Demonetizing Insurance

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Massive reductions in insurance costs are coming, along with a wave of disruption.

Traditionally, insurance premiums are determined by actuaries... a function of big numbers, statistics and probabilities.

That's what you have to do when you don't know what's really going on.

You hope that the pool of insured individuals is big enough to account for the variation in your predictive model.

But exponential technologies -- namely computation/digitization, artificial intelligence, machine learning, sensors, networks (especially social networks), and genomics -- will change all of that.

This is a blog about the future of insurance...

Let's dive in.

Disrupting Insurance

I have been advising and am a proud board member of a new company called Lemonade Insurance Company that is rebuilding the insurance model from the bottom up -- it is the world's first "peer-to-peer" (P2P) insurance company.

Imagine just 90 seconds to get insured, 3 minutes to get paid. Zero paperwork.

P2P reverses the traditional insurance model. They treat the premiums you pay as if it's your money. With P2P, everything becomes simple and transparent. Lemonade takes a flat fee, pays claims really fast, and gives back what's left to causes you care about.

This week Lemonade launched their service and announced that they've been licensed as a full-stack insurance carrier by New York State for homeowner and renter's insurance.

The work they've been doing is brilliant, so I'll be using them as a strong example of some of the following ideas.

Let's talk about five exponential drivers of this upcoming insurance revolution…

1. Digitization

Fraud consumes as much as 38% of all the money in the traditional insurance system, inflating premiums by $1,300 and making the claims process protracted and unpleasant.

This happens because there is a lack of transparency in a largely analog (rather than digital) system with many humans in the loop.

If you could digitize the entire process – from signing up to submitting a claim – and give the insured individual full transparency over the status of their request, adding in automation and machine learning, you can dramatically reduce processing time and costs.

This is what Lemonade does at its core. "Technology drives everything at Lemonade," said Shai Wininger, president and cofounder. "From signing up to submitting a claim, the entire experience is mobile, simple and remarkably fast. What used to take weeks or months now happens in minutes or seconds. It's what you get when you replace brokers and paperwork with bots and machine learning. Zero paperwork and instant everything."

2. Implications of Social Networks

Social networks will allow us to create true peer-to-peer insurance models.

Imagine finding a group of peers, who you trust and can vouch for, and coming together as a group to self-insure.

You skip the centralized, expensive middleman insurance carrier – instead, a technology stack (app, database, AI-bot) manages a decentralized network of people who pay premiums and file claims that the group approves.

This takes out an enormous percentage of the cost structure of traditional insurance. Instead of paying fees and insurance company salaries, your peer group will be able to decide what to do with the extra cash that wasn't paid out.

At Lemonade, you actually have the option to donate underwriting profits to nonprofit organizations of your choosing. Their hope is to remake insurance as a social good, rather than a necessary evil.

3. Implications of Genomics

When talking about life insurance, it's going to be difficult to ignore genomic data. Your DNA is your medical future. It's predictive of what's likely to inflict or kill you.

In 2008, a federal law called the Genetic Information Nondiscrimination Act (GINA) was passed to protect people from genetic discrimination in health insurance and employment. The law states, "Genetic discrimination is the misuse of genetic information."

However, life insurance companies are exempt from GINA.

I imagine that, soon, groups with great genes will coalesce and self-insure.

It's in their best interest to do so. You'll be able to upload your genomics data and find others in your peer group that have similar or better risk profiles than you do…

For life insurance companies, I believe there is a beautiful alignment of incentives coming soon. These life insurance companies will use genomics information to help their clients stay alive longer.

Why? Because the longer they are alive, the more premiums they can pay…

4. Implications of Sensors

Sensors will allow insurance policies to be based on actual data (e.g. usage, health), rather than general heuristics and rules.

As an analogy, check out Progressive Insurance's SNAPSHOT Automotive Sensor package – it's a sensor you put in your car that tracks how well you drive. (Do you brake hard? Speed? Take high-speed turns?)

When your insurance policy is based on how you actually drive, rather than just your age, gender and what kind of car you own, safer drivers win.

Sensors will have the biggest impact on health insurance, as hundreds of new health sensors are coming to market in the next 5-10 years.

Sensors tracking healthy behavior such as how much you exercise and what you eat, will get you low insurance costs.

A number of health insurance companies are already using health sensors in their policies.

One notable company called Oscar uses technology to simplify the entire health insurance experience.

You can use their app to talk to a doctor and get prescriptions without leaving home.

They built an app that helps you keep track of your health history with a timeline and you can earn rewards for staying active with a free Misfit step tracker.

In the near future, with the peer-to-peer model, you'll soon upload everything from what you eat to the number of steps you take per day, and find a group with similar health profiles and self-insure.

5. Implications of A.I. & Sensors

The car insurance industry is about to get disrupted in a huge way.

Every major car company is working on full or partial autonomy, and since these cars are projected to reduce accidents by up to 90%, these cars are the beginning of the end for car insurance.

On top of that, why would I need a car insurance policy if I never drive? Or if I don't own a car?

Accounting firm KPMG predicts that the motor insurance market may shrink by 60% by 2040. I think that number is a serious underestimate.

There is certainly a looming legislative battle coming for auto industry and auto insurance stakeholders. Does liability fall on car manufacturers? "Drivers"? Software engineers? AI's? It remains to be seen.

Whatever the case may be, insurance, across the board, is ripe for disruption.

Join Me

This is the sort of conversation we explore at my 250-person executive mastermind group called Abundance 360.

The program is highly selective. If you'd like to be considered, apply here. Share this with your friends, especially if they are interested in any of the areas outlined above.

P.S. Every week I send out a "Tech Blog" like this one. If you want to sign up, subscribe here for this and Abundance Insider.

P.P.S. My dear friend Dan Sullivan and I have a podcast called Exponential Wisdom. Our conversations focus on the exponential technologies creating abundance, the human-technology collaboration, and entrepreneurship. Head here to listen and subscribe: a360.com/podcast

Head here for my full archive of tech insights