they do. Here’s what they say “About Us” on their website:

At Metromile, our mission is to empower drivers by creating a more connected and informed car ownership experience.

By taking our deep understanding of data and transforming it into information and services that make having a car less expensive, more convenient and smarter, we aim to make the urban car experience as simple as it can be. And for some, we hope to make car ownership a possibility where it wasn’t before.

They’ve literally taken an insurance product and turned it into a lifestyle product!

Leveling the playing field for low-mileage drivers

When it comes to auto insurance, the main risk factor is how often drivers are on the road. If you’re not on the road, then factors such as claims history, driving behavior or condition of car are insignificant. In the case of auto, those who don’t drive very much subsidize the higher-mileage drivers. This is because traditional auto insurance products take a blunt-instrument approach to assessing driving time.

See also: Cyber Insurance Needs Automated Security  

Metromile says that customers can save on average $500/year on auto insurance (which is roughly 40% to 50% of the typical cost of insurance). You will see something similar in the U.K. from Cuvva. The company claims its pay-as-you-drive insurance can save drivers as much as 70% of traditional insurance premiums.

Creating value that EVERY insurance customer gets

In a recent call I had with CEO Dan Preston, I asked him about digital engagement and the Metromile model. He told me, “There are typically three interactions the insurer has with their customers. When they sell a policy, when they renew and when they receive a claim. There’s nothing in those interactions that adds value. Even the claims process is so full of friction that it becomes an unpleasant experience for the customer. It’s the place where NPS [Net Promoter Score] goes to die!

“When we started Metromile we quickly learned that customers want more than just a good claims experience. They want value through digital engagement.”

Metromile provides a frictionless claims experience with their new AI claims assistant, AVA. (PRNewsfoto/Metromile)

Here’s the thing that Metromile figured out early. By creating value over and above the insurance product, the company creates value that EVERY Metromile customer benefits from, not just those who might go through a successful claims experience.

Dan explained, “We set out to build Metromile into more than just an insurance business. We wanted to help our customers manage the cost of running a car. This includes everything from maintenance and regular servicing, to parking and speeding tickets.

“One of the early features on the app was a feature to help drivers avoid parking tickets by informing them of street sweeping schedules. We took publicly available data in the San Francisco area and laid that over our customers’ movements. Using the app, we were able to direct customers to parking areas that would not risk parking tickets. Some customers reported that the savings in parking fees more than paid for the cost of our insurance!”

Dan explained, “Ultimately it became a data collection exercise for us to collect data unique to the car and the driver as we went into new areas. In many places, the data we needed was in PDF format. We found ways to extract the data and still provide the features in the app.”

As Metromile moved into new jurisdictions, the company found that the data it wanted and needed to support the value-added services in the app were not always universally available.

Metromile’s win-win through value and loyalty

This is the real point of digital engagement – creating a win-win.

The customer gets value from the digital engagement with a lifestyle product (and tangible benefits such as lower parking fines!). And insurers see less churn, better (risk) data about customers and a greater sense of loyalty/connection/trust.

This is where behavioral economics kick in. It is this sense of trust and loyalty that directly links to lower levels of claims fraud and embellishment. (See Lemonade).

None of this would be possible in a traditional auto insurance product. Metromile has exploited technology to enable this digital engagement. The key is the Metromile Pulse: a dongle that customers plug into their car to read the on-board telematics data and that connects to the mobile phone and the Metromile app.

This allows Metromile to know when the car is being driven and when it is not. In turn, this allows Metromile to price on a per-mile basis for insurance, turning it off and on accordingly.

Metromile’s AVA delivers an automated claims experience

Metromile’s latest tech addition enables an automated claims experience. At the time of an incident, data captured by the app and the dongle is used by Metromile to settle a large number of claims. Many of them automatically and instantly.

See also: Effective Strategies for Buying Auto Insurance  

The company can do this because it is not waiting on a claims adjuster to collect information to support a claim. Instead, through the customer’s Pulse device, Metromile is able in many cases to verify and validate a claim without human intervention. In these scenarios, there is no reason to not pay a claim instantly.

The turning point for Metromile came about a year ago when it became a fully licensed carrier. Dan told me, “We’ve been handling claims in-house for about year now. In that time we’ve launched AVA, our AI claims assistant and the most exciting product launch to date at Metromile! We wanted to create a different experience for customers, one that was different to the traditional experience, with much less friction for customers.

“For the customer, all they want is to get back on the road. But for the traditional carrier, they won’t settle until they’ve got all the evidence that they need to justify the claim. In the traditional claims experience, often the problem is that the carrier only has the word of the customer to go on. Trust isn’t very strong in this relationship, and the result is that it takes time.

