The insurance industry as it currently exists is, by all accounts, terrible.
It’s existing business model is broken at the start, with a misalignment of incentives between the insurers (who want to keep your money so they make money) and you — who’re kind of hoping that they’ll actually pay you when you need them to.
Well, the still-stealthy Lemonade continues to build out an impressive team giving some hope that its new model for insurance (the company’s tagline is “Insurance that doesn’t suck.”) will live up to its promises.
Its most recent hire is Dan Ariely, the famous behavioral scientist, who will serve as the company’s Chief Behavioral Officer. Ariely is tasked, in part, with helping design systems and processes that ensure that the interests of the insurer and the insured are aligned.
“This was an idea of a financial institution with no conflicts of interest,” Ariely told me.
And the issue is pretty vital for economic health.
“It’s particularly important for people at the lowest income levels,” said Ariely. “If you are wealthy enough so that if a flood hits your house and you can buy a new house — no big deal. If that step required you to take a loan or borrow on your credit cards at 15% interest — and you spend the next ten years servicing that loan… that’s going to be terrible.”
Ariely firmly believes that insurance is a key part of people’s financial and social well-being.
Offering some hints for how Lemonade wants to change the industry, Ariely mentioned a few key areas where the insurer would differ from existing options when it finally launches.
“We want to go into the risk mitigation approach,” Ariely said. One area that’s a huge cost center for insurers and a potential reason for their crap approach to customer service is the high incidence of false claims that insurers have to weed through.
“People feel justified in trying to screw up an insurance company,” he said. “Dishonesty is influenced a lot by our ability to justify it. If we are dealing with a party that we think is immoral itself than we [are immoral] and justify it. We think that everybody else cheats… it feels like a victimless crime.”
Lemonade, with Ariely, will try to bake honesty into the process of filing claims — in part by using Ariely’s own research. “We will try to use all kinds of things we have done that we have learned on the research of dishonesty to promote people to be honest,” he said. For instance, the Duke University professor has found that when people sign forms at the top of a document it encourages them to be more honest — so Lemonade may use that policy in its own applications.
That’s a small example of what could be a potentially revolutionary idea in insurance.
Since its public launch with a $13 million investment from Sequoia Capital and Israeli venture investor Aleph late last year, Lemonade has amassed a series of impressive wins. The company lined up Berkshire Hathaway’s National Indemnity, Lloyd’s of London, National Indemnity, Everest, Hiscox, Munich, Transatlantic, and XL Catlin as reinsurers. In all, the firms have $100 billion in surplus capital to pay out to policy holders.
What’s more, the company lined up an impressive roster of executives to support its mission. New hires include the former president of product development at insurance behemoth AIG, Ty Sagalow; the former chief underwriting officer of ACE, Robert Giurlando; James Hageman the senior vice president of claims at ACE; and the head of AIG’s financial planning and analysis group in the US, Ron Topping.
Those names may not mean much in the tech community, but these guys are like the Satya Nadellis or Eric Schmidts of the insurance industry.
So while the nitty gritty of Lemonade’s peer-to-peer insurance model remains under wraps, the team that’s in place, the capital that’s behind it, and the insurers who are supporting it all point to something big. I can’t wait for these guys to tell me what it is they actually do (despite the fact that I’m a little annoyed with how coy they’ve been about it up til now).