1) “…what their business model is, what their product will do, or who else is involved.”
Because, no one else should steal this remarkable idea.
2) ““eclectic” group of people that insurance industry has trouble recruiting.”
Because, few in the insurance industry value skilled workers who can contribute in novel ways to profitability, because they are all short-sighted.
3) “…fully-approved and licensed insurance carrier…”
As opposed to, um, a merely licensed insurance carrier.
4) “He said that unlike the car-sharing firm Uber, his firm will comply with laws”
Because saying that some other company is breaking the law is a good way of ensuring that people in general view you positively, besides not being a kind of interesting way of looking at things. Most people and companies don’t mind at all being accused of breaking the law, and would never, for example, view sucn conduct as a kind of pastry.
5) “Most Americans view insurance as a necessary evil rather than a social good, ”
Because most Americans based their purchasing decisions by how much it will create a social good, or otherwise will promote the general welfare, rather than, for example, how much it costs me a month to insure my car or how soon the insurance company will pay or will raise my premiums after an accident.
6) “why raising the $13 million was so important…”
$13 million to fund an admitted carrier in New York will go a long way in paying the office rental bill.
“While the founders suggest they are onto something revolutionary, they are not yet talking about exactly what their business model is, what their product will do, or who else is involved.”
Sounds like the next step is an IPO for $14 Billion…
not sure about anyone else, but isn’t there a bunch of other people trying to do the same thing – I thought they were basically called Mutual companies…. a few have worked but for the most part, they have a hard time doing what is most important – paying claims.
Mutual’s are owned by their policyholders and they have to cast proxy votes for company directions. The policyholders might have a problem casting a positive vote on what these dudes want to do.
I think Liberty Mutual has worked out pretty nicely over the years. I am still a little puzzled how they decided to buy several stock companies under their Umbrella. They went from being a large direct writer to owning several companies and dealing with agents. It is an interesting combination.
I spoke to someone about this out in CA a few weeks back. I don’t think it was Lemonade. Perhaps something similar? Anyway, they will have to rely heavily on encouraging people not to file claims. They’ll have to raise enough capital to set aside the funding to pay claims or require the insureds to contribute more than normal with the potential to get money back…but only if you don’t file a claim. What bugs me is that their model automatically assumes the agent is pointless. Not sure how nimble they can be within the context of state law as well. The model seems to only account for situations when everything goes to plan. What happens when things go wrong?
Perhaps they will be the market for Driverless cars. Everybody knows that the Driverless cars can never be at fault in an accident or the owner filing a claim.
They will have the revolutionary model of only offering state minimum coverages to all policy holders and then assessing policy holders for very quickly afterwards when they run out of money because surprise surprise the kinds of people that buy that level of coverage might be more prone to accidents. That or they will count on the state garraunty fund to pay out most claims when they go belly up in a year or two since the levels of capitalization they need are much higher than what they have.
States like Florida experienced lots of new entries into the marketplace by undercapitalized companies paying the founders a lot of money that they took with them when the firm went bankrupt and other insurance carriers through guaranty funds bailed them out. Regulators should look very, very hard at these kinds of start-ups.
I get all the skeptical comments above and do agree this sounds like a mutual or reciprocal. But….. I applaud anyone who wants to try to innovate and make the industry better. I’ve been in this business for 30 years and marvel at the unwieldy processes I see ingrained and accepted as necessary. As an example, it is crazy that an agent has to put in almost as much work to issue a $1200 BOP as they do a $20,000 CMP. The income to the agent is not commensurate with the effort but the industry seems to accept the BOP process as OK.
This is very true. Most insurance carriers are still stuck in the 1990s when it comes to their processes. But let’s call a duck a duck, so far these guys’ ideas are nothing more than what already exists.
Plus, even if these guys came out with something innovative, why wouldn’t established behemoths of the industry such as say Liberty Mutual and Nationwide with all the money in the world at their disposal just copy what these guys created or buy them out – as it happens frequently on every other industry.
To me the strategy for these guys is clear. Get money from investors, try to build value into the company, and then sell it for a profit. Waze and Youtube comes to mind.
Mel – you are spot on as to their strategy. I’ve been trying to come up with an idea I could get someone to give me millions for, but the pet rock has already been done.
Mel, I don’t know where you have been for the past 5 years, but there have been numerous changes to the industry. Most carriers have online applications and rating now, particularly on BOP business. Not so long ago, we had to scan & email apps, Supplemental Apps and hope for an underwriter to respond. Now, the new way gets answers quickly and if it goes to review by underwriting, they get back with us if any additional info is required. Personal lines is mostly through a Comparative Rater and ours quotes 5 markets with single entry. All we have to do is bridge over to the company site to finish a quote. To say that the industry is stuck in the 90’s is innacurate unless the ones you represent is stuck and they will be losing out.
