When I moderated a panel on blockchain technology this autumn at the inaugural InsureTech Connect 2016 conference (which hosted more than 1,000 entrepreneurs, investors and insurance executives), my interactions with many of the participants enabled me to get a pulse of the insurance industry and a look into its exciting areas of activity.
One of these interesting innovations is peer-to-peer (P2P) insurance. This new approach is essential for any incumbent to understand, as the number of millennials is growing significantly and these consumers are constantly looking for new types of insurance models that highlight customer experience. Furthermore, when they are dissatisfied they just opt out of existing services. Hence, current and new insurance players are utilizing mobile, digital, social media and shorter service cycles to attract millennials to their services.
These spaces are exactly where P2P insurance enters the industry. Moreover, the importance of interacting ideally with consumers only grows, as most individuals spend more than 75% of their time on only five mobile apps, according to Forrester Research.
One of the companies that offers an alternative to traditional insurance and as a result created a lot of excitement during the conference is Lemonade. The startup, which wants to disrupt the insurance industry, differentiated by issuing a carrier license for itself, and because of that will have the ability to impact the industry from within by vertically integrating the existing value chain. Research that Lemonades CEO, Daniel Schreiber, presented at InsureTech Connect revealed that today 40 cents of any insurance dollar are spent on expenses related to issuing a policy.
To disrupt the existing business model, Lemonade has hired Duke University Professor Dan Ariely, who is attempting to integrate behavioral economic concepts into the companys solution. For example, theory shows that people are groupish and crave a sense of a community around a specific cause. In the insurance context, a true sense of community can reduce the inherent moral hazard that is embedded into the existing insurance value chain and dramatically reduce the high percentage of fraud currently associated with this space, according to Lemonade. Furthermore, Lemonade also addresses consumers bad perception of the insurance industry by dramatically reducing the friction that is currently a huge part of it. The company believes that the consumers current lack of trust in the industry dramatically impacts its cost structure. Therefore, once that improves, the cost structure will look completely different, as well.
To address these issues, Lemonade introduced several innovations. First, it created a Ulysses contract (a freely made decision intended to commit oneself in the future) that ensures Lemonade will not charge anything besides its original 25% fees. This was created to signal the organizations trustworthiness. Also, the startup integrated a donation incentive into its model. In its unique approach, any unused funds at the end of the year will be donated to social organizations. This, the company believes, will act as a tool to fight fraud and dishonesty from its members.
Finally, the company has decided to put a special emphasis on automation and customer experience, enabling all of its interactions with members to be based on mobile and social chats ensuring that the user pulls what he or she wants, rather than receiving what the insurer wants to sell.
Other P2P insurers, like Friendsurance, So-Sure and others were also present at the conference and presented how they are changing the existing insurance space. These companies, as with Lemonade, offer a better customer experience while significantly reducing the associated costs of insurance.
Therefore, as consumers, especially millennials, are exposed to these alternatives, the new P2P insurance adoption rate only increases. In the face of P2Ps growth, what are you doing to create a community of happy and engaged customers?