
Thoughts on Insurance - akharris
https://blog.ycombinator.com/thoughts-on-insurance/
======
sbarre
_> After paying for broker commissions, fronting costs, reinsurance, customer
service, claims processing, there’s often around 50% of the original premium
dollar left to pay claims – which is the primary purpose of an insurance
company._

What about shareholders? One of the biggest problem I have with insurance
companies as for-profit enterprises is the inherent conflict of interest that
comes from trying to service claims and customers as best as possible and
turning a profit for shareholders.

I've always felt that insurance companies should be run as not-for-profits, or
at the very least co-ops..

Don't get me wrong here, still pay the employees and the executives
competitively (you want things to run efficiently and by talented teams so you
need to attract top talent), but otherwise the whole enterprise should be
working hard to make sure every other dollar goes to helping the customers who
pay the premiums, and that's it.

~~~
bradleyjg
I guess I don't really see your point.

Suppose we take two situations:

#1 As described in the article, between the premium and the actual claims pool
there's 50% lost to all the entities involved -- from brokers up through
reinsurance companies and back down to the entity that actually cuts the claim
check. But further suppose that all these companies happen to be co-ops and so
no dollars are lost to passive investors.

#2 There's a vertically integrated insurance company that is highly efficient.
It only sells directly and doesn't use commissioned salespeople. It has
overhead of only 25% and pays a 10% of revenue dividend to its shareholders,
leaving 65% of premiums to pay claims. This enables the company to offer lower
premiums for the same coverage.

Is #1 somehow morally superior to #2? Do you think it is impossible for #2 to
exist?

~~~
sbarre
I think your example is overly simplistic, but I understand what you're
saying...

To stay at that level, I would say that while there's nothing inherently bad
about #2 it would be better if 75% remained to pay claims, and then they would
not only offer lower premiums but better coverage.

And as someone else said, this isn't about morals, it's about priorities.. An
insurance company should exist primarily to protect it's customers.

That said, if investors were contractually bound to accept only a fixed return
over a period of time (almost like a bond or a GIC or something?) and had no
voting power or influence in the direction of the company, that could work?

My issue is less about "investors" and more about focus and priorities I
suppose..

~~~
bradleyjg
I once read an interesting story about the host* business. Apparently the
dominant player is a for-profit business.

The competition is convents around the country that have traditionally
supplied them to parish churches. Here you have organizations that are as non-
profit as they come -- convents aren't like many hospitals where the CEO and
other high level employees are raking off a huge salaries as quasi-profit. And
the motives and priorities couldn't be any purer, their work is essentially in
the service of what they consider the glorification of God.

Yet they are being out-competed by a for-profit company that explicitly tries
to make on every sale in order to compensate the owners.

How do you explain this if you view profit as deadweight loss that can only be
at the expense of customers?

Edit: [https://www.vice.com/en_us/article/vvaeyb/the-
surprisingly-c...](https://www.vice.com/en_us/article/vvaeyb/the-surprisingly-
cutthroat-business-of-communion-crackers)

*The bread that is used during Catholic masses.

~~~
sbarre
So first off, you're adding additional meaning to my statements by saying
things like "you view profit as deadweight loss", which is not what I said at
all (or if that's what you understood, then my apologies).

Secondly, I don't really think I need to disprove your anecdotal scenarios
(which aren't really apples to apples anyways) in order to stand behind my
statements..

I will say this: I did originally say that executives and employees should be
well-compensated and that the company, while not profit-driven, should still
be _making_ enough money to attract top talent and be competitive in the
market.

My idea was never about running an insurance company like a charity or a tiny
unsophisticated business (as in your host example), it was just about not
prioritizing shareholder profits over the core business service provided to
the customer (i.e. providing coverage and paying claims), which is what many
publicly-traded insurance companies do today.

------
6stringmerc
Disclosure: I've worked in both P&C and Reinsurance for several years. Also on
Wall Street for a couple years. Also in Healthcare for a couple years.

Overall I think this is a nice briefing on the state of the insurance market
in the modern economic landscape. It is extensively regulated with rates set
and various nuances. All of this, of course, comprises part of a grand "data
set" that looks quite appealing to modernization.

Unfortunately, I think there should be a strong expectation that the market
(industry) will both be openly hostile to "disruption" oriented attitudes a la
Uber, but laugh at any ability to raise capital to compete at any meangingful
level.

I applaud your interest in perhaps improving a legally sanctioned form of
graft (I prefer Mutual Organizations myself). Conversely, my experience leads
me to laugh a little because I've seen the numbers and the complexity behind
the scenes. I've got no interest in the industry beyond the paycheck it
provided, but it is quite fascinating in numerous respects. Just the naming
conventions alone once you get to Bermuda is a trip. Good luck.

~~~
SmellTheGlove
We certainly agree on the bulk of your points (see my top-level post elsewhere
in this thread). There is opportunity, though in my opinion, a really good way
to get there is to work with an incumbent on a "modern" strategy. That's
really hand-wavy, I know, but you gotta find the guy who's willing to piss off
its brokers and start there.

~~~
jon-wood
We're doing much that at Neos at the moment. We've taken a series A mostly
funded by a couple of big insurance companies who are interested in what we
can introduce to the market.

~~~
SmellTheGlove
Are you the guys using smart home (is that the right word?) devices to try and
mitigate homeowners claims by preventing or catching problems as they occur
(presumably to respond quickly and limit the extent of damage)? If so, that's
a pretty good idea. Carriers already give discounts for things like alarms,
sprinklers, etc, but virtually none partner directly with a company that can
better assure the quality of monitoring. I'm sure there's a privacy hurdle to
work on, but it has to do something to loss activity, right?

Best of luck!

~~~
jon-wood
We are indeed. Out philosophy is that its better for everyone to prevent a
claim before it escalates into one. To that end we provide smoke, flood,
motion, and door sensors, along with an (optional) camera. We've got some
other cool things in the pipeline capable of not only detecting problems but
also responding to them before they become a crisis.

You're definitely right that there are privacy issues to be answered but we
try to be as transparent as possible about what we're doing with customer's
data, and by being stringent about who has access to sensor data.

~~~
rubyfan
There are a few unresolved issues with the preventative / home sensor
approach.

1\. Sensors dramatically increase the acquisition cost for a policy.

2\. It is unproven that sensors will mitigate losses. We all see the potential
but there just isn't data there to tell us that.

If I could prove #2 then #1 becomes simple math, if the CBA is there then
incumbent carriers will adopt it. It's just not there yet to justify doing
outside of startups and market tests.

3\. When carriers pick a partner and get into the preventative game then
there's some liability that opens up if things go wrong. One could argue that
the carrier is already covering the risk - this just means the preventative
offering has to line up with coverage being bought.

4\. Last but not least, the biggest source of losses is CAT related in
property. Sensors will get at the second tier water and fire - again loss
avoidance has to justify the sensors unless the preventative side is an
ongoing fee service.