I hope they succeed spectacularly. Good luck. I doubt if any entrepreneur would disclose any important details of their business model and strategy in any public document. Have you read your company’s MD&A. The comments I have read all assumes solving challenges in the same “proven” method of the past. Those solutions are not worth of $13MM to develop a fundamentally different approach. I suspect that the adaptation of innovations in other industries and methodology could be applied to deliver a transformational solution for our industry to many of the challenges that have never been adequately solved. Our industry needs more dreamers, more innovation, and more desire to get significantly better in everything we do. Let’s hope they lead the way that others can examine and develop even more creative approaches to fundamentally lift the entire industry.
vox, I can’t tell you how many times I have seen small, undercapitalized companies enter the marketplace, try to buy business and just hope their losses don’t exceed their capital and quickly go by the wayside. The losses end up being paid by the Guarantee Fund. I agree that this industry is not for amateurs who have no clue what it is about.
This is great. Private money being invested to try a different approach to insurance. I’m tired of the approach used by regulators and advocates just standing on the sidelines trying to pound the current companies into their own approach.
Let yourself be surprised by the world’s protected “Pocket- Insurance” and its diversification.
Our product is already in the starting blocks and we will use our lead ….
We will see what happens ….
Yeah, nothing like buying a complex legal contract (that hopefully keeps you from losing almost everything you own and a big chunk of what you might earn over the next 20 years if you’re not properly covered for exposures you don’t even know exist) from a brand new company headed by someone whose background is in “portable wireless device charging” and someone else who started an internet company offering “professional” services for $5 largely from people in India and elsewhere. What could possibly go wrong for unsuspecting consumers looking for cheap, easy insurance?!
All they have to do is just lease some office space, put a sign on the window and Open for Business. I am sure there will be plenty of applicants hoping to get something for nothing, get fraudulent ID cards for their cars and we will be seeing an IJ story about 6 months in on the indictments of these officers for not observing any insurance laws, capitalization or filings as a carrier. As Obama said about Obamacare, it is as easy as going on Amazon.com
I believe that the key to insured satisfaction is the education of claims adjusters, plus the instruction to actual claims adjusters to pay the claim properly with no restrictions other than the policy forms. I am referring to Post Loss Underwriting and Insurers instructing adjusters and estimators to limit scope and pricing instead of paying for what is damaged. I have reviewed thousands of claims and claims in litigation, and have seen that the intent to responsibly indemnify by allowing adjusters to adjust freely (a lost art) gets the job done.
Jeffrey, you are right about the education and training of claims adjustors. For all the years I have been in business, I have seen numerous examples of adjustors denying claims they shouldn’t have and we have often had to educate them on the provisions of the coverage. Also, I think a number of the bad adjustments are just to delay, deny until they are reported to the Insurance Dept and made to pay.
This is essentially a glorified high deductible plan…
If they follow the same model as recent European startups Guevara and Friendsurance, the majority of the risk will be assumed by reinsurance carriers who will pay out for the claims when the pool’s premium is exhausted. Given that this startup is prone to ignore the fundamental law of large numbers, the risk class will likely lack diversity and reinsurance will be tapped more often than not. This will lead to an increase in base premiums so the cost savings and sustainability of the model is questionable.
Whats more likely is that they will take a hybrid approach and cover some of the risk above the pool’s premium before reinsurance kicks in. However, they will run into the same problem here with not having the risk spread across an adequate number of policyholders. I also doubt they realize that underwriting profit is difficult and that investment income is needed…have they accounted for this?
Then there’s regulation, coverage offerings, etc. etc.
If they can work themselves into a situation with low overhead and advertising costs then it might survive for some time but it’s still ignoring fundamental principles that insurance requires for sustainable growth.
$13 Million will sure go a long, long way as capitalization for a new carrier :)
Here are some of the phrases that cuaght my eye:
1) “…what their business model is, what their product will do, or who else is involved.”
Because, no one else should steal this remarkable idea.
2) ““eclectic” group of people that insurance industry has trouble recruiting.”
Because, few in the insurance industry value skilled workers who can contribute in novel ways to profitability, because they are all short-sighted.
3) “…fully-approved and licensed insurance carrier…”
As opposed to, um, a merely licensed insurance carrier.