 “With Metromile, the Pulse can verify what the customer is telling us. Our tech can verify facts such as speed and location and time. The customer doesn’t need to provide this data because we already have it. This leads to instant payout or for the Metromile app to organize the repair and servicing of the vehicle.

“It’s another win-win because the instant and automated approach delivers a better customer experience by reducing cycle time and making it easy to claim. For Metromile, it lowers the cost of handling claims, which benefits customers in the long run by lowering premiums.”

(See here for more on chatbots, AI and customer engagement)

The lesson for insurers: Give more to Get back more

So there you have it! Everyone’s a winner when the insurance product is built around a digital engagement model. Customers get value from the money they’ve paid for their insurance purchase (not just a safety net if they suffer a loss). Insurers get value from lower customer acquisition costs, less churn, lower operating costs and reduced fraud.

They also get one step closer to one of the biggest innovations from insurtech – personalization (and that’s a story for another day!).

10 Insurtech Trends at the Crossroads

The emergence of insurtech has reshaped the strategic insurance agenda. Here are the top 10 insurtech trends as we enter 2018.

Insurtech Trend #1 – Automation will replace human effort across the entire insurance value chain

This is a trend that is not unique to insurance. But it is a trend that will significantly affect the insurance sector. This is because much of the insurance industry still operates in pre-internet ways. It is also because many personal lines are being atomized. Small parcels of insurance protection cannot be packaged and sold with human input and remain cost-effective. It is also because customers demand it. They want a purely digital experience that does not require human contact when a machine will do nicely, thank you.

One to watch: ZhongAn

Insurtech trends article: Is the Rise of the Digital Advisor the new InsurTech Game Changer?

Insurtech Trend #2 – Insurance premiums will become highly personalized based on greater tech-enabled insight on customers and their individual risk

When you add together the massive growth in new sources of data together with tech-enabled data science, it is inevitable that premiums will become highly personalized. This will be enabled by tech such as wearables, telematics, IoT and smartphone apps. Not to mention the ability to build insights through relationships that exists across data sets. Gone will be the days when people of the same age and gender, with identical cars or homes living on the same street, will pay the same premium. In the future, other factors will apply to reflect greater granularity in their individual risk profiles. Data science will become a key set for underwriters and actuaries.

One to watch: Sherpa

Insurtech trends article: Insurance distribution is about to get personal

Insurtech Trend #3 – The blockchain era has begun, and there will be a rapid shift from pilot to production of distributed ledger technology

It is hard to find a major insurer that is not involved one way or another with a blockchain initiative. This will only continue as this disruptive tech continues to prove its ability to provide a viable solution. Of course, there are still some big questions to answer in terms of scale, performance and security, but those answers will come. The big breakthrough in insurance for blockchain will be in the back office for the complex and global world of wholesale, commercial and reinsurance (which is desperately in need of moving into the internet age).

One to watch: ChainThat

Insurtech trends article: R3’s partnership with ChainThat is one giant leap for insurance

See also: Insurtech: The Year in Review  

Insurtech Trend #4 – The lines between the old and new will blur as insurtech becomes mainstream by 2020

The defining characteristic of the Fourth Industrial Revolution is speed of change. This certainly applies to insurtech and its impact on the world of insurance. The rate at which insurtech startups are popping up all over the world is not surprising. Everyone wants a piece of this $7 trillion cake. The incumbents have responded, too. By investing in, partnering with and acquiring insurtechs, the incumbent insurers have wholly embraced the movement. This will lead to the creation of whole new digital brands, designed to cannibalize traditional business. And because it is simply too expensive and takes too long to transform legacy operations, the incumbents will ring fence and run them down.

One to watch: Munich Re

Insurtech trends article: Digital transformation is the strategic imperative no insurer can ignore

Insurtech Trend #5 – Digital engagement through lifestyle apps will change the relationship dynamic between insurer and insured

Lifestyle apps are the norm. It is hard to find anywhere in the world where this is not the case, so lifestyle apps are the perfect vehicle to provide the peace of mind that customers want when they buy insurance. Instead of the annual chore of hunting for the lowest-priced insurance then having nothing more to do with it unless you suffer a loss, lifestyle apps offer value on a daily basis. This makes them sticky, which, for insurers, means less churn. They also give insurers greater insight into their customers’ behavior, which means better-informed risk assessments and personalized premiums. And they build brand loyalty, which, if you believe in behavioral economics, will result in lower levels of claim embellishment and fraud.