~~~
jon-wood
Sensors definitely increase the acquisition costs, although at least early on
there's customers who see them as a benefit they're willing to trade the usual
cashback/discounts/etc for, so its not as bad as you might think. We're also
looking at ways to reduce the cost of sensors over time.

As for proving that sensors mitigate losses, even in our initial beta period
we've seen a couple of potentially large escape of water claims avoided by
early detection of a leak, and that's before we start introducing truly
preventative measures as opposed to just detection. We're very focused
initially on escape of water because those are in fact the largest source of
losses in the industry - fire is fairly rare, theft tends to be pretty cheap
to handle claims for, but a leaking dishwasher left while someone is at work
for the day can easily require replacing everything on the ground floor of a
small house.

~~~
rayhano
So I wanted to try Neos after meeting a Zoopla exec who said they had
invested.

But when the premium came out at over 4x my existing renewal quote I became
less enthused.

And then I saw the Excess Charge (for making a claim) was £1,000 vs the £250
norm, I ran away to the nearest comparison site to find vanilla home
insurance.

I think the conversion process might need looking at to make the benefits less
nakedly focused on cost.

~~~
jon-wood
Give us another go in a few weeks - our initial trials we were partnered with
Hiscox, and were bound to only their (really expensive) policies.

We're now in the final stages of rolling out our own policies which are much
more competitive - quoting on my own house has our policies coming out cheaper
than my current home insurance policy, with much better service.

~~~
rayhano
Awesome, looking forward to using something that adds value beyond 'invisible
protection'

------
socrates1998
The biggest problem I have with insurance is the inherent disproportionate
power relationship between the company and their customer.

Essentially, the moment a customer becomes more trouble than they are worth,
they are dropped. This is true with other types of industries, but if your
health insurance drops you when you get cancer, you can't get more health
insurance, and you die.

Same with house insurance, car insurance, ect...

And it causes death or financial disaster all too often.

Some would argue that "this doesn't happen" or "it's illegal".

1) It happens ALL THE TIME.

2) It's illegal, but if you don't have the means or education to fight it. You
are pretty much done.

It's the fundamental nature of insurance companies to milk healthy customers
while dropping unhealthy customers. It's just too tempting and they are too
protected by our legal system for them to not do it.

I know this is pessimistic, but as long as you realize this fundamental
imbalance in the relationship with you and your insurance companies, you can
mitigate it to a certain extent.

But, really, the only way to completely mitigate it is to be so rich that you
don't even need insurance.

~~~
fanzhang
I think you're confusing "health insurance" which has a strong social
redistribution component, with pure insurance, which is a business transaction
to pay off on the chance something happens.

Pure insurance is when a consumer buys a Playstation for $300, and then pays
$5 for an extended warranty, or when a company insures their office building
against a fire. I don't think your arguments apply to that. In such a case, is
there unacceptable social harm if a insurance company determines I'm really
bad at taking care of my Playstation, and refuses to insure me? Is a company
that badly off if they need to write down the cost of a building if it gets
burned down?

Is all insurance a social right? I feel that health insurance has the
strongest claim to this, because it's not a pure business transaction and it's
about who we're letting die in society.

~~~
losteric
I think fair and transparent business contracts are a consumer right.

Insurance is statistical in nature, and contracts should be required to
explicitly outline the scope of coverage. If I’m paying $5/m for coverage of
manufacturing issues with my Playstation, I expect any manufacturing issues to
be covered. I would also expect an extremely unlucky customer to receive
multiple device replacements without any change of premium - because the
contract and price should reflect the expected failure rate of the device
(plus overhead + profit).

In that example, it should be illegal to boot an honest customer after the
first failure… the only reason to do so would be because the insurance company
set an artificially low rate that _doesn’t_ reflect the ammortized rate of
manufacturing issues. In other words: the business is breaching contract by
charging me for a different service than I’m getting.

Although, given the clear scope of coverage, proof of malfeasance is
justification to both refuse payout _and_ ban the customer.

However, if I’m paying $5/m for _unlimited coverage_ , I expect unlimited
coverage. That rate is expected to cover idiots that keep their Playstation on
a fireplace, and perfect people that never move the device from a cool
location away from vibrations and interference. Again - if I get kicked after
the first failure, that’s failse advertising. Of course there are people that
will microwave their device for fun and demand a replacement - the rate should
include those people, or the contract should not offer unlimited coverage.

Businesses are free to not offer unprofitable coverage, but consumers have an
economic right to demand that businesses honor contracts. I’d argue that
consumers also have a right to accurate advertising - if the “unlimited
coverage” plan has fine text that says “manufacturing issues only”, well,
that’s not really above-board.

~~~
briandear
Totally agree; the problem of insurance is one of contract law. Most people
denied claims are denied legitimately based on the contract they signed.
However, there is the perception that claims are denied unfairly because there
is a disconnect between what you thought you signed with what you actually
signed.

I saw this every day when I was a catastrophe claims adjuster with Farmers
Insurance during Hurricane Ike that demolished a good part of the
Texas/Louisiana coast. I actually had a customer threaten to shoot me because
I couldn’t write a check for a water damaged wood floor despite writing a big
check to replace the roof. The actual source of the water damage wasn’t the
roof, it was the floodwater. So while the walls from the roof downward were
covered because that damage was from the seepage from the damaged roof, the
floor damage was entirely from the flood. (It was a two story house so the
water from the roof seeped through the walls from the attic and leached
downward into the drywall, while the floor downstairs was covered in a pool of
water from the floor.

The point is the homeowner thought he was covered despite there being an
extremely clear flood exclusion for that particular policy. I could have been
really strict and only covered the walls down to the flood line, but since the
walls were a total loss either way, I had the flexibility to cover the walls
all the way to the floor.

I saw this misunderstanding again and again when it came to roofs. A 20 year
roof that is 10 years old is only covered at a fraction of replacement cost
because it only had 10 years of value remaining. Those were uncomfortable
situations for me however, the homeowner, when buying them policy could have
bought a replacement cost add-on, but they wanted to save money so they got
burned when they needed the coverage.

Insurance agents are a HUGE part of the problem – is claims adjusters had to
be the “bad guy” and break the news that their policy didn’t cover what they
thought it did. I was the one getting harrassee when all I was doing was
following the contract. I did my best to lean on the side of the homeowner,
but all of my payouts had to be supported by detailed measurements,
photographs and Xactimate estimates.