4) “He said that unlike the car-sharing firm Uber, his firm will comply with laws”
Because saying that some other company is breaking the law is a good way of ensuring that people in general view you positively, besides not being a kind of interesting way of looking at things. Most people and companies don’t mind at all being accused of breaking the law, and would never, for example, view sucn conduct as a kind of pastry.
5) “Most Americans view insurance as a necessary evil rather than a social good, ”
Because most Americans based their purchasing decisions by how much it will create a social good, or otherwise will promote the general welfare, rather than, for example, how much it costs me a month to insure my car or how soon the insurance company will pay or will raise my premiums after an accident.
6) “why raising the $13 million was so important…”
$13 million to fund an admitted carrier in New York will go a long way in paying the office rental bill.
Shai, be’emet.
Why do I think that “Lemonade” will turn sour? This business is not Amazon.com and the contract is a promise to pay for unforeseen events.
As Sam Spade wrote above, $13M will sure go a long way
“While the founders suggest they are onto something revolutionary, they are not yet talking about exactly what their business model is, what their product will do, or who else is involved.”
Sounds like the next step is an IPO for $14 Billion…
not sure about anyone else, but isn’t there a bunch of other people trying to do the same thing – I thought they were basically called Mutual companies…. a few have worked but for the most part, they have a hard time doing what is most important – paying claims.
Mutual is basically accurate – wait til the members find out about the ‘assessable’ aspect of mutuality!
Mutual’s are owned by their policyholders and they have to cast proxy votes for company directions. The policyholders might have a problem casting a positive vote on what these dudes want to do.
I think Liberty Mutual has worked out pretty nicely over the years. I am still a little puzzled how they decided to buy several stock companies under their Umbrella. They went from being a large direct writer to owning several companies and dealing with agents. It is an interesting combination.
The “bureaucracy” people complain about are the people who actually analyze the risk, and investigate to see that claims are legit.
Reciprocals and co-ops.
Bill, we have seen how well the co-ops have worked in the Health Insurance market, haven’t we? People end up with no insurance when they go belly up.
I think this is called a Mutual insurance company?
+1. Isn’t this “ground-breaking idea” simply called a “mutual insurance carrier”?
All things old are new again! Rather than a mutual, would this not be a reciprocal?
I spoke to someone about this out in CA a few weeks back. I don’t think it was Lemonade. Perhaps something similar? Anyway, they will have to rely heavily on encouraging people not to file claims. They’ll have to raise enough capital to set aside the funding to pay claims or require the insureds to contribute more than normal with the potential to get money back…but only if you don’t file a claim. What bugs me is that their model automatically assumes the agent is pointless. Not sure how nimble they can be within the context of state law as well. The model seems to only account for situations when everything goes to plan. What happens when things go wrong?
Perhaps they will be the market for Driverless cars. Everybody knows that the Driverless cars can never be at fault in an accident or the owner filing a claim.
It sounds like they’re starting a driverless business.
They will have the revolutionary model of only offering state minimum coverages to all policy holders and then assessing policy holders for very quickly afterwards when they run out of money because surprise surprise the kinds of people that buy that level of coverage might be more prone to accidents. That or they will count on the state garraunty fund to pay out most claims when they go belly up in a year or two since the levels of capitalization they need are much higher than what they have.
States like Florida experienced lots of new entries into the marketplace by undercapitalized companies paying the founders a lot of money that they took with them when the firm went bankrupt and other insurance carriers through guaranty funds bailed them out. Regulators should look very, very hard at these kinds of start-ups.
I get all the skeptical comments above and do agree this sounds like a mutual or reciprocal. But….. I applaud anyone who wants to try to innovate and make the industry better. I’ve been in this business for 30 years and marvel at the unwieldy processes I see ingrained and accepted as necessary. As an example, it is crazy that an agent has to put in almost as much work to issue a $1200 BOP as they do a $20,000 CMP. The income to the agent is not commensurate with the effort but the industry seems to accept the BOP process as OK.
This is very true. Most insurance carriers are still stuck in the 1990s when it comes to their processes. But let’s call a duck a duck, so far these guys’ ideas are nothing more than what already exists.
Plus, even if these guys came out with something innovative, why wouldn’t established behemoths of the industry such as say Liberty Mutual and Nationwide with all the money in the world at their disposal just copy what these guys created or buy them out – as it happens frequently on every other industry.
To me the strategy for these guys is clear. Get money from investors, try to build value into the company, and then sell it for a profit. Waze and Youtube comes to mind.
Mel – you are spot on as to their strategy. I’ve been trying to come up with an idea I could get someone to give me millions for, but the pet rock has already been done.
How about a driverless rock, one that throws itself. Would be great for protests and mob activities.
