Tag Archives: nicholas lamparelli

Examining Potential of Peer-to-Peer Insurers

Recently, I wrote an article where I outlined a simple modeling framework I use when I try to predict how a new insurance product or new insurtech startup is likely to perform. In this article, I will walk through an example to give you a play-by-play on how to put this simple mental model to use.

Can Peer-to-Peer Insurance Succeed?

Peer-to-peer business models really came into their own in the financial arena, where companies such as Prosper and Lending Club were able to create platforms that allowed individuals to loan funds directly to one another. As a Prosper investor, I still recall how neat it was that I could loan a family $25 and be part of a pool of like-minded people who were looking to help others and make a little bit more money than a bank account. (Disclaimer: You can lose your money, too. I have had several borrowers default, and you will need to make up for it on those accounts that don’t default).

Investors, always a group looking for the next unicorn, have applied principles of P2P to others businesses, as well, such as car sharing and file sharing. Even digital currencies such as Bitcoin are P2P-based. Not surprisingly, investors and entrepreneurs are looking into whether P2P would work well in the seemingly tattered insurance industry. Companies such as Lemonade, Guevara and Friendsurance are already selling policies and making a name for themselves. InsNerds.com was very lucky to have Dylan Bourguignon of So-sure insurance, a complete P2P insurer, write an article for us on the topic (be sure to read this article if you want a breakdown from the point of view of an insurer).

See also: 3rd Wave of P2P Insurance  

Let’s walk P2P insurance through the model framework and see what all stakeholders need to see.

Exposure

The exposure component is the one that deals with claims; past, present and future. The P2P model looks to reduce the frequency and severity of losses by reducing the desire among policyholders to make bogus claims. Because policyholders in a P2P model have some affiliation with each other, the hypothesis is that this connection will prevent policyholders from harming their peers. This seems intuitively possible. If it is true, what would that mean to the insurance coverage?

Fraud is estimated to add 10% to losses in property/casualty insurance. That would equal approximately $34 billion a year! Fraud is most typically investigated in workers’ compensation, auto and health insurance (not necessarily in this order). Traditional insurers spend a lot of money rooting out fraud. Big data vendors such as Verisk and Valen have commercial models available for both workers’ compensation and auto — even homeowners insurance isn’t immune. Reports of widespread false claims after Hurricane Katrina were documented.

The difference between what traditional carriers do and what P2P offers is that P2P subtly promises to remove the fraud BEFORE it happens, while today’s fraud is only caught during the fraud or afterward. If P2P can fulfill this promise, there is a tremendous amount of value it can provide to the market.

If I were an investor, I would look for companies that can show that their P2P network has very tight ties. As the network gets larger, it seems unlikely that the strong ties can be maintained, and you begin to lose the ability to have shame or other social pressures keep fraud under control. Any technology that can strengthen the ties to large portfolio scale could be immensely valuable.

I’ve written about Lemonade, and while the company no longer considers itself P2P, the initial “technology” was to group like-minded homeowners or renters together, and give any excess year end profits to a charity of their choice. If you are following along with where I am going with this, you may see some of the flaws in the model. First, homeowners insurance isn’t in the big three for fraud, so the potential benefits are not nearly as big as they would be in auto or workers’ compensation. Second, I didn’t really see any proprietary technology that could give Lemonade a leg up on any competitors. From all of the press releases, the P2P networks seemed easy to copy, as is Lemonade’s charity angle. That Lemonade dropped its P2P marketing seems to have confirmed that that part of the business model probably would not have produced worthwhile value. As an investor, I’d like to see a direct line to fraud reduction and truly big potential to drop the investments now being committed to detecting fraud, post-event.

P2P needs to bring some new type of configuration of insurance that meets needs not currently being met. The insurers mentioned above are tackling industries with heavyweight competition. I see an opportunity for P2P to unite common insureds in a way that provides coverage or risk reduction in areas where coverage is difficult to obtain or just doesn’t exist. In California, earthquake deductibles are very large. It seems reasonable that property owners could unite to buy coverage to protect each other against losses arising from the combined deductibles. There’s a similar case to be made for flood. I imagine these P2P insurers almost acting as public captives covering very niche risks for similar insureds.

Distribution

The distribution component of the framework deals with how companies market to and sell to customers. In the P2P model, there is a heavy emphasis on the social element, like-minded insureds telling other like-minded insureds to join. Most P2P insurers are direct to consumer. Thus, P2P insurers must depend heavily on their insured network to do much of the heavy lifting for them, whether that’s through word of mouth or via social media.