A nasty business that was. I barely lasted a year before I burned out.

~~~
s73ver
I think it is these "pick and choose" exclusions that have no actual sense to
them. Of course a homeowner's insurance policy should cover flood damage to a
floor. The floor is part of the home, isn't it? But no, the company decides to
pick and choose, and they never really call attention to it.

This is why the ACA came up with the "Essential Health Benefits" list. There
were so many things that, common sense would tell you should be covered, but
insurance companies would exclude for no viable reason (making more money or
not having to pay out claims are not things I consider "viable reasons" in
this context). You'd buy insurance, only to find out it wouldn't actually
cover things that people would want to use it for.

~~~
Pyxl101
Insurance doesn't generally cover flood damage for structures in flood zones,
or does so at a much higher price.

The point of briandear's example was that wind had damaged the roof and walls,
and wind storms were covered by the insurance; whereas flooding had damaged
the floors, and flooding was not covered by the insurance.

When you get insurance, it doesn't necessarily cover everything. You might
have insurance that will pay for your home if it catches fire and is destroyed
accidentally, but will not pay if a person deliberately commits arson.
Insurance might pay of your home is destroyed by a storm, but not by a
landslide, and so on.

The main problem I heard with briandear's example is that people apparently
didn't understand the coverage they had purchased. If I operated an insurance
company, I would consider summarizing the policy that people were about to
purchase with a simple form showing the most common hazards. Maybe even show
them with simple glyphs depicting fire, floods, storms, etc., and indicating
whether their plan covers that scenario or not. Ask them to sign or initial
that form. It's not a legal form, but you'd present it to them and ask them to
confirm they understand it along with the contract text version.

Then, when an event happens and they're asking for an insurance payment, you
show them the form that they had initialized, and explain how things were
covered or not covered.

I would also want to explain to people that multiple disasters can happen at
once, and explain how the insurance company will reason about what's covered,
based on the cause of each thing that was damaged or destroyed.

~~~
ProblemFactory
> The main problem I heard with briandear's example is that people apparently
> didn't understand the coverage they had purchased.

While that's true, a part of the reason is the complexity of policies, and
exclusions for situations which people consider "common sense" to be covered.
Situations which are medium risk, but part of people's everyday lives.

For example, my travel insurance does not cover accidents which are "a result
of drug or alcohol influence". My laptop loss insurance does not cover theft
if it is "left unattended in a room with public access".

It might make sense to exclude getting high on unknown drugs in Thailand and
stabbing yourself, or leaving your laptop on a truck stop cafe table while
going to the toilet.

But at the same time, having a few beers while on holiday, and leaving your
laptop on your desk at a startup office are both things which reasonable,
responsible people still often do. And would not expect to invalidate their
insurance cover.

Unfortunately nobody could explain to me the precise details of these clauses
- what counts as a "result of" or "public access".

------
asr
Before you go thinking about how this applies to healthcare... health
insurance in the U.S. is different from other types of insurance and
personally I think we'd all be better off it were not even called "insurance."

Health insurance is a mix of pre-paying for predictable and certain expenses
with tax-free dollars, a transfer/entitlement system to ensure that more
people can afford insurance (by design, your premium does not match your
expected risk--either you are pooled with others at your employer, or your
exchange account is subject to rating band requirements which means, for
example, that in many states old people can only be charged 3X more than young
people even though old people are likely to be much more than 3x more
expensive to insure), and actual insurance. I'm not sure what percentage of
your premium reflects the cost of actually insuring you against uncertain
future health events, but it's far from 100%.

This is an interesting article, and _some_ of it applies to healthcare in the
U.S., but much of it does not.

~~~
rsync
"health insurance in the U.S. is different from other types of insurance and
personally I think we'd all be better off it were not even called
"insurance.""

Agreed. If regular, predictable events are covered, it is not insurance.
Regular, predictable events are not insurable. Be cause math.

Wellness checkups and scheduled preventative care and yearly
mammograms/prostate are _all fantastic things_ ... but they're not insurable.
If someone is selling "insurance" for those things, you can be certain that
you're paying 100% of the cost somewhere.

~~~
pharrlax
>If regular, predictable events are covered, it is not insurance. Regular,
predictable events are not insurable.

The problem in the U.S. is that we have this bizarre system where hospitals
charge exorbitant prices and then insurers haggle them down to something
halfway sane. So when you're paying for "insurance" you're (ideally) getting
both catastrophic coverage (i.e. actual insurance) as well as access to a
cartel that negotiates prices down from impossible heights on your behalf --
even for routine care.

Since most people who regularly access medical care do so through these
cartels, care providers have no incentive to make care more affordable than
what they can get away with -- and insurers have no incentive to allow the
price to drop either, since people being able to afford care outside the
cartels would ultimately undercut their profits.

This system is fundamentally unworkable. There's really no way to detangle the
perverse incentives here in a way that will bring prices down to a level
comparable with single payer healthcare.

~~~
kronin
The ultimate reason behind hospitals attempting to charge exorbitant prices is
due to Medicare and Medicaid paying under cost for services. Hospitals need to
make that difference up somewhere. Surprisingly, if you remove the profit
hospitals make on ancillary services like the gift shop, parking fees and
investment income, they are losing money.

~~~
maroonblazer
Isn't the overly-litigious nature of the U.S.A also why costs are so high?

The malpractice insurance that docs and hospitals need to carry in order to
defend themselves should they be sued is passed onto consumers in the form of
higher medical costs.

Or at least that's how someone once explained it to me. Is that not also a
contributing factor?

~~~
analog31
Anybody in the entire health care system can point their finger at someone
else and claim that they're the ones who are gouging us. I suspect that
they're all gouging us.

One thing I've read is that states with caps on malpractice claims do not have
lower medical costs.

------
wyldfire
I've always wondered about US health insurance -- why can't the physician give
me quotes about my personal obligation for various treatment options? It's
frustrating that as soon as it's time to come up with a bill, poof there it is
but prior to the bill being generated all I get is shrugs?

Is it because the insurance coverage algorithms are too complicated? Because
the different entities involved in a single treatment plan is too complicated
to navigate? Because physicians feel that cost is orthogonal to medicine and
they prefer not to be involved/prefer to recommend the ideal treatment based
on a predicted outcome? All of the above?

It feels like if there were a particular hospital group / physician group that
had this feature, they would attract a lot of attention. Just imagine, "Your
initial differential diagnosis will not exceed $150 and we'll discuss
treatment options or more conclusive diagnostic tests afterwards."