One to watch: Metromile

Insurtech trends article: Metromile, the pioneers of digital engagement

Insurtech Trend #6 – The all-in-one insurance policy is here to stay

It has taken longer than I predicted back in 2015, but the all-in-one insurance policy is here. From a customer’s perspective, the all-in-one policy makes perfect sense. Especially for the millennials and Gen Y’s. Why can’t they simply have one relationship with one insurer and have everything covered in one go? And it’s not just for younger generations. Imagine giving the insurer the details about your car, home, health, travel, pets and possessions. The insurer gives you one overarching policy, a fair price and the ability to flexibly adjust the cover as needed. Operating on a membership model, the platform can provide safeguards and advise the customer on good and bad decisions. This is AI territory and relatively straightforward to automate. IMHO, this is a winner; watch this space!

One to watch: Getsafe

Insurtech trends article: Getsafe take the Lemonade model one step further

Insurtech Trend #7 – New models will challenge the traditional insurance value chain 

In the digital economy, where insurance is embedded into lifestyle products or distributed through ecosystems, the traditional insurance model doesn’t work. The inherent inefficiency in a highly intermediated value chain, too dependent on human effort, makes insurance products expensive. When as much as 80% of premium is lost on distribution, leaving barely a fifth for the risk pool, you know something has to change. In the words of Jeff Bezos, “your fat margin is my opportunity.” These new models will see the carriers squeezed as the reinsurers provide risk capital directly to digital brands. Regulatory frameworks will be reworked to reflect these shorter value chains that don’t require the many layers they have today.

One to watch: Amazon

Insurtech trends article: Redefining the insurance value chain

Insurtech Trend #8 – Lemonade has set the pace in Insurtech 2.0; copycats will follow

The first phase of insurtech was all about distribution and data. Then came Lemonade. In September 2016, they launched in New York, and a year later they cover around 50% of the U.S. population with their renters and home insurance products. For me, Lemonade have defined Insurtech 2.0. Many insurtech startups claim to redefine or reinvent insurance, but they simply don’t, whereas Lemonade has. It is inevitable that the copycats will appear. Some will be insurtech startups, although they will need to be as well-marshaled, experienced and funded as the Lemonade team to have any chance of success. And some will be the incumbents, which will have a go at creating a Lemonade model from within. These will almost certainly fail!

One to watch: Lemonade

Insurtech trends article: Lemonade really do have a big heart, killer prices and instant everything

See also: Top 10 Insurtech Trends for 2018  

Insurtech Trend #9 – Claims settlement will become an automated, self-service and quick-to-pay experience for customers

Insurers spend too much of a customer’s premium on handling the claims process. This is because the process is manual. And because the carrier wants to double-check the claim. And because customers don’t always tell the truth. And because there is too much time in the whole process. And and and and and. The insurtech solution is to put the claims process in the hands of the customer. This sounds counter-intuitive, but it isn’t. Taking a self-service approach, the customer provides video and images at FNOL and is in control of the claims process. Automated reviews of claims handle the vast majority of cases and award instant payouts. The money can be with the customer in a matter of hours. No long processing cycles, no time to embellish the claim and high levels of customer satisfaction. Those that fail the automated review are the exceptions handled by the carrier, which is what they’re looking for anyway! This will become the norm for claims management, once the fears and resistance of the lifelong claims directors can be overcome.

One to watch: Rightindem

Insurtech trends article: Democratizing insurance claims restores trust for customers

Insurtech Trend #10 – Tech-enabled loss prevention will become a key feature in the insurance product

Advances in everyday technology are increasing the ability to predict the likelihood of an event or outcome occurring. In home and motor, tech is being used to model behavior and identify exceptions. Sensors and phones and devices are all collecting data that define our individual norm (as opposed to a collective norm). As a result, any deviation can be instantly assessed, and action can be taken. To handle scale, this is 100%-automated, driven by AI and machine learning. Which means the opportunity for insurance is immense, because, instead of being a passive risk taker (which carriers are today), insurers will become active risk managers.

One to watch: Surely

Insurtech trends article: Digital implementation is the strategy insurers have been looking for

Insurtech prediction lists from previous years 

Looking forward with insurtech Insights – 10 predictions for 2017

Daily Fintech’s 2016 predictions for InsurTech

Sign up for more insurtech Insights here

Lemonade Really Does Have a Big Heart

Twelve months ago, Lemonade opened for business. For me, it marked the start of a new chapter in the history of the insurance industry. To coincide with their launch, I posted this article after speaking with CEO and co-founder Daniel Schreiber. The headline was “insurance will never be the same again!”

Of course, it was easy for me to make such a grand pronouncement 12 months ago, on the day that Lemonade hit the street. At that time, they had no customers, had not written any insurance and had certainly never paid a claim.