If I were an investor looking into this area, I’d want to see some proof of concept that value can be created here to some scale. Brokers get paid well for a reason: it is expensive to find and maintain insurance customers. Advertising on Facebook is more expensive than you think, and, if you are using Adwords, you are competing against GEICO, State Farm and other large insurance companies. Good luck with that.

See also: Is P2P a Realistic Alternative?  

Ultimately, I think distribution will directly depend on the product development and what was discussed in EXPOSURE above. P2P insurers must be able to differentiate themselves. Take Lemonade. As a home and rental insurer, is Lemonade different than a traditional home insurer? Yes. Is it 10x better? I don’t think so. The product is nearly identical; only the customer experience is truly different. It is exceptional, but will that alone be enough to drive customers to buy policies? I think it will, but not by enough of a margin for Lemonade to deliver Uber-like returns. That’s not happening.

Capital

Insurance is a capital-intensive business. To start a plain-vanilla company in most states requires $5 million to $10 million in surplus capital. This is capital that is above and beyond capital that is used to pay for claims. That capital must be invested into the highest-quality securities (generally government bonds and AA corporates). Any startup that is more complicated than “vanilla” needs more capital. And any expansion into other states will require still more capital.All of this capital is needed even if you only have one on your books and even if you are ceding all of your business to reinsurers. Startup insurers are behind the eight ball right from the get go and are at a massive disadvantage when compared with the big guns.

State Farm has surplus in the tens of billions of dollars. Those are funds State Farm can invest and through which it can generate investment income that can be used to offset other costs in their. Startup insurers can’t do that and are very vulnerable to any large loss and thus require heavy partnerships. And that isn’t cheap! For startups, cost of capital is very high, and those costs must be reflected in the premium.

This is why Lemonade’s expansion across the U.S. is head-scratching. Though Lemonade is not a P2P, as a startup much of its newly acquired capital for this expansion is sitting in bonds. Unless there is some other news that we are not privy to, using B-round capital as a portfolio does not seem to be a great use of funds. This is a lesson for other P2Ps. An entire P2P strategy can collapse if the capital structure is not maximized. If I were an investor looking at this field, I’d want the P2P to be partnering with a capital source that already has scale, so that the P2P can focus on product differentiation and distribution.

Operations

P2P insurers have a terrific advantage in this area. Being born in the digital age means that these insurers can skip over legacy systems and go directly to an entirely modern platform. I would want to see seamless integration and movement of data between marketing, binding, policy issuance, accounting and claims management. I would want to see the ability to easily capture data at the front end, augment data during the lifecycle and put that data to work in integrated plug-and-play models.

See also: P2P Start-Ups From Around the World  

For P2P insurers, Lemonade is providing the blueprint for how this should be done. (By the way, big-time kudos to Lemonade for being so transparent and allowing curmudgeons like me to nitpick the business model). Lemonade’s integration of chatbots to eliminate human intervention in the purchasing of and the filing of claims seems to be an operations winner thus far. In this model, we should expect to see overhead expenses drop. Expenses associated with losses should also drop. If the P2P was not able to show significant decreases in expense, then something is terribly wrong.

Summary

I love the concept of P2P. But I don’t think it will ultimately become a great way to invest venture funds. I just don’t think the returns will justify the risks. P2P insurers should be able to provide significant value in operations. If they can differentiate product development, they should be able to attract customers who would be interested in their products. BUT…I think P2P insurers are not going to find very large markets for their niche products. Because of this, distribution costs will be higher than they expect, and they will suffer from capital costs unless they form the right partnerships. Those really inexpensive Lemonade rates likely won’t last. P2P prices may not end up cheap as capital and distribution costs overwhelm advantages obtained in potential decreases in fraud costs and operational efficiencies.

P2P insurance is full of potential, and as a model, will behave more like traditional MGAs. The potential for supersized returns is not high.

This article first appeared at InsNerds.com.

A Simple Model to Assess Insurtechs

“The paradox of teaching entrepreneurship is that such a formula necessarily cannot exist; because every innovation is new and unique, no authority can prescribe in concrete terms how to be innovative.”