All I've heard so far are physicians who don't accept insurance but instead
have a straightforward "menu" for common items, which is interesting but not
what I think most people want.

~~~
dannysu
I think what's happening is that your doctor will attempt to get as much money
from the insurance company as he/she can.

My wife has experience of the doctor's office asking insurance company for $X,
and the insurance company comes back and say "no, max $Y". So then the final
"cost" all of a sudden becomes $Y. Pay attention to the claims that your
doctors send to insurance company and you might be able to see that.

So instead of telling you, yes, whatever procedure is definitely just going to
cost $Y. They can't tell you how much things are. It depends on maneuvers with
other players in the industry.

This is very different than say in Canada. If I want to get a teeth filling in
Canada, my dentist straight up tells me how much before the procedure. If I
want to price shop that, I can. In the US, nobody is willing to say how much,
because "it depends".

It's not because intrinsically there can't be price transparency. It's because
of all the messed up incentives that the industry has that causes US health
care to be as such.

~~~
djrogers
Actually, dental care is like that in the US - your dentist can tell you the
price, and you can price shop it. If you happen to have dental insurance, they
may not know how much of that bill will be covered, but you can absolutely get
costs from them.

Other healthcare on the other hand is often a mess, although it is getting
better. I've found recently (an MRI in this instance) that I was able to get
costs beforehand, and even compare prices. I think the prevalence of HDHP
(high deductible health plans) has steered people towards expecting to pay
out-of-pocket for care, which has led to a positive change in this area.

~~~
brianwawok
Vets are like this too. Vets and Dental are very simple.

My root canal is $325? Cool. I can shop it around or go with it. Same with a
pet procedure.

Medical is the crazy town.

------
Animats
Insurance companies have been into information processing in a big way since
paper and pencil days. The first company to buy a commercial computer was
Metropolitan Life.

In commercial insurance, there's a question of how intrusive the insurance
company should be. My favorite insurance company, The Hartford Steam Boiler
Insurance Company, established in 1866, was finally bought out by Munich Re a
few years ago. Hartford Steam Boiler insures boilers and equipment in
industrial plants. Most of their employees are inspectors. If you want to buy
a policy from them, they come out and inspect the equipment. They give you a
list of what you have to fix. Then they come back to inspect after everything
is fixed. _Then_ they sell you a policy. They also inspect again, randomly and
unannounced. Cut corners on maintenance, and HSB cancels your policy. The
premiums are low, because boilers inspected by Hartford Steam Boiler don't
blow up.

Most companies hate that, even though the premiums are lower.

~~~
shostack
It's actually creepy how invasive they are and this is often where the
customer-hostile relationship comes from.

"Install this overly invasive tracking device to let us make sure you are an
ok risk and we'll give you this immaterial discount that is really a price
hike for everyone in disguise."

I got an electric toothbrush from my dental insurance provider that has WiFi
to transmit data on my brushing habits back to them. I can guarantee this
thing will never have network access.

------
gwintrob
We're working on the modern commercial insurance brokerage at Abe
([https://www.hiabe.com/](https://www.hiabe.com/)).

Aaron's right that too much of the industry runs on pen and paper. It's
confusing for the buyer and a massive headache for brokers.

Most of what we're building is behind the scenes to make the brokerage way
more efficient. If you're an insurance expert with ideas to leverage tech or
engineer interested in man+machine symbiosis, I'd love to chat (gordon [at]
hiabe.com)!

~~~
firloop
FYI, your landing page breaks on Safari with uBlock.

~~~
gwintrob
Whoops, will fix that. Thanks!

------
togasystems
After having spent the last 3 years in insurance with Allay trying to take on
employer health insurance costs by making it easier for smaller groups to
become self insured, I have found that the regulations are cumbersome but not
huge blockers. The regulations are there to protect people and for the most
part do that job correctly.

The hard part about this industry is that there is no single incumbent to
disrupt, but thousand of very small businesses who have personal relationships
with their clients. Also whereever you jump into the process, you have to deal
with companies who do not value technology as much as the HN crowd would.
These companies still print out PDFs and have automated very little of their
business. No matter how fast you make your software, you are the behest of the
companies below and above you in the chain.

If anybody wants to nerd out on the insurance industry, my contact is in my
profile.

~~~
pnathan
> The hard part about this industry is that there is no single incumbent to
> disrupt, but thousand of very small businesses who have personal
> relationships with their clients. Also whereever you jump into the process,
> you have to deal with companies who do not value technology as much as the
> HN crowd would. These companies still print out PDFs and have automated very
> little of their business. No matter how fast you make your software, you are
> the behest of the companies below and above you in the chain.

Quoted for truth, as we used to say in forums long ago. This represents a
_non-trivial_ issue in delivering solutions.

------
toddwprice
Healthcare needs to be funded through a non-profit community trust whose first
priority is to secure the highest overall health for the population. Insurance
is motivated by profit which will always seek to squeeze more money from the
system as its first priority.

------
aaroninsf
Some context:

Americans pay 2.5x more than the average first-world single-payer system.

2.5x...

This funds demonstrably and starkly worse outcomes on the metrics we should
collectively care about: life expectancy. Incidence of chronic disease. Infant
morality.

The reason we pay much more for much less is simple: for-profit health care
optimizes for profits, not outcomes. That is exactly what it has done; exactly
what it will do.

The public sector already does single-payer in this country with an order of
magnitude less overhead cost than the private sector.

When I discuss these facts with conservatives and libertarians, I usually
discover that most of this is decreed "fine," because we disagree about
whether or not health care is a right.

For that reason, I've stopped suggesting that it is, and focused on another
stark fact:

Failure to provide basic health care to all, through straightforward means,
merely means that it is provided through partially hidden means (like ER
rooms) at vastly greater cost, not least because emergency care cannot perform
preventive and chronic care, which in many cases would provide better outcomes
for two orders of magnitude less cost.

Morality is a matter of instinct and choice. The costs of the existing broken
system are however obvious, and render any defense IMO irrational.

~~~
refurb
_The reason we pay much more for much less is simple: for-profit health care
optimizes for profits, not outcomes._

Over 50% of healthcare in the US is paid for by the gov't and those costs are
still higher than other systems that are single payer and non-profit.

Doesn't quite align with your theory though.

~~~
notahacker
The healthcare services paid for by the government is (i) provided by profit-
motivated companies with all the private sector incentives to overdiagnose and
(ii) typically performed at lower rates than those paid by private insurers,
and much lower rates than those paid by individuals without the relevant
insurance cover.

