Australia: CommInsure pleads guilty to hawking charges

Lucas Baird at the Australian Financial Review writes that CommInsure has pleaded guilty to 87 breaches of anti-hawking laws:

"In all of the 87 calls charged, CommInsure did not comply with the requirement to offer the customer the option of having the information required to be included in the Product Disclosure Statement for Simple Life read to them prior to the offer to issue or sell the product," ASIC said in a statement.

The regulator said that in 14 of the calls charged, CommInsure also failed to give customers a product disclosure statement before becoming bound to acquire Simple Life; and failed to clearly inform the customer of the importance of using the information in the statement when making a decision to acquire Simple Life.

You can read the whole article at this link - although you may need a subscription. 


How Lemonade Focuses on Value to Customers

Here is the short version of my analysis of the way Lemonade has focused their offer on the things that will motivate customers to buy:

  1. "Forget everything you know about insurance"

    That's a promise to be different, cleverly playing on the low trust environment for insurance. It is a gamble, and must be backed up by what  follows. Lemonade can only get away with it, because they do back it up.
  2. "Instant Everything"

    Their tech means that you can get cover in 90 seconds and get claims paid in three minutes. If you want a benchmark for product development, you have it right there. Beat those two numbers and you have a winner. Why? Because life is short and apart from a few sad individuals (like me) no-one is so interested in insurance that they want to fill in a 2, 12, or 22-page form. No one really wants to read a 2, 12, or 150-page policy document. Consumers are just not that into us. Making everything "instant" is also a testable proposition. It's almost a dare: we bet we can move your insurance fast. The consumer can see if its true - but only by starting. When was the last time you heard an insurer bragging about how quick they do things?

  3. "Killer prices".

    This is a testable proposition as well. Most consumers can spot the lower number out of two. Price can be a curse, of course, but right now Lemonade is bound to lose money, so you might as well lose it with more clients than with less. The consumer is up for this too, surprisingly. The unfair advantage of the upstart? Sure, but Lemonade is also betting that by automating everything the marginal costs of acquiring a customer can be kept very low, well beyond the start-up phase. In fact they reckon they are one tenth of the industry average.

  4. "Big heart".

    In a cause-motivated era the model of Lemonade, which states that after their share (20% of the premium) the surplus will go to charity. Warm-fuzzy emotional buyers can love the connection with their self-image. Cold-hard rational buyers can feel comfortable that the company does not have a limitless incentive to deny claims. It works both ways. Hidden in here is a promise about product, but it isn't presented in a technical way.

How successful are they? Very, but it is early. Like a lot of start-ups Lemonade is keen on rapid customer acquisition, and doesn't need to worry so much about profits right now. Its current customer base is obviously too small to support its infrastructure, so detailed financial analysis cannot reveal much at this early stage. Of course, some day, it will need to achieve profit, some day it will be judged on the same metrics as other insurers. But insurers choosing to comfort themselves with that line, and putting their own digital transformation on the same timescale - 'we'll do that some-day' should reflect that Amazon is over 20 years old, has intentionally tiny profits, distributes no dividend, and remains a decidedly different company to all the others. Amazon thinks of itself as a 'day-one' company, and intentionally works on a strategy of avoiding 'some-day'. Amazon are also interested in the insurance market. For New Zealand insurers today, with companies like Lemonade choosing to start in New York, rather than Auckland, you have a precious window in which to change. Lemonade has a few markets to go before it comes here. So does Amazon. But you may need every day's grace they give you.

 


Dan Schreiber on Digital Insurance Companies

Daniel Schreiber has a great piece over at LinkedIn on how AI "eats" insurance. You may take only a very little comfort that he's from a general insurer. Life insurance is not immune to the lesson he's preaching. The only comfort New Zealand insurers have is that courtesy of the tiny size of our market, local regulatory variation, and our distance from the centres of innovation (mainly San Fancisco and London) we have more time to react and build proper digital platforms ourselves, before these folks arrive. But maybe you won't, maybe you'll just let them. For digital insurers going direct, like Daniel Schreiber envisages, it is vital that end-to-end you own your platform in order to bring in all the data to the learning environment. As an aside, Schreiber offers the briefest and most cutting take-down of averages: "on average your customers have one testicle". Anyhow, go read the whole article. It isn't all right, it isn't all as simple as that - but there are some strong points, and they should spur action.