― Peter Thiel, Zero to One

Whether we’re talking about telematics, artificial intelligence (AI), digital distribution or peer-to-peer, investing in insurance-related technology (commonly termed “insuretech” or “insurtech”) is no longer considered boring. In fact, insurtech is one of the hottest investable segments in the market. As a 20-plus-year veteran in insurance, I find it surreal that insurance has become this hip. Twenty years ago, I gulped as I sent an email to the CFO of my company, where I proposed that there was a unique opportunity in renters insurance. That particular email was ignored. Today, that idea is worth millions of dollars.

What changed?

Insurance seems to be the latest in a string of industries caught in the crosshairs on venture capital. With the success of Uber and AirBnB, VCs are now looking for the next stale industry to disrupt, and the insurance industry carries the reputation of being about as stale as they come. The VCs view the needless paperwork, cumbersome purchasing processes, dramatic claims settlement and overall old-school look and feel of the industry and think they can siphon those trillions of dollars of premium over to Silicon Valley. It seems like a reasonable thesis.

The problem is, it’s not going to happen that way. Insurance will NOT be disrupted. While insurance looks old and antiquated on the exterior, it is actually quite modern and vibrant on the interior. The insurance industry is actually the Uncle Drew of businesses; it’s just getting warmed up!

The Model

Much of the reason I think VCs are unaware of their doomed quest for insurance disruption is that they are looking at the market from a premium standpoint and envisioning being able to capture large chunks of it. $5 trillion is a lot of money. Without an appropriate model, an outsider coming into insurance can naively think they can capture even a fraction of this. But premium is strongly tied to losses. Those premium dollars are accounted for in future claims.

I once had a VC ask me what the fastest way to $100 million in revenue was. The answer is easy, “slash the premium.” I had to quickly follow up with, “and be prepared to be go insolvent, as there is no digging yourself out of that hole.” He didn’t quite get it, until I walked him through what happens to a dollar of premium as it enters the system. And it was this that became the basis of the model I use to assess new product formation and insurtech startups.

There are four basic components to my model. Regardless of new entrants, new products or new sources of capital, these four components remain everpresent in any insurance business model. Even if a disruptive force was able to penetrate the industry veil, that force would still need to reflect its value proposition within my four components.

Component 1 – EXPOSURE

This is the component that deals with insurance claims: past, present and future. Companies or products looking to capture value here must be able to reduce, prevent, quantify or economically transfer current or new risks or losses. Subcomponents in this category include expenses arising from fraud and the adjustment of claims, both of which can add substantially to overall losses.

See also: Insurance Coverage Porn  

Startups such as Nest are building products that increase home security by decreasing the likelihood of burglary (or increasing the likelihood of capturing the criminals on video) and thus reduce claims associated with burglary or theft. Part of assessing the value proposition of Nest is to first understand the magnitude of the claims associated with burglary and theft and then quantify what relief this product could provide (along with how that relief should be shared among stakeholders).

Another company that is doing some interesting things in this model component is Livegenic (disclaimer: I have become friends with the team). Livegenic allows insurers to adjust claims and capture video and imagery using the mobile phone of the insured. This reduces the expenses associated with having to send an adjuster out to each and every claim. Loss adjustment expenses can be in excess of 10% of all claims, so technology that reduces that by a few basis points can be quite valuable to an insurer’s bottom line and ultimately its prices and competitiveness.

Component 2 – DISTRIBUTION

This component focuses on the expenses associated with getting insurance product into the hands of a customer. Insurtech companies in this space are typically focused on driving down commissions. This can be done by eliminating brokers and going directly to customers. Savings can also be achieved by creating efficient marketplace portals that allow customers to easily buy coverage.

Embroker is one of many companies trying to do just that in the small commercial space by creating a fully digital business insurance experience. Companies such as Denim Labs are providing social and mobile marketing services to companies in insurance. And then there is Lemonade, which is developing AI technology that it hopes will reduce the friction of digitally purchasing (its) insurance and making the buying process “delightful.”  Peer-to-peer (P2P) insurance is a fairly new insurtech distribution model that attempts to use the strength of close ties via social methods for friends and close associates to come together to make their own insurance pools.

Distribution expenses in insurance are some of the highest in any industry. As with the risk component, reducing expenses in this component by even a few basis points is incredibly valuable.