~~~
refurb
But even at Medicaid rates, the cost of healthcare in the US is higher than
other countries.

Are you suggesting that the gov't is swayed by the demands of for-profit
companies?

~~~
creaghpatr
Absolutely, the Healthcare Lobby gets what they want, regardless of which
party is in power.

~~~
refurb
Well plenty of health care providers refused to service Medicaid patients
because the rates are so low. That would infer that they aren't getting what
they want from the gov't.

------
gilsadis
It's an excellent article and spot on. Insurance has remained fundamentally
unchanged for centuries. In order to really change it, a complete re-
architecture is needed. Insurance should be fully digital, hassle free,
transparent and fair.

It's hard to really change it when you're not a fully licensed and regulated
carrier. An MGA can create a beautiful UI on top of an old insurance product,
but eventually, consumers will meet face to face with this old insurance
product (for example in claims), and it's going to be the same old experience
again.

As many of you stated here, there's an inherent conflict between the insurance
company and the insured. Until that changes, the experience will stay the
same.

In Lemonade, we are changing that. Will love to get your feedback. Here's how
it works -
[https://www.youtube.com/watch?v=6U08uhV8c6Y&t=9s](https://www.youtube.com/watch?v=6U08uhV8c6Y&t=9s)

Disclaimer: I'm head of product at Lemonade (lemonade.com)

------
frabcus
Surprised not to see mention of the fundamental modern tech problem with
regard to insurance.

As soon as you have big enough data, and artificially intelligent enough
algorithms, the insurance becomes _too_ predictive.

The whole point of insurance is to pay people when rare, bad events happen to
them. If an insurer can predict well enough who will be the victims, it can
refuse them insurance, and hence remove the entire purpose and benefit of the
insurance.

This is the flip side to moral hazard. What does it even mean to offer
commercial insurance, if it is only offered to the people who least need it?

This is least bad, for example, with a car predicting you're a bad driver as
you can improve behaviour. It is really problematic with data such as gene
sequencing, which you can't do anything about.

Only way out I can see is compulsory insurance, levied as a tax. Or maybe non-
profit or Government AIs, trained to find a sweet spot between moral hazard
and its opposite?

~~~
xyzzyz
_Only way out I can see is compulsory insurance, levied as a tax._

I cannot help but notice that you basically reinvented welfare state.

~~~
Kluny
Only if it's applied as a blanket policy that insures everything and everyone
has to pay it. In a more limited way, you can look at British Columbia's
Autoplan insurance. It's a crown corporation that provides insurance to
everyone in BC. Everyone is required by law to carry insurance on their
vehicle, and they have to buy it from ICBC. It's not the cheapest in the
world, as they have no competitors, but they are legally required to keep
costs fairly low. So everyone in BC can get car insurance and it ends up
costing something like $50-150 per month per car. No one gets denied, no one
goes without coverage, and they have a big enough customer base to cover their
costs.

------
Spearchucker
I've done a lot of systems design and development in the insurance industry,
and it's a vast space with opportunities not just for insurers.

The most recent thing I worked on was a pricing and activation engine that sat
behind a web site that acted as a broker for a number of insurers. That isn't
new, but it was new for this market - life insurance. As such my employer was
a single provider on a panel of providers.

The web site that provided the panel brought a number of innovations - one of
them being an underwriting SaaS. Panel participants are able to enter their
underwriting crown jewels into a 3rd party web site, secure in the knowledge
that their IP wasn't going to be leaked or shared with others on the panel.

There were many more efficiencies that the model enabled, which were never
realised (well, not by the time I left) because the SaaS provider couldn't
reach financial agreements with some of the providers.

Greed was (is?) something that risked torpedoing the most innovative thing
I've seen in life insurance, ever.

All that to say I agree that this market is brimming with opportunity. The
market is so incredibly broad, and deep, and so complex... Regulation is
definitely a thing, but hardly an impediment. I have, for example, spent many
years in this industry, but never worked for (or with) reinsurers. I have a
long-standing suspicion though, that that market is so convoluted that the
front-line insurer can conceivable be it's own reinsurer, after having passed
through like, 15 other reinsurers...

------
zstiefler
While much of what Aaron wrote is spot on, one thing missing is the importance
of distribution. This a challenge for any startup, but is more pronounced in a
regulated industry like insurance with largely homogenized products and with
serious restrictions on how you can legally distribute your product (see
Zenefits).

If you consider how most people and small businesses buy insurance, they
typically make purchasing decisions one a year at most. As such, you need to
get in front of them at the exact moment they want to purchase. GEICO and
Progressive have done this really well, but have effectively bid up the cost
of online advertising to make it prohibitively expensive. This is also why
agents are such a powerful force in the industry (and because they effectively
provide carriers with an initial underwriting screen which they don't need to
file publicly).

It's important to get the product right, and there are many flaws with most
P&C insurance today (chief among them that the forms haven't really changed in
the past few decades), but I'd encourage any entrepreneurs to make sure they
have an answer on distribution before spending time on product.

Disclosure: I've spent a lot of time looking at this as founder of a P&C
insurance startup a few years ago.

~~~
ssharp
I work in marketing for a specialty P&C MGA and can attest to distribution
challenges, at least compared to other industries, but Zenefits could have
(and currently does) operate legally, they just chose not to.

Zenefits was allowing unlicensed agents sell insurance and for those in the
company that were licensed, they found a browser hack that allowed them to not
sit through the training required by the state (I'm assuming California) to be
licensed. In the first case, you should know better but there can be gray
areas. In the second case, it's 100% clear they knew they shouldn't be doing
it, which makes the first case more likely to have been done knowingly and
purposefully.

Yes, having to license people is a pain and presents onboarding and scaling
issues, but they could have survived if they didn't "need" to grow at such an
insane pace.

~~~
zstiefler
Agree 100%. I suspect a lot of this came back to their investors demanding
exponential growth.

------
SmellTheGlove
Nice writeup. Certainly scratches the surface a bit (and I think that was the
intent). I've spent the bulk of my career in the industry, both in P&C and
A&H, and there is a ton of opportunity. You correctly conclude that it's not
because we're idiots, even though some days I'm kind of an idiot.

Again, tons of opportunity, with some barriers that aren't unique to the
industry but maybe unique to what the tech community might encounter (and this
is by no means an exhaustive list) -

1\. Capital requirements: You need a dumptruck full of money to do much in
this industry, at least if your intent is to write or reinsure business, but
even to a lesser degree if you're working in ancillary services.

2\. Regulatory environment: Assuming US operations, 50 states with 50
different sets of regs need to be okay with what you're doing. In addition,
federal law comes into play in certain spaces (GLB, HIPAA, etc).