Some Don't Take the Difficult Ones...

A day or two ago a friend introduced me to someone who had recently received an underwriting decision from an insurer. It was a deferral for five years. She told me her story and I thought it was worth referring her to a professional financial adviser. It seemed likely it was worth applying with another insurer (I've got similar medical issues and have always been able to get cover, so there is a good chance she will be able to). The deferral wasn't for all the cover she had applied for. Choosing to take what was offered she accepted the life cover offer without the income protection. 

Of course, the first insurer, that issued the deferral, is perfectly entitled to decline any risk that does not fit its commercial model. It doesn't have to tell the applicant that they could get cover elsewhere, even though they probably knew that she could. They weren't giving financial advice, just offering a product.

Equally, when the client gets cover for the income protection, she is likely to take out life cover with the new company too, and cancel the old, because she is perfectly entitled to prefer the convenience of one insurer, and is likely to feel happier with the one that can cover her for income protection as well - rejection by one and acceptance by the other can have an emotional effect. Both those decisions, by the insurer, and by the client, are just the cold, hard, facts of the marketplace.


Advisers and ASICs Claims Review

Advisers in Australia seemed to line up, initially, with insurers in expressing some discomfort at the release of data contained in ASIC's recent report on claims payment in Australia. In New Zealand, unaffected by ASIC's jurisdiction, people that follow such things have tended to focus on the positive endorsement of advisers and advice contained in the review: that claims are more likely to be paid when advice was provided during the sales process, a pretty powerful endorsement.

Now I have seen the first article from Australia which picks up on this point, and I am delighted to do so. It is often easy to think of the regulators job as an adversarial one. They can become adversarial, certainly, but don't necessarily want to function that way. In fact, the more we all focus on a kind of 'market development' paradigm, the better the whole outcome will probably be. This report actually contains a lot of information useful if you care about the development of the market as a whole. 


Car Insurance Industry To Vanish? Or Change?

Will the car insurance industry be gone by 2030, as Tamsyn Parker at the NZ Herald suggests in this article. Well, maybe.

But first, imagine everything we have to do with roads, cars, and transport, remains the same, except the cars are all driver-less. Then imagine there are very few accidents. I still don't see a future in which there is no car insurance industry, but rather one which is radically changed: many fewer loss adjusters and panel beaters for a start. But rare events - like an accident in an environment where 99% of accidents have been eliminated - are likely to have greater financial consequences and you will still want some cover. Life insurance is like that. Compared to 150 years ago early death has been almost eliminated. But far more people today have insurance than back then. 

But the problem with that kind of futurism is that rarely does only one thing change, we think it is important not to think of one change on its own. Uber, Lyft, and other ride-sharing companies have a different goal: they want to change the nature of transportation from privately owned vehicles which currently dominate, to a more efficient model of shared or corporate ownership where you only pay for the service when you use it. In such a circumstance the nature of insurance has changed again: such companies will require big liability insurance and the requirement for individual cover has vanished. The market has radically changed. 

Other possible futures could be constructed, and in different parts of the world key variables like population size, density, and regulation will drive different outcomes. 

 


Car Insurance Industry To Vanish? Or Change?

Will the car insurance industry be gone by 2030, as Tamsyn Parker at the NZ Herald suggests in this article. Well, maybe.

But first, imagine everything we have to do with roads, cars, and transport, remains the same, except the cars are all driver-less. Then imagine there are very few accidents. I still don't see a future in which there is no car insurance industry, but rather one which is radically changed: many fewer loss adjusters and panel beaters for a start. But rare events - like an accident in an environment where 99% of accidents have been eliminated - are likely to have greater financial consequences and you will still want some cover. Life insurance is like that. Compared to 150 years ago early death has been almost eliminated. But far more people today have insurance than back then. 

But the problem with that kind of futurism is that rarely does only one thing change, we think it is important not to think of one change on its own. Uber, Lyft, and other ride-sharing companies have a different goal: they want to change the nature of transportation from privately owned vehicles which currently dominate, to a more efficient model of shared or corporate ownership where you only pay for the service when you use it. In such a circumstance the nature of insurance has changed again: such companies will require big liability insurance and the requirement for individual cover has vanished. The market has radically changed. 

Other possible futures could be constructed, and in different parts of the world key variables like population size, density, and regulation will drive different outcomes.