Component 3 – CAPITAL

This component focuses on the expenses associated with providing capital or the reinsurance backstop to a risk or portfolio. For many insurers, reinsurance is the largest expense component in the P&L. Capital is such an important component to the business model that the ramifications of it almost always leak into the other components. This was one of my criticisms of  Lemonade recently. Lemonade will have a lot of difficulty executing some of the aspects of its business model simply because it cedes 100% of its business to reinsurers. So, when it comes to pricing or its general underwriting guidelines, its reinsurance expenses will overwhelm other initiatives. Lemonade can’t be the low-cost provider AND a peer-to-peer distributor because its reinsurance expenses will force it to choose one or the other. This is a nuance that many VCs will miss in their evaluation of insurtechs!

For those seeking disruption in insurance, we have historical precedent of what that might look like based on the last 20 years of alternative capital flooding into the insurance space. I will devote space to this in future articles, but, in brief, this alternative capital has made reinsurance so inexpensive that smaller reinsurers are facing an existential crisis.

Companies such as Nephila Capital and Fermat Capital are the Ubers of insurance. Their ability to connect investors closer to the insurance customer along with their ability to package and securitize tranches of risk have shrunk capital expenses tremendously. Profit margins for reinsurers are collapsing, and new business models are shrinking the insurance stack. It is even possible today to bypass BOTH veritable insurers and reinsurers and put the capital markets in closer contact with customers. (If you are a fan of Michael Lewis and insurance, you will enjoy this article, which ties nicely into this section of the article).

In the insurtech space, VCs are actually behind the game. Alternative capital has already disrupted the space, and many of the investments that VCs are making are in the other components I have highlighted. Because of the size of this component, VCs may have already missed most of the huge returns.

Component 4 – OPERATIONS

The final component is often the one overlooked. Operations includes all of the other expenses not associated with the actual risk, backing the risk or transferring the risk from customer to capital. This component includes regulatory compliance, overhead, IT operations, real estate, product development and staff, just to name a few.

It is often overlooked because it is the least connected to actually insuring a risk, but it is vitally important to the health and viability of an insurer. Mistakes here can have major ramifications. Errors in compliance can lead to regulatory problems; errors in IT infrastructure can lead to legacy issues that become very expensive to resolve. I don’t know a single mainstream insurer that does not have a legacy infrastructure that is impinging on its ability to execute its business plan. Companies such as Majesco are building cloud-based insurance platforms seeking to solve that problem.

See also: Why AI Will Transform Insurance  

It is this component of the business model that allows an insurer to be nimble, to get products to market faster, to outpace its competitors. It’s not a component that necessarily drives financial statements in the short term, but in the long run it can be the friction that grinds everything down to a halt or not.

SUMMARY

I have presented a simple model that I use when I assess not just new insurtech companies but also new insurance products coming into the market. By breaking the insurance chain into these immutable components, I can estimate what impact the solution proposed will provide. In general, the bigger the impact and the more components a solution touches the more valuable it will be.

In future articles, I will use this model to assess the insurtech landscape. I will also use this model to assess how VCs are investing their capital and whether they are scrutinizing the opportunities as well as they should, or just falling prey to the fear of missing out.

Originally published at www.insnerds.com,

On-Demand Insurance: Ultimately a Bust?

In the past several years, mobile technology has allowed economic transactions to get accomplished with little to no effort. Companies like Uber and Airbnb are leading the way, with business models that conveniently match supply and demand of livery and temporary housing in a way that has truly revolutionized how we go about our day-to-day lives. These new business models are often described as the on-demand economy, where customers: (1) obtain access to services, when they need it and (2) only pay per use.

Going Beyond Uber and Airbnb

On-demand solutions have spawned into new industries such as pet sitting, food and laundry delivery, event planning and, more recently, insurance. Innovative entrepreneurs are bringing this exciting business model to insurance…and I think it’s a terrible idea.

Insurance is unlike any other business. An Uber user gets a ride, an Airbnb user gets a place to stay. There’s an instant gratification that doesn’t exist in an insurance transaction, because, in insurance, the user gets a promise. A promise! That’s it. Basically, an insurance customer pays and then waits for the promise to materialize in the form of a paid claim. This lack of instant gratification makes extending on-demand, pay-per-use models into insurance untenable in the long run.

Here’s How

In an on-demand or pay-per-use business model, when do you think insurance buyers will most want to buy insurance? Logic says, just before they are likely to need it. Consider Trōv, “the world’s first on-demand insurance for your things. With Trōv, you can protect just the things you want, exactly when you want, entirely from your phone. You can also easily organize important information about the things you own and back it up to the cloud, so it’s accessible when needed.” Admittedly, the app is nifty. The look and feel is fantastic and will really appeal to the new generation of insurance shoppers who wish to do everything on their phones. I can take a picture of my laptop, swipe, and it’s insured. Very easy.