3\. Distribution: The current model compensates every layer of the
distribution model very well. It's not as easy as you might imagine to disrupt
when entrenched interests are all making a ton of money AND are interdependent
upon their neighbors in the value chain to continue to do that. You can't just
hack a piece off because that bothers their neighbor, who in other
circumstances might otherwise be a competitor, but has a shared interest. The
relationships get complex.

None of this is fatal, but you must navigate it and play by many of the rules,
particularly with #2. As Zenefits learned very publicly, the insurance
industry and its regulators weren't going to let someone do what Uber did to
the taxi industry - which was essentially to operate in the grey/black and
just ignore the calls to stop. Insurance is a subset of financial services,
and financial services is a powerful industry. For any startup, my advice is
to build compliance and regulatory relations in from day 1. It's the least
exciting thing you'll ever do, but is extremely important. Anyhow, I'm
rambling. By no means do I want to discourage anyone from trying, I'm just
trying to highlight some of the big things that are "different" in our space.

I'm particularly interested in the data piece because that's what I've done
and built a career on in this industry, but it never struck me as sexy enough
for YC. Appreciate the article.

------
ksar
> For most of the insurance world, the hardest and most important thing to
> find is effective distribution and customer acquisition.

This is absolutely true. If you look at how regional, family-owned P&C
carriers got their start, you'll find they started as brokers. These brokers
found a profitable niche (call it motorcycles in California, or non-standard
auto in Texas) that they wanted to own, moved on to become MGAs, and then
admitted carriers offering multiple lines of business.

If you can find a way to own the customer as a distributor, you own the life-
blood of the entire business downstream. As a result, P&C insurance companies
are huge spenders on marketing (GEICO, spends $1.7B/year). It would be game-
changing if this cash was used to provide utility to their customers above and
beyond the insurance transaction.

I'm of the opinion that insurance premiums could be the new ad dollars - used
to create products that promote lock-in, and much more consumer-centric
insurance companies.

~~~
stillsut
> If you can find a way to own the customer as a distributor, you own the
> life-blood of the entire business downstream.

Very interesting thought. Like how I buy clothes from Nike, then advertise
them. I had some thoughts on this a while back if you're interested:

[https://docs.google.com/presentation/d/1XvXVlzZULoRSfmCsPEKf...](https://docs.google.com/presentation/d/1XvXVlzZULoRSfmCsPEKfOcblig-
kBR83CnRgKlsj02I/edit#slide=id.p14)

------
sharemywin
You also might want to check out guidewire. They're the company that's
basically taking over the software side of P&C for carriers.

[https://www.guidewire.com/](https://www.guidewire.com/)

If you're going to innovate on the software side in P&C you would need to
figure out what they're not doing or could not do that would allow you to get
ahead of them.

~~~
sharemywin
doesn't mean their isn't business model innovation or some kind of niche or
not being a carrier.

------
joshfraser
My issue with insurance companies is that they're conflicted by design.

As typically publicly traded companies, they have a fiduciary responsibility
to their shareholders to maximize profits. And the only way to maximize
profits is to deny coverage.

The purpose and value of insurance is amortizing risk. There are very few
things that I think should be controlled by the federal government, but a
single payer health care system is one of the few that actually makes sense
from an incentives perspective.

In the words of Charlie Munger who's spent more time thinking about insurance
than almost anyone: "Show me the incentive and I will show you the outcome."

Why does the US pay the highest prices for mediocre health care? Perverse
incentives.

~~~
zerni
Very good point. Conflict of interest is the real flaw in the insurance
business model. What other industry makes more money when their customers slip
up?!

Insurers try to protect their margin by finding ways to reject claims.

I am actually working on a company changing that by making money when settling
claims instead of losing it.

[http://insureathing.com/insurance/wanted-an-insurance-
partne...](http://insureathing.com/insurance/wanted-an-insurance-partner-in-
crime-part-ii-01-2017)

~~~
joshfraser
Let me see if I understand correctly.

When there's a claim, you send all members a bill for their share of the claim
plus your fee. If there are no claims, you don't get paid. You're incentivized
to pay out so you get your fees. But not too often or premiums will sky-rocket
and you'll lose customers. Is that right?

What happens if there is a spike in claims and everyone leaves at once?

~~~
zerni
That's exactly what it is.

You benefit on the upside but if there are outliers and the premium would
skyrocket we cap your premium at market rate through an agreement with a
reinsurer. It's a standard financial tool insurers are using as well.

------
kozikow
Unless you start with covering something completely new, I think it makes
sense to start as analytics provider for insurance. Becoming a carrier is
expensive, and MGA can only sell existing policies already created by a
carrier. If you sell existing policy you are at severe data disadvantage
comparing to existing insurance companies, even with superior tech.

Shameless plug: At [https://tensorflight.com](https://tensorflight.com) we are
working on P&C insurance and we focus on analytics for commercial properties
mentioned in the article. Please get in touch at ( kozikow [at]
tensorflight.com ) if you are interested in the subject.

~~~
SmellTheGlove
This is not really related to your post, but you mentioned MGAs, which
reminded me of something -

If you are getting into this business and are looking to write in most/all 50
states, one of the more cost-effective ways to acquire the licensing and
company structure is to purchase a struggling/defunct carrier or MGA
(depending on what your needs are). I didn't say cheap, but it's often cheaper
than structuring and licensing yourself from nothing.

~~~
asmithmd1
A NYC insurance startup is doing the slog of rolling out one state at a time:

[https://www.lemonade.com/lemonade_goes_nationwide](https://www.lemonade.com/lemonade_goes_nationwide)

~~~
SmellTheGlove
Lemonade probably should ramp up slowly until they have more experience data
to look at (my opinion only of course), so it's probably not too
disadvantageous.

Plus, if you're going the route of getting licenses via acquisition, you need
the money to make that investment. It can be cost effective to go that way,
but not cheap, so if you're not trying to blow all of your cash at once and
can benefit from a slow roll to 50 states, the traditional route will be fine.