One year on, and Lemonade is up and running. Was I right to say insurance would never be the same again? I caught up with Daniel again to find out!

Disruptive Innovation

First things first, let me set some context. A question I get asked a lot by insurers and industry folk is, “why should we be interested in what Lemonade are doing?” It’s a great question and exactly what they should be asking. (I also point out that they need to be really interested in what ZhongAn is doing, as well).

To massively over-simplify and paraphrase Clayton Christensen, Lemonade has brought simplicity, convenience and affordability to a marketplace where the existing offering is complicated, expensive and inaccessible.

This is why the incumbent insurers need to take note when Lemonade pays a claim in three seconds. Otherwise, they could end up like DEC. Once the market leaders in minicomputers, DEC dismissed the rise of PCs, only to watch helplessly as IBM and Apple ate their lunch with personal computers.

Or Kodak, the inventor of digital photography. The company was too wedded to an outdated business model that relied on people printing their photos. That was until it was too late, and Kodak went from being the world’s fourth largest brand to bankrupt in less than two decades!

Now, it might have taken about 15 years for the demise of Kodak and about 10 for DEC to wake up and smell the coffee. The point being that disruptive innovations don’t take hold overnight; they need time to gain traction and build momentum.

But in this digital age, this speed of change is increasing. This is the key characteristic in the World Economic Forum’s definition of the 4th Industrial Revolution. It took Google just five years to hit a $1 billion in revenues. And Amazon only four!

Just think about this for a second. A decade ago, we didn’t have the iPhone, the iPad, Kindle, Uber, AirBnB, Android, Spotify, Instagram, WhatsApp, 4G. Could you imagine life without these now? Could you conceive that insurance is going to change and for the better?

You trust me, and I will trust you

There is another reason why incumbent insurers should be watching Lemonade very closely. It has addressed the fundamental issue with insurance and customer perception, which is trust, behavior and the conflict of interest.

There’s a ton of research and data that shows customers don’t trust insurers. And for good reason.

Insurers make the product complicated by using fancy jargon that Joe and Josephine Bloggs can’t understand. Insurers get paid up front and then create hurdles and barriers when the customer rightfully asks the insurer to do what they’ve already paid them to do.

And worse, the customer has to prove they are not a liar to the insurer’s satisfaction before a penny is paid out.

“Insurance fraud has become a self-fulfilling prophecy for incumbent insurers,” Daniel said. “They don’t trust customers to be fair and honest. This drives their behavior toward customers. And guess what, customers respond accordingly. Which justifies the insurer’s behavior in the first place. It’s a vicious circle that neither side can break.”

See also: Lemonade’s New Push: Zero Everything  

Lemonade’s virtuous circle

This conflict of interest doesn’t exist in the Lemonade business model. By operating as a tech platform that is also an insurance carrier, Lemonade has separated cost of operations from the pool of risk capital. It has also raised the bar when it comes to total cost of operations at 20% GWP.

Lemonade don’t profit from non-payment of a claim (in the way an incumbent insurer does). The company starts by trusting customers to make honest claims. Which is why Lemonade pays out straight away, with around a third of claim payouts fully automated. No human intervention at all.

Lemonade accepts that there are a few bad apples but works on the premise that most of us are fundamentally decent people.

It is usually at this point that the diehards and old laggards of the insurance industry start throwing fraud and loss data at me. Citing decades of data that proves Lemonade will eventually crash and burn under the weight of inflated and illegal claims.

My response is always the same “hands up everyone who is a bad person.” Of course, no hands go up because the vast majority of us are decent, respectful, honest people.

Which is why Lemonade has now had six, yes ,SIX, customers who have handed claims payouts back.

Just think about this for a moment.

A customer makes a claim (in seconds), gets paid (immediately), finds the situation has changed (later), realizes he got paid too much (oops!), then gives the payment back (you kidding me?).

Could the customer’s behavior be directly related to Lemonade’s behavior?

Yes, certainly! You only have to look at customer behavior at Grameen Bank in Bangladesh to see that trust can be relied  upon. Here, unsecured personal loans are repaid on time without the need for credit scores and debt collection agencies.

You don’t have to take my word for it, either. Hot out of the oven is this video of Lemonade customers in New York.

So, what’s the story, one year on?

Lemonade has been true to its word on the subject of transparency.

Throughout the year, the company has published its numbers, warts and all, for everyone to see. Building and maintaining trust is fundamental to Lemonade’s business model, and this starts with being open and honest.

Daniel has shared with me the latest numbers, and they are very impressive. I won’t repeat them here, because I know the team will be posting them all shortly in the latest Transparency Chronicles. They’re proud of the numbers, and rightly so.