Perhaps a little bit too easy.

See also: On-Demand Insurance: What’s at Stake  

Flaw #1: Bad Economics

Put yourself in the shoes of a user and ask yourself, when will you most likely perform this transaction? Are you more likely to swipe-to-insure when the laptop is nicely tucked away in your bag, in your house, over a cozy, snowy weekend, when you are there to protect it…OR…are you more likely to insure it when you are traveling to a 2,000-person conference in New York City, staying in an Airbnb shared space? Odds are, in the on-demand insurance world, you will more likely buy coverage just before you’re likely to use it. Not to say that all insureds will do this, but rather that enough will, which will make the loss costs for the products insured higher than the same exposure in a traditional insurance product. And if loss costs are higher, so are the premiums.

In other words, in this pay-per-use insurance model, the cost per unit of exposure will be significantly higher than in the traditional insurance model. And this is without even accounting for fraud. Imagine being able to get a new laptop every two to three years by insuring your old one just before it is mysteriously stolen? The economics scream that this won’t work!

You can’t “on-demand” a promise. The promise itself is intangible, and users will only perceive value if they’ve actually used the product — in direct contrast to insurers’ objectives.

Flaw #2: Increased Interaction With an Insurance Company

Another flaw in this model is that it’s incumbent on the buyer to turn coverage on and off, essentially market timing the transaction. Consider Slice, which “provides coverage on-demand, and for only the periods of time you need it. The Slice policy will automatically begin and end in perfect sync time you’re operating as a business, whether it’s minutes, days or weeks. And, you only pay for the dates and times you have a policy.”

Let’s assume the role of the Slice insurance user: What if the user forgets to turn coverage on or off? While, in the case of Slice, users have to specify the off date, not all on-demand insurance players require this. Also, these new firms, which are focused on the customer experience, seem to ignore the fact that the last thing customers want is more interaction with insurance firms. As big of a fanatic about the industry as I am, I look forward to dealing with my insurance carrier as I much as I look forward to dealing with the IRS or with my dentist. We humans are notoriously bad at stock market timing. It’s pretty much common wisdom to avoid market timing and diversify your risk using low-cost indexing. In sum, the message of on-demand insurance? Time the risk.

Some on-demand solutions, such as the one by auto insurer Metromile, place a device inside your vehicle that removes the user from the need to turn insurance on or off. The device is always on, and Metromile will only bill you if you use the service (outside of a small base rate), solving the timing problem mentioned above. I’m a fan of any technology that minimizes my interaction with the insurer, so what’s not to love? If you are truly a low-mileage driver, then you are likely to benefit from this arrangement, but….in my many years of selling auto insurance, the one near-constant source of pride that most auto insurance buyers patted themselves on the back for was how few miles they drove. Yet, time after time, when it came to verify miles driven, most policyholders failed to squeeze under 10,000 to 12,000 miles per year. That also happens to be the the inflection point where Metromile policies begin to get more expensive than traditional policies. So for the fortunate few who truly are low-mileage drivers, pay-per-use car insurance is likely a good deal. For everyone else, it will either be an expensive proposition, or, perhaps worse, you will bend your style of life to fit within the affordable mileage thresholds.

Flaw #3: We Need More Coverage, More Often; Not Less

Finally, insurance is all about dealing with risk and uncertainty, and we humans are really, really bad at managing risk. Low-frequency, high-severity events are truly troubling for our minds to handle. Our species has made remarkable advancements over tens of thousands of years, and yet even the brightest of us fall prey to risk and uncertainty. Whether it’s speculative risks or insurable risks, we make the same mistakes over and over again. On-demand or pay-per-use insurance is another innovation that, I believe, while attractive to many, is not really the type of products that insurers should be offering.

You may be the most conscientious person, a true low-risk insurance buyer whom every carrier wants, and yet there are still a full range of factors that can and will cause you great losses, all of which are out of your control. No matter how risk-averse you are, things such as lightning, hail, hurricanes, tornadoes, earthquakes, floods, drunk drivers, slip and falls, falling cranes, power outages and other random events are going to strike, and you can’t always avoid them. For that reason, insurance policies are designed to offer a breadth of coverage. Yet it feels as if there’s a new wave of entrepreneurs entering the industry, looking to cash in on the insurance transaction by unbundling the coverage breadth and offering a stripped-down version of current coverage under the guise of “savings,” while leaving insureds more exposed.