------
osullivj
The article spends many paragraphs on the complexities of the B2B and B2C
players in insurance, their distribution channels, and how they get paid. It
spends one sentence on noting how the pricing of risk is based on actuarial
models, and then moves on. The pricing of risk is absolutely key to the entire
industry, and it is stone age! It's all done in spreadsheets.

~~~
SmellTheGlove
> The article spends many paragraphs on the complexities of the B2B and B2C
> players in insurance, their distribution channels, and how they get paid.

The article is primarily focused on commercial lines - primarily P&C, but
there are similarities in A&H. The distribution stack is complex and is a
natural starting point to start looking at opportunities. The general tech
community probably isn't going to look at risk pricing and the ancillary
services associated with that - there's a whole discipline built around it and
I don't know how many in YC's catchment would be FSA/ASAs or excited by that
particular aspect. Plus, for traditional products in P&C and the Disability
side of A&H, the industry is pretty good at pricing the risk. Nobody's
squeezing growth from their underwriting ratio, they're doing it through
products and distribution.

Anyhow, not trying to give you a hard time, just another angle.

> It's all done in spreadsheets.

No it isn't!

------
Entangled
What if a thousand people get together and put $100 each in the blockchain in
order to cover emergencies for the unlucky 10% that may need aid in times of
distress?

A society can't function if more than 10% of the population is in distress and
that's exactly the purpose of insurance, the many helping the few, not the
other way around.

But since insurance moves a lot of money (just like banking) and there is
propensity to fraud and corruption, then it is highly regulated making it hard
for newcomers to disrupt the market.

Start from the beginning again using technology, allow tech insurers to take
from 100 and serve 10, that's it. Who to serve? That's the easy part, those in
need.

~~~
soared
Interesting idea. But wouldn't the value of the coin just drop when a disaster
occurred, so those who need the money wouldn't have nearly as much as they
expected?

EDIT: Realized you never said coin. I just assumed blockchain + money = coin.

~~~
Entangled
No, not a coin, it would be dollars, euros or whatever local currency. The
blockchain is to keep track of the books in the public eye.

The pool of money is there until its depleted for the month with a cap of 10%
per user, or it would rollover for the next month so more emergencies can be
covered. A healthy society can build up a huge chest for when big emergencies
hit.

If you want more coverage then you acquire a second tier risk insurance which
has a bigger pool and different coverages so practically the market allocates
resources more wisely.

~~~
notahacker
But the blockchain doesn't actually deal with either of the problems the
insurance industry aims to solve (assessing the legitimacy of claims, and
keeping amounts paid in premiums in line with amounts paid in claims)

If people use your system honestly, it's likely more expensive than an
insurance scheme, because your maximum claim in a given time period is a low
multiple of your premium. If people don't use your system honestly and claim
what they want when they want (because who cares if the permanent record says
they made three maximum claims in consecutive months when there's no central
authority to object) it's less stable than a Ponzi scheme.

------
chiph
The article mentions "Personal Cyber Insurance"

Many insurance companies will insure against data loss as part of your
homeowner's policy (with lots of exclusions..) and I've been wondering why
they don't partner with one of the online backup services (SpiderOak,
Backblaze, etc) in order to preserve their customer's data to reduce the risk
of a payout, or at least how much they have to pay on a claim.

------
sonink
I might not know too much about the topic, but imo American healthcare system
has a lot of learn from the Indian healthcare system. My guess is that America
should simply copy-paste India's model and it should be good to go.

For the resources that it spends on healthcare, the Indian healthcare systems
offers perhaps the most efficient system in the world. There is insurance if
you want, but you can choose your health providers in the free market too.

Hospitals, Doctors, Medicines, Tests, Procedures, Post-op care/services -
everything can be comparison shopped. And if you have more time than money,
you can show up at any one of the almost-free govt. funded hospitals to get
treated by who is often a very good doctor.

The inefficiency of the American system might as well be a result of extensive
litigation around healthcare, but I suspect that its simply an oligopoly
defended by pocketed politicians.

I would guess that for any hospital expense above a few thousand dollars, and
for someone who cant afford, it might make a lot of sense to just hop on a
plane to India.

~~~
chimeracoder
While I agree that the US could learn a lot from India's billion-payer system,
the big drivers in cost differences wouldn't apply.

India's system is cheaper specifically because it doesn't have the complexity
of the billing system that the US has (and, for that matter, European
countries as well). But in addition, India explicitly does not recognize a
wide range of drug patents that the US does. By paying more for prescription
medication, the US market funds a huge amount of medical research (50% of the
medical research in the _entire world_ ) which countries like India are able
to access essentially for free.

~~~
kinkrtyavimoodh
Your point about the US effectively funding pharma research for the whole
world is well taken (I think it's often kinda ignored by a lot of people), but
the billing complexity is not inherent to healthcare—it's a result of the
system, so I don't think it stands as an argument.

Also, while drug costs can be explained, there are a lot of other costs in the
system that are not necessarily affected by that argument (for instance, for a
surgery, how much of the cost is actually due to said drugs, and how much is
due to all the other factors?)

------
Mz
Re the comments on Data in this piece: Yes, insurance is an industry suffering
from perpetual information overload. I worked at a large insurance company for
5.25 years. I processed claims and we relied heavily on systems for looking up
endless information. They would totally overhaul the system for doing that
every few years. I think it occurred two or three times in the time I was
there and I heard from other people that, yes, this seemed to happen every two
to three years. It had all kinds of problems. What was supposed to be a new
and improved, more user-friendly system meant that all the old timers who had
figured out how to find everything were now lost, even with training. It also
meant that some things were not compatible and not findable anymore. It was
truly bad.

I have a certificate in GIS. As a claims processor, I worked with multiple
databases all day long. This included such things as looking up names and
addresses for providers (doctors, hospitals, etc -- the people providing
medical care). I suggested we create a GIS based system to make this easier.
The idea did not fly.

But if you want an area of opportunity in insurance tech, try finding
solutions to some of their back end problems. Managing information overload is
a serious and ongoing problem in the insurance world. I was there 5.25 years
and I only know a thimbleful of information about the industry. Laws and
regulations vary by state. In order to sell in all 50 states, you need to get
licensed in every state individually and we had to be able to look up "state
exceptions" which were laws that impacted how claims were paid in each state
and on and on.

People in insurance are absolutely not stupid. It is just overwhelmingly
complicated and no one can keep up with all of it. And, yes, it is very
fragmented. But if you want a good business opportunity in this space,
consider trying to build back end solutions to help them better manage the
information in which insurance companies are simply drowning.

------
EGreg
There's one cool thing about insurance providers, whether private or public:

They are the ones most aligned with YOUR well being.

They pay when something happens.

They get more money if things stay good or get better.

In fact, I would argue that public option / single payer insurance is MORE
interested because of lack of competition (induced supply, as it were) that
will destroy the profits if costs are driven down.

In other words, a public insurance program actively would try to improve
public health, not to beat competitors but to lower its costs and reinvest
that into MORE public health innovation.

Want to help the world? Make startups that improve public health (diet apps,
exercise apps, whatever with measurable results) and have the insurance
companies fund it.

