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.


RGA: the answer to digital disruption is engagement

RGA has a view on the answer to digital disruption. They feel that the answer is increasing engagement and they list a number of ways to tackle that are listed in this excellent article. There is gold in this list, and perhaps one of the best points is buried a bit lower down: 'leverage the data you have'. Insurers collect almost unbelievable amounts of data. I mean 'unbelievable' too. For clients that have never bought life insurance before they are usually astonished, and disbelieving, about the extent of the application form. Applications to borrow huge sums of money are usually shorter. But the sad fact is that most of that information will be barely glanced at, just once. For a few clients it will be studied hard - sometimes twice, but even more rarely, more than that. If the information could be used to connect better with the customer over the medium term, to achieve something of daily relevance to the customer, then they may be less inclined to cancel their insurance.

With wearables companies, focused on engagement first, their businesses seem to have developed almost the opposite way around. "Look at all this cool data we could give people!" Then, based on what they found, served to customers all the time, they gradually began to build business models. Of course, many of them will fail - and only a few succeed. Technology is littered with failures - consider the brief and beautiful explosion of navigation systems for cars, now mostly subsumed into Google and smartphones. Life insurers, who write contracts with promises to pay many years in the future, cannot afford to run with the typical start-up attitude. But they could pinch a few tricks from them which, I think, is the overarching message of this piece from RGA.

Open-banking - comparing actual disruption with current models

There's a good article on open banking, by Rob Stock, on stuff - at this link. The article has a strong New Zealand angle too, which is unusual for such tech stories, and so is well worth a look. One thought that kept returning to me as I read it was how different actual disruption looks to current models. That's a sobering thought given the current state of innovation in the insurance sector right now. 

Aspire Conference by Gen Re

Gen Re hosted an excellent conference on underwriting and actuarial matters in Auckland on Wednesday. Topics covered included: insuring diabetic lives, health incentive programmes, progressive trauma pricing, behavioural economics and application forms, insurtech, surveillance and investigations, and pastimes underwriting. Although there was lots of good content, for me the New Zealand lump sum study was perhaps the most interesting. But Insurtech was valuable as well. That may be a reflection of the fact I am less familiar with underwriting and claims, and more familiar with insurtech. I shall write longer pieces on some of the most interesting ideas. 

GenRe Aspire conference

Gen Re staff presenting on the day included, from Gen Re Life Australia: Andres Webersinke, Managing Director, Robert Kerr, Senior Account Manager, James Louw, Chief Actuary, Viviane Murphy, Senior Account Manager, Lindsay Cross, Principal Underwriter, Rob Frank, Principal Claims Advisor, Matthew Ramjan, Chief Underwriter, Winncy Wong, Senior Pricing Actuary, Li Wen Beh, Senior Pricing Actuary, Carol Smit, Head of Claims. From Gen Re Life Cologne, Karin Neelsen, Head of Product Underwriting. 



Chatbots the first step to economically viable AI

nib are the first health insurers in NZ to offer customer assistance from an artificial intelligence powered virtual bot named 'Frankie'. The chatbot provides convenient  and fast responses to clients queries and allows 24/7 support. Click here to read more.

Initially started by tech companies struggling to cope with the service requirements of tens of millions of users the world over, the implementation of chatbots is now becoming mainstream. Initially the bots can be of limited functionality, but one of the most important learning mechanisms is regularly interacting with customers. The more queries are typed into the chatbot, the better engineers can tune the AI to serve appropriate responses. Some chatbots are actively supervised meaning that a human operator watches over the actions of a group of bots, and is alerted to problems and can seamlessly step in. Others, like nib's alert the customer to the point when the 'bot has run out of ideas, and suggests the user calls an 0800 number. 

Sun Life of Canada's 'bot is a good example of the category - Link

FMA Update: proposed exemption to facilitate personalised robo-advice

Rob Everett, Chief Executive of the FMA has provided an update on the progress on the draft exemption, indicating we can find out more in October. Also, I like that there is a defined approach to supporting innovation, and even in the absence of an exemption, or the changes proposed in the new Financial Services Legislation Amendment Bill, the FMA is approachable on this subject.