Mel, I don’t know where you have been for the past 5 years, but there have been numerous changes to the industry. Most carriers have online applications and rating now, particularly on BOP business. Not so long ago, we had to scan & email apps, Supplemental Apps and hope for an underwriter to respond. Now, the new way gets answers quickly and if it goes to review by underwriting, they get back with us if any additional info is required. Personal lines is mostly through a Comparative Rater and ours quotes 5 markets with single entry. All we have to do is bridge over to the company site to finish a quote. To say that the industry is stuck in the 90’s is innacurate unless the ones you represent is stuck and they will be losing out.
I hope they succeed spectacularly. Good luck. I doubt if any entrepreneur would disclose any important details of their business model and strategy in any public document. Have you read your company’s MD&A. The comments I have read all assumes solving challenges in the same “proven” method of the past. Those solutions are not worth of $13MM to develop a fundamentally different approach. I suspect that the adaptation of innovations in other industries and methodology could be applied to deliver a transformational solution for our industry to many of the challenges that have never been adequately solved. Our industry needs more dreamers, more innovation, and more desire to get significantly better in everything we do. Let’s hope they lead the way that others can examine and develop even more creative approaches to fundamentally lift the entire industry.
Gentlemen, insurance is very heavily regulated, very competitive and not for amateurs. You sow the wind…. you reap the whirlwind.
vox, I can’t tell you how many times I have seen small, undercapitalized companies enter the marketplace, try to buy business and just hope their losses don’t exceed their capital and quickly go by the wayside. The losses end up being paid by the Guarantee Fund. I agree that this industry is not for amateurs who have no clue what it is about.
This is great. Private money being invested to try a different approach to insurance. I’m tired of the approach used by regulators and advocates just standing on the sidelines trying to pound the current companies into their own approach.
Hidden due to low comment rating. Click here to see.
Yeah, nothing like buying a complex legal contract (that hopefully keeps you from losing almost everything you own and a big chunk of what you might earn over the next 20 years if you’re not properly covered for exposures you don’t even know exist) from a brand new company headed by someone whose background is in “portable wireless device charging” and someone else who started an internet company offering “professional” services for $5 largely from people in India and elsewhere. What could possibly go wrong for unsuspecting consumers looking for cheap, easy insurance?!
Yes Bill, what could possibly go wrong? Perhaps they will fund themselves with Bitcoins instead of real money. That should go over very well.
How to avoid state licensing, solvency, rate and form regulations – just call it Sidecar Insurance Company!
All they have to do is just lease some office space, put a sign on the window and Open for Business. I am sure there will be plenty of applicants hoping to get something for nothing, get fraudulent ID cards for their cars and we will be seeing an IJ story about 6 months in on the indictments of these officers for not observing any insurance laws, capitalization or filings as a carrier. As Obama said about Obamacare, it is as easy as going on Amazon.com
I believe that the key to insured satisfaction is the education of claims adjusters, plus the instruction to actual claims adjusters to pay the claim properly with no restrictions other than the policy forms. I am referring to Post Loss Underwriting and Insurers instructing adjusters and estimators to limit scope and pricing instead of paying for what is damaged. I have reviewed thousands of claims and claims in litigation, and have seen that the intent to responsibly indemnify by allowing adjusters to adjust freely (a lost art) gets the job done.
All the best Lemonade,
Jeffrey Major
Jeffrey, you are right about the education and training of claims adjustors. For all the years I have been in business, I have seen numerous examples of adjustors denying claims they shouldn’t have and we have often had to educate them on the provisions of the coverage. Also, I think a number of the bad adjustments are just to delay, deny until they are reported to the Insurance Dept and made to pay.
This is essentially a glorified high deductible plan…
If they follow the same model as recent European startups Guevara and Friendsurance, the majority of the risk will be assumed by reinsurance carriers who will pay out for the claims when the pool’s premium is exhausted. Given that this startup is prone to ignore the fundamental law of large numbers, the risk class will likely lack diversity and reinsurance will be tapped more often than not. This will lead to an increase in base premiums so the cost savings and sustainability of the model is questionable.
Whats more likely is that they will take a hybrid approach and cover some of the risk above the pool’s premium before reinsurance kicks in. However, they will run into the same problem here with not having the risk spread across an adequate number of policyholders. I also doubt they realize that underwriting profit is difficult and that investment income is needed…have they accounted for this?
Then there’s regulation, coverage offerings, etc. etc.
If they can work themselves into a situation with low overhead and advertising costs then it might survive for some time but it’s still ignoring fundamental principles that insurance requires for sustainable growth.
it appears you were right- Lemonade is having big problems.