------
youdontknowtho
Health insurance is just broken. The only way it gets better is if something
forces them to view the entire country as one actuarial pool.

~~~
splintercell
That is not a solution. That's like saying "Prices of McDonalds burgers are
really high, the solution to that is to give a fixed $15 tax credit for every
burger people buy".

A single actuarial pool is like not having a pool at all. If you want to
support a single payer healthcare system, then say so, don't call it a 'single
actuarial pool' because then the word 'actuarial' doesn't mean anything and at
that point it stops being an 'insurance'.

~~~
kgwgk
Having a single pool doesn't kill the 'actuarial' part. Fixing premiums by law
does. As does the fact that health insurance is more "prepaid medical care"
than "insurance".

------
sharemywin
The biggest thing I can say is don't underestimate underwriting. There's a
reason a lot of carriers focus on specific areas. There's a hidden customer
acquisition cost in that a group of new customers that has a bunch of bad
business that needs to be weeded out.

If you think about it a customer knows their own risk better than anyone. So,
you're betting that you can judge their risk better than them and your
competitors over and above your cost to manage paperwork, regulations, money
and fraud.

~~~
zstiefler
This is also why carriers like agents so much. Agents effectively act as a
first screen for carriers that allows carriers to turn away customers in a way
that they can't legally do through their policies. Ie "encouraging" agents to
send business from certain neighborhoods to other carriers or agents.

This is a discriminatory practice but every carrier does it because it's a way
to circumvent the public nature of their filings, and it's another hurdle that
startups will need to overcome, particularly if they're doing online
distribution where adverse selection is a more pronounced risk.

~~~
sharemywin
neural nets. I wasn't redlining, my neural net said we shouldn't go to that
neighborhood.

------
asmithmd1
I am surprised no one has mentioned:

[https://www.lemonade.com/](https://www.lemonade.com/)

They are doing three things:

1\. Innovating on customer acquisition with a mobile app

2\. Building out a for-benefit corporation insurance carrier one US state at a
time.

3\. Innovating on the business model.

The conventional, for-profit side of the business takes a flat 10% of premiums
and "buy" insurance from their captive for-benefit carrier. Any money left
over in the for-benefit insurance carrier is donated to the charity of your
choice.

------
sytelus
When you go to clinic for a simple injection for allergy response they charge
you $1500. The whole process takes 2 hours of stay in a clinic and doctor
spends about 15 minutes with you. When a healthy women goes to deliver normal
baby in hospital, she typically gets charged $2000 _per_ night while doctor
spends less than 1 hour with patient and cost of material is almost nothing.
Does this feels data or technology problem to anyone?

In USA, private entities who owns clinics and hospitals have recognized that
they can charge virtually anything in the name of providing "gold plated"
care. All the while insurers have recognized that they can charge person $1500
premiums a month without anyone noticing because premiums are directly taken
of out people's paycheck by employers. Vast majority of employed people have
no clue that they are actually paying for their premiums which are almost same
as what they would have paid as an unemployed person. Instead people assume
that they get low cost insurance because their employers has some sort of
great "group deals". So neither party has any incentive to reduce cost. Its
neither a data nor technology problem, its how markets are completely
eliminated out of equation by creating a law that employer needs to provide
insurance even though employers are simply transferring cost to end consumers.

If government creates a law that employers must not provide insurance and
everyone must buy their own insurance on open market according to their
preferences and budgets, I believe cost of insurance would fall dramatically
in very short amount of time. This is how lot of developed countries operate
and cost of equivalent quality care there is usually 10X lower precisely
because of this.

------
grizzles
Nice article & loved Kyle's article about the thorny issues surrounding
customer acquisition.

I grew up around the industry because my father worked his entire career in
it. I've always found it fascinating. Actuarial science is so underrated. I'm
also an entrepreneur and I've previously thought about entering it to disrupt
it. If there is one thing I'd add to the main article it's this:

If you look at the data vs all other industries, Insurance is the most
profitable industry out there. That's not bad considering the product is
manufactured out of thin air.

This is perpetually interesting because to me it kind of destroys one of the
central tenets of capitalism. It's a very old industry. If anyone can conjure
stuff out of thin air, you would expect there would be much more competition /
lower margins in it by now. But there isn't. So the industry is really
effective at erecting moats to keep innovators at bay, In my opinion, this is
main "value" (cough) that the regulators play in the market. The industry gets
away with so much, and it needs reform, but I'd bet against it ever happening.
This situation in replicated in every country around the world. That's why
it's hard to be a true entrepreneur in the industry. You need an investor with
deep pockets to enter the market. You need to verify your brilliant customer
acquisition strategy works. Then you need to wage war vs the incumbents.

Bonus content for actuarial nerds looking for a good chuckle:
[http://reactionwheel.net/2017/06/venture-follow-on-and-
the-k...](http://reactionwheel.net/2017/06/venture-follow-on-and-the-kelly-
criterion.html)

------
jpswade
My favourite article on Insurance is one by the BBC[1], which questions what
makes gambling wrong but insurance right? It also points out how it's history
is steeped in shipowners and traders meet in shipping agency Lloyd's of
London's coffeehouse in 1863.

1\.
[http://www.bbc.co.uk/news/business-38905963](http://www.bbc.co.uk/news/business-38905963)

~~~
plafl
In insurance you would rather not win the bet:
[https://en.wikipedia.org/wiki/Insurable_interest](https://en.wikipedia.org/wiki/Insurable_interest)

------
cmurf
There's a substantial difference between something like automobile,
homeowners, or renter's insurance; and health care "insurance" which is
arguably wrongly named.

Automobile insurance is mandated by law in all 50 states (Maine lets you self
insure but you have to stipulate you can do this, in effect it's still a
mandate). Homeowner's insurance isn't required by law but might be required by
the mortgage company. And renter's insurance may be required by a landlord.
All of these only protect you against almost random events, or at least pretty
much unpredictable events.

Health care insurance is weighted by being one part warranty and two parts
aging payment plan. How many people use their health insurance every single
year in some form or another? Dental? Eye doctor? Cold or flu? That's not
insurance. It's a payment plan for predictable services. Even pregnancy is
predictable. Something like cancer, congenital disease, are not predictable.
So we've conflated a bunch of things into a giant payment plan, with nearly a
dozen layers of middle men, every one of whom expects a profit cut. And so in
the U.S. we have the most expensive per capita health care cost in the
industrialized world, and yet not everyone is covered. Basically we are so
stupid, that we are willing to pay more for health care services to deny other
people being covered, and to jack ourselves off proudly that this is the best
health care system in the world and it's (mostly) free market. It's a big fat
stupid hand job