See also: Insuring a ‘Slice’ of the On-Demand Economy  

I can see the attraction of pay-per-use. After all, why pay for all this extra insurance you don’t need? That being said, in the long run most customers will be turned off. The economics are not in place for the vast majority of insurance buyers. They don’t need less coverage, they need more! And they need it turned on – always!

Buyers of on-demand or pay-per-use insurance will either get caught with their pants down (“Oops, I forgot to turn the coverage on”) or get frustrated when they see that they have been paying 25-50% of the value of their property year over year (“Oops, I forgot to turn the coverage off”) or get super frustrated when the coverage limits their lifestyle (“Can i get a lift; my car insurance is really expensive when I drive”).

In other words, this new trend in insurance is penny-wise and pound-foolish. We certainly can do better.

Rebuttal: Protection Gap Is Not a Myth

As with most articles I read at Insurance Thought Leadership, I enjoyed The Myth of the Protection Gap. I do agree with the author (Paul Carroll) that not everything that can produce a negative outcome or loss needs to be insured. In fact, we are now in an era where we can buy insurance for nearly any property we own with a swipe of an app on a smartphone. Assuming that these companies are not charities, this approach is counterproductive, simply because it forces users to waste time having to remember to insure the thousands of small dollar items we own, when we can just afford to replace them. So place me in the camp that says insurance is for instances where we could not otherwise reasonably expect to be made whole again.

But the protection gap itself is very real. I will use Paul’s hypothetical example to illustrate a counterpoint to his conclusion:

“To make the math simple, let’s pick a country at random and make up some numbers out of whole cloth. Let’s imagine we’re Gabon, and we, as a nation, incur $1.5 billion of losses a year, while only $500 million is covered by insurance. We’re told we have a protection gap of $1 billion. We should buy $1 billion of additional coverage.

It’ll only cost us $1.3 billion.

That’s because — again, in very rough numbers — the insurer has to tack on 20% on top of the losses to cover expenses and needs its 10% profit margin to keep shareholders happy.”

Let’s break this down: If the losses for Gabon are $1.5 billion per year, with $500 million covered, then how much insurance do they need to buy? The article is suggesting the answer would be an additional $1 billion.

But that is not the right answer. The right answer is that Gabon should not buy any insurance!

How is that possible? Well, if I know with certainty that my losses over time will be $1.5 billion, then instead of buying insurance I can set aside funds to pay those anticipated losses. To put it another way, if I were insuring an entity that will have $1.5 billion losses each year, then the premium I would charge MUST start at $1.5 billion (because I know for sure that those will be the losses ) and then tack on expenses for managing those claims, issuing paper and, of course, my profit margin.

Am I nitpicking? Yes, I am.

The hypothetical example likely meant that losses would average $1.5 billion per year and not BE $1.5 billion. But words matter, and, in this hypothetical example, the word “average” changes enough of the example to magically make the protection gap appear in full vengeance.

How?

Well, averaging $1.5 billion per year in losses can mean lots of things. It could mean $1.5 billion each year, every year, OR it could mean a $30 billion loss happening exactly once in the next 20 years (or an infinite set of other combinations).

Uh-oh.

It is this uncertainty in the losses that makes insurance such a valuable tool for risk management. Insurance is that tool that allows Gabon to manage its cash flows in such a way that it can function day after day and not have to worry about finding $30 billion at a moment’s notice. Insurance is not about paying for the average annual losses, it is about paying for the extreme losses and avoiding the cash flow crunch associated with that. The smoothing out of volatile cash flows IS the peace of mind that is often marketed to consumers of insurance.

90% of California homeowners lack earthquake insurance. The take-up for flood coverage is similar. These perils have caused hundreds of billions of dollars in property loss, the bulk of which were uninsured. Tens of thousands of families became homeless. We’ve seen it In Louisiana after Katrina and in the tri-state area after Sandy, and we will see it again. The protection gap is not a myth, it is very real, and these perils will continue to cause hundreds of billions of dollars in damage. These are losses that homeowners and businesses cannot fund themselves. They require insurance to protect them from these catastrophes.

This fact alone provides a wonderful opportunity for our entire industry to grow by solving huge and emerging problems faced by societies. This is why we exist; this is our irreplaceable contribution to society.