
Saving 80% in 90 Seconds? - Radim
https://blog.lemonade.com/2017/02/15/saving-80-in-80-seconds/
======
drglitch
Why is the title here mention AI if the post itself has absolutely no mention
of it? This is basically blatant advertisement for lemonade. Geico, Metlife,
and others offer very competitive rates for renters insurance (<$80/year) in
major metro areas and have done so for several years

~~~
majormajor
I have similar questions after seeing the example monthly rates they give for
the competition. I've never in my life paid that much for renter's insurance,
it's always been around ~100/year. Progressive and Geico (reselling
Travelers), mainly.

So I just kinda assume it doesn't apply to me, or are best-case edge scenarios
where they judge risk of certain customers dramatically differently. But it
certainly can't be "legacy insurers have enormous overheads, making a $60
product ($5/month) impossible" as a unique advantage, since I pay $75 a year
today.

(And it does cover property damage liability, not simply personal property,
something they seem to indicate their own does not: "Renters insurance covers
personal property, rather than real-estate." Maybe they mean renters policies
usually carry less property coverage, like $100K instead of full value of the
property, I don't know, but it's just another weird thing in a weird-reading
sales pitch that doesn't seem to apply to the world I've been living in.)

~~~
phonon
You are not covered for property damage with a renter's insurance policy. The
$100,000 coverage is for liability (e.g. a guest slips and falls and she's
you.)

You are also covered by a smaller amount (e.g. $10,000) for your personal
property.

~~~
phonon
"and she's you" -> and she sues you

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ridiculous_fish
"Prototaph" by Keith Laumer is a short story with this premise. All the
computers refuse to insure a man, so he goes on a quest to figure out why.
It's a fun read and incredibly prescient, published in 1966!

It's available online legally:

[http://hell.pl/szymon/Baen/The%20Baltic%20War/The%20Lighter%...](http://hell.pl/szymon/Baen/The%20Baltic%20War/The%20Lighter%20Side/0743435370__21.htm)

~~~
CamelCaseName
What a great read! The language is a bit bumpy at times, but it _was_
published over 50 years ago.

What does 'BB' mean?

~~~
Terr_
There's an English idiom "sweating bullets" [0] which refers to a state of
panic or dread, possibly with the image that droplets of sweat are being
forced out at speed.

I believe the author is replacing "bullets" with "BBs" [1] to fit the youthful
21-year-old protagonist. BBs are a much tamer kind of spherical projectile
popularized by a variety of teen-toys. The actual origin of "BB" goes back to
serious guns again, as a defined size of metal buckshot pellets.

[0]
[https://en.wiktionary.org/wiki/sweat_bullets](https://en.wiktionary.org/wiki/sweat_bullets)

[1]
[https://en.wikipedia.org/wiki/BB_gun](https://en.wikipedia.org/wiki/BB_gun)

~~~
CamelCaseName
Ahh, excellent explanation, thank you!

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phonon
They've sold less than $100,000 worth of renter's insurance, after spending
millions of dollars pre and post launch. Their reinsurance costs are almost as
much as their premiums, and they haven't dealt with any large claims yet.
Frankly, they have no idea what their overhead and acquisition costs will be
if and when they sell a material number of policies.

As far as I know, they use standard ISO loss tables with a 50% claims cost
expectation. Even if that pans out, you need to sell a heck of a lot of $60
policies to even cover what they've spent to date.

------
reiderrider
There are a lot of smart people working in competitive insurance markets. To
think AI or Lemonade can drastically reduce the cost of an intangible product
is naive. Most of the cost in insurance is insuring the risk opposed to admin.

~~~
virmundi
I am curious if they are going to make an AI hedge fund. This is how insurance
companies make money. If they can create money without having to pay traders
and analysts, it just might work.

~~~
drglitch
Insurance companies are _not_ hedge funds. They are also typically quite low
margin, volume business. Further, in more common products such as life ins
policies, the risk models are pretty heavily regulated on state/federal level.

Insurance companies make money on fees and on "using" the cash you're paying
(upfront due to amortized payments) for your policies by making low- to mid-
risk investments in various - typically low-liquidity - assets.

(Source: I create risk management systems for insurance companies)

~~~
virmundi
Fair enough. What I meant is that they will shovel funds into the markets in
order to actually make money. The best way to do this is to have a higher risk
approach plus no human traders.

~~~
Spooky23
That sure sounded great to the people running AIG in 2006!

~~~
virmundi
We've come a long way in 10 years. This company was recently discussed on HN
[https://www.bloomberg.com/news/articles/2017-02-06/silicon-v...](https://www.bloomberg.com/news/articles/2017-02-06/silicon-
valley-hedge-fund-takes-on-wall-street-with-ai-trader)

------
siliconc0w
I had state farm (auto) for a few years and at some point their algorithm just
decided to screw me more than doubling my premium. My agent couldn't explain
it so I just had to switch providers. Even this is basically a submarine for
lemonade it'd be interesting to know how many insurers are using Machine
learning and if not why not.