"I’d like to thank all those who responded to our recent consultation on a proposed exemption to facilitate personalised robo-advice. We had a large response to this proposal and are now considering all the feedback before finalising our policy in October.

The growth of fintech and emergence of innovative new products and services is not going to stand still, so neither should we.  Our approach to robo-advice reflects our support for new platforms, markets, products and services, and the fact that, ultimately, we’re here to help markets work well and businesses succeed. We operate in a flexible financial regulatory system and have the tools to respond to what the market is doing, rather than what it might have done five years ago. 

If you are developing an innovative new financial product or service, we’d love to hear from you as early as possible in the design process - this will help us to help you. You can read more about our approach to supporting innovation on our website."

Why predictions in the life insurance business are so lousy

Goodreturns has just run an article title 'how to protect yourself from churn claims' and details the results of complaints to dispute resolution bodies. The article, aimed squarely at advisers, makes some good points - but what really caught my attention was not how many complaints there were, but how few, given that there are many cases that have been replaced, and one hears stories of this type of cover loss all the time. It is a genuine problem, with a likely scale greater than the number of actual complaints. 

Life insurance is a low involvement product. That means customers don't engage much - either in frequency, or emotionally. The number of interactions between a customer and an insurer are relatively few - contrast your own frequency of communicating with your insurer to that, say, of your bank. Even within types of insurance it varies a lot: travel and motor vehicle insurance get lots interactions, life insurance very few. But it isn't just about how often you talk with the insurer. Think about a new car purchase, even people that aren't really into cars will notice. You probably considered lots of options, choices, and discussed the purchase with many different people. Some people feel very connected to their cars, passionate about the vehicle brand, and what it says about them. That tends not to happen so much with financial products, and life insurance, least of all. 

All told - that means you can make accurate predictions about the direction of change in the life insurance industry, but it is easy to be surprised by how slow that change is to come about. 

Context-Based Insurance

"Context-based" is a relatively new concept for insurance which is commonly used in describing a category of insurtech innovations.

Context-based comes in two types, one that doesn't work, and one that does. Risk pooling is essential to insurance. If you cut the pool completely between those that are going to claim and those that aren't, you no longer have insurable risks. Sometimes tech writers unfamiliar with risk-pooling get too excited about the idea of only buying insurance just before you need to claim. That can happen by accident, which is fine, but when it happens by design it is usually fraud.

The version of context-based cover that really does work is, in essence, a way to underwrite from behaviour, rather than the written statements of a highly-partisan human: the insured. Read about this crowd with their vehicle insurance for Tesla owners. Link

Exercise, Mortality, and Underwriting

I am both a data nerd and like to keep fit. So a fitness tracker - in my case a Fitbit - was kind of inevitable. I have worn one for about two years, and love it. But apparently the typical duration of use is just three months. Some people tire of them - just like they tire of going to the gym. Some people like the data for a while, and return to using the devices again later. Here is an interesting article from Ross Campbell, from Gen Re's Life/Health Chief Underwriter, Research & Development about how the number of steps taken each day may affect mortality. One day it would be nice if we could use all the health data that already exists - held by our government, and on services such as fitbit - so that we could automate the process of full underwriting. 


Why Advisers Should Update at Least One Tech System Every Year

According to this article on Investment News advisers should be making technology changes if they want to keep up with their competitors and take advantage of opportunities to improve their client experience. That is, of course, an investment-focused view. 

Now take the insurance one. From suspect to one month after first annual review a financial adviser focused on insurance has multiple systems to work from. Desktop software, or the cloud equivalents, a main CRM, marketing tools, cloud storage, quote tools, research, cloud marketing programmes, accounting software (probably also cloud) and so on. But the same lesson applies: you need to review and upgrade your systems regularly. In fact, the guideline of one system per year must really be a minimum: at that rate you would only work your way through the list above every seven years, which is an awfully long cycle for IT. But at least reconciling yourself to annual upgrade cycles will keep the issue on your annual planning agenda.