See also: Lemonade: World’s First Live Policy  

All I will say is that Daniel and the team have steered a considered and thoughtful course in their first year. They could have chased the numbers, as many first year startups would do, only to regret the quality of business they end up with.

But Lemonade’s team has stuck to their knitting, have impressive growth numbers, a quality customer base completely aligned to the brand and are now licensed in 18 states (with more to follow).

Our job has only just started,” Daniel said. “Over the next year, we will continue to make insurance easier and better for our customers. One area we’ve started to look at now is the underlying insurance language and the products that form the heart of all insurance.”

Are you surprised?

You shouldn’t be! Lemonade is a highly professional startup and will no doubt become the definitive case study for exactly how “it” should be done.

But has this surprised Daniel?

“There are two things that have surprised us this year,” Daniel told me. “First, the extent of the warm reception we’ve received across the industry and from customers. We hoped customers would like us, but we never took for it granted.

“After all, you can’t beta test a new insurance company. The MVP (minimally viable product) approach simply doesn’t apply to insurance. It’s regulated and has to be the real deal from the get-go, right first time. So, for us, having customers put their faith in Lemonade from Day One has been very satisfying.

“The second is that our faith in humanity and behavioral economics has been affirmed. There will always be people who want to game the system, but on the whole, all our expectations about customer behavior have been exceeded.

“Who would have thought we would have six customers who gave their claim payouts back. That is very gratifying and also humbling for us. And gives us encouragement to continue doing what we are doing.”

Lemonade is live; insurance will never be the same again!

For me, I’m convinced. Historians will look back to Sept. 21, 2016, the day that Lemonade opened for business, as a watershed for the insurance industry.

Which means, of course, that the key question now is, who among the incumbent insurers will provide the Kodak moment? The one who simply missed that the world had changed until it was too late.

HiThere: the Insurer of the Future?

HiThere, the ambitious Dutch startup, wants to reinvent insurance. They strongly believe they can improve the quality of life by providing customers a safety net through insurance. This safety net should be affordable and available to everyone all over the world.

So that is why they decided to build their own unique platform: HiThere. A fully automated, modular back-office insurance platform that integrates the back-office seamlessly with the front-end, operates securely in the cloud, is accessible for customers, intermediaries and the insurer and is able to deal in a fully automated way with all life insurance products – closed books and open books – in a fast and flexible way. It is possible to provide personalized premium quotes, based on AI and advanced analytics.

HiThere started from scratch and did not have to keep existing, outdated systems in the air.

By making progress in the six key dimensions discussed in the McKinsey report, the making of a Digital Insurer, they build a brand-new insurer based on the latest insights, new regulatory demands, greater administrative efficiency, growing cost pressure and digital transformation. The total amount invested in the current HiThere application is around € 4 mln.

McKinsey (The Making of a Digital Insurer)

See also: Lemonade: Interview With CEO  

Advantages of a fully automated back-office

HiThere has full, digitized processes, the latest data analysis technology and is not bound to a physical location. It offers great cost reduction, pricing based on pay per policy, personalized premium quotes and the ability to provide all the required business information real time to all the stakeholders. Handling the whole life insurance back-office chain in a fully automated way.

The startup concentrates on designing creative and new ways to involve their customers and thereby radically improve customer experience. This will ensure that it becomes part of a much larger service platform that consists of a community of companies around the customer with all the services that he needs.

Digital platform for funeral insurance

The HiThere team developed tailor-made software for the funeral and cremation association Bleijerheide (BCB) in Kerkrade. They automated all the processes and created a full digital platform. New members can sign up online and existing members can make changes online at any time and view their information. All automatically and fully automatically processed in the BCB administration. The HiThere team also manages the actuarial consulting, the auditing and asset management. The membership administration, sending invoices and making transactions are now completed a flip of a coin. The contributions are automatically generated via HiThere, which greatly accelerate and simplifies the collection process.

Why we selected HiThere for DIA Munich

HiThere is reinventing insurance. In the current environment of rapid change, core processing, data analytics and digital engagement hold the potential to optimize the insurance lifecycle. HiThere is built on these pillars whilst putting the customer at the center of the business.

With their digital platform for BCB they showcased their abilities. We’re very pleased HiThere wants to showcase their game-changing approach at DIA Munich.

See also: Innovation: ‘Where Do We Start?’  

Who is HiThere?

HiThere is founded in 2016 by Ruud Kleynen, owner of Kleynen Consultants and associate Member Maastricht Centre for Taxation, Maastricht University. The HiThere crew are actuaries and econometricians with a profound background in IT. They call themselves: the Game Changers.