~~~
toomuchtodo
I've always wondered if there was a market for a startup like Credit Karma for
car/renters/homeowner's insurance. Instead of checking for cheaper rates at
policy expiration, the broker startup would check constantly (daily? weekly?)
across as many insurers as possible, and automatically have a new policy
written for you if it was able to find another policy matching your existing
coverage at a lower price.

~~~
pkaye
Why would the rates change so often? I thought they are based on some risk
profiles that don't change that quickly.

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surferninja
A lot of commenters are speculating as to AI analyzing the risk, which, as
they also point out, isn't necessarily a new idea. However, if I interpret the
article correctly:

>Indeed it has so been achieved. It is available 24/7, courtesy of a
delightful bot who will fashion you a $5 policy in 90 seconds and with zero
paperwork.

Between this and the comments about acquisition costs, it seems like they're
saving a lot compared to traditional (legacy) insurance companies by cutting
out customer service reps and agents.

~~~
nerdponx
I'm a happy Lemonade customer. I signed up because a) the policy was dirt
cheap, and b) the policy agreement was clear and also quite generous. It was
not AI-generated: it's just a PDF like every other insurance policy agreement.
And the policy was only so cheap because they let you take out a policy with a
lower coverage limit than you would normally be able to find from a
traditional insurer. Moreover, I didn't get pushy sales calls after getting a
quote (Liberty Mutual was particularly offensive in this regard).

I was skeptical, then my phone got stolen. I reached right out to their
"emergency hotline" and told them what happened. After some initial confusion
I got to work directly with a customer service rep who basically bent over
backwards to ensure that I was satisfied. It didn't seem like a terribly
sustainable way to do things, and I wouldn't expect that kind of service once
they start to grow, but it worked out great for me and I sure as heck got my
money's worth in coverage.

------
rent_seeker
I work in property insurance, and I'm curious as to how lemonade got their
product past state regulators if it's truly some whiz-bang AI or machine
learning stuff driving their model. Most states want to be able to review and
understand filings, and a black box isn't conducive to that. Maybe they're
using it for feature selection?

Edit: Found one of their filings on SERFF public filing access. Lookup
WESA-130711665 on
[https://filingaccess.serff.com/sfa/home/NY](https://filingaccess.serff.com/sfa/home/NY)
if you're interested. 'Rate Support.pdf' has the meat.

It doesn't look like anything special, honestly. They admit most of it is
copied from the largest insurers in the state, and they use a proprietary
credit model from Transunion. This makes sense given that they don't have any
data to train it on since they're, you know, new.

~~~
phonon
The AI stuff they are claiming is to reduce their LAE. (Claimbot type stuff.)

Their rates (and forms) are nothing special--ISO rates + Transunion score. The
only thing unusual in their pricing is they allow you to choose low coverage
amounts + don't charge installment or credit card fees. So you can buy a
decent policy at $5 a month. I am skeptical that will ever be net profitable
though....

------
dboreham
But...aren't these various use cases for Neural Networks that impact regular
people's lives in a significant way sooner or later going to have to show how
they come up with a particular decision? And won't that be hard to do?

~~~
dilemma
Yes. AI is the marketing name for complex algorithms that nobody really know
how they work or why they do what they do.

This will ruin countless lives.

~~~
nerdponx
What? no. "AI" is the marketing name for "machine learning, now with 100% more
chat bots". Most "machine learning" is _not_ "complex algorithms". It's mostly
just support vector machines, clustering algorithms, and some off-the-shelf
neural networks whose behavior is well understood. Whether that's the case
here isn't clear, but a project like DeepMind is not representative of AI in
the wild.

If it does somehow manage to ruin countless lives, it won't be because of AI.
I don't think AI did anything at all for me when I signed up; I didn't even
use a chatbot, I just answered the same questions I answered on every other
insurance quote, and happened to get a better price with sweeter terms than I
got at any other insurer. It also didn't do anything for me when I filed a
claim: they have a clearly-defined policy like any other insurer, and I worked
directly with a (human) agent to get my claim resolved. The AI stuff is a
marketing gimmick.

If it ruins any lives at all, it'll be because the company is selling
insurance for a fixed, below-market rate. But Dan Ariely isn't stupid, and I
assume they'll at least be able to honor their existing contracts in the event
of some kind of widespread catastrophe.

------
djyaz1200
Interesting. Seems like the insurance industry will change dramatically with
the introduction of more data and AI capabilities. Imagine if an insurer ran a
search of social check ins at bars against their auto insurance customers.
Seems like some people might be paying $2K/mo for car insurance while others
pay $40/mo... since with more analysis it will become a lot easier to
determine when those big loses are coming and exactly who from rather than
guessing/averaging like they do now.

~~~
AnthonyMouse
> since with more analysis it will become a lot easier to determine when those
> big loses are coming and exactly who from rather than guessing/averaging
> like they do now.

This is kind of going to break insurance.

When you create more risk pools, you increase the number of low risk people
and decrease the number of high risk people who buy insurance. But it isn't
clear that having more uninsured high risk people is a societal win --
especially if it means replacing insurance claims with bankruptcies.

Meanwhile "more [low risk] people with insurance" is not an unmitigated good,
because people will buy things when the insurance is paying for it that they
wouldn't when paying out of pocket, which significantly increases costs.

And it's easy not to have much sympathy for Those Dirty Drunks About To Get
What They Deserve, but it's really the person the drunk hits who suffers when
the drunk was driving without insurance because it was prohibitively
expensive. Or the hospital who has to treat a bankrupt patient with no medical
insurance.

And being high risk isn't always a result of some moral failing on your part.
Doing genetic testing for medical conditions would certainly allow people
without high risk markers to pay less for insurance, but what happens to the
people who have them?

In the limit where the predictions become extremely accurate there is no point
in even _having_ insurance because your net lifetime insurance premiums will
be so close to your net lifetime insurance claims that the only thing the
insurance company is providing you with is overhead.

But if any insurance companies do this then it doesn't even matter whether all
of them do, because the ones who do will get all the low risk customers and
the other insurers will de facto end up with a high risk pool with high
premiums. So we really need to decide if we actually want this as a matter of
legislation.

~~~
Houshalter
The purpose of insurance is to protect you from unpredictable or unlikely
risks. If a risk is predictable and likely, what's the point?

If you want to distribute risks fairly, that's more a job of government
subsidization. It is unfair that someone born with a genetic disease has to
pay large medical bills, and I'm ok with the government subsidizing that.

On the other hand, I don't want to subsidize the risk of serial drunk drivers.
It's totally fair they have to pay higher premiums or not be allowed to drive.

Ideally there could be a compromise. Like insurance companies agree to insure
bad drivers if they take remedial driving lessons.

It's theoretically possible we could use insurance as a free market solution
to government regulation. Instead of building codes, require building
insurance. And the insurance companies will do their best to actually predict
the risk of various disasters and what things actually work to reduce them.

~~~
AnthonyMouse
> The purpose of insurance is to protect you from unpredictable or unlikely
> risks. If a risk is predictable and likely, what's the point?

That's the problem. The more accurately we can predict insurance claims the
less reason there is for anybody to buy insurance because there is less
uncertainty to insure against.

And one of the things existing insurance does unintentionally is to spread the
cost of misfortune across more people. If the misfortune becomes more
accurately predictable then the people not likely to suffer it are spared the
cost but that only moves more of it to the people who do.

But you make an interesting point in the sense that it isn't enough to prevent
_insurance companies_ from using the information. If insurance _customers_ can
accurately learn their own risk, the same result will obtain regardless
because the low risk customers will opt out of insurance until the premiums
are high enough that the high risk customers do too.

> And the insurance companies will do their best to actually predict the risk
> of various disasters and what things actually work to reduce them.

Unfortunately that is completely the opposite of how insurance actually works.
The insurance company has little control or involvement in such things because
it isn't cost effective for them to micromanage everything. So what actually
happens is that if you require insurance, people buy it and then take more
risks because they have insurance.

The fundamental tenet of insurance is to buy predictability at the cost of
inefficiency. If you independently improve predictability the only thing left
is the inefficiency.

------
nedwin
Great marketing until you realise there are no links to their product or home
page anywhere on this page.

------
neoterics
I work in the insurance industry and for them to extrapolate the average
customer acquisition cost for car insurance to a renters customer is actually
pretty laughable.

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kristianp
Mods / Dang, the actual title is "Saving 80% in 90 Seconds?" "When Tech Makes
Insurance 5x Cheaper",

The tldr is: "our acquisition costs are already 10x lower than legacy
carriers."

~~~
dang
Ok, we reverted the title. Submitted title was "A “killer business model”: AI
in the insurance industry".

Submitters: please use the original title except when it is misleading or
linkbait – that's in
[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html).

------
deepnotderp
I'm sure no one in the insurance industry has thought of using AI....

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sebleon
this is actually pretty interesting, thanks for sharing. didn't realize that
upfront CAC represented the lion's share of E[cost] in renter's insurance...

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ma2rten
Doesn't Geico do the same? They also offer renter's insurance next to car
insurance. Also what does using AI mean exactly?

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allengeorge
So...stats (the same, I presume that a normal insurance company uses) and an
online-only, agent-free model?

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guiomie
Doesnt work in SF ... anyone knows why?

~~~
phonon
Only filed and approved in NY so far.

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cylinder
What does AI have to do with anything?

~~~
brandon272
AI is becoming a marketing buzzword. All software that do anything remotely
clever or interesting is being presented as "AI" helping you solve business
goals.

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melvinmt
> So how can Lemonade be 80% cheaper?

Well, it's just sugar, lemon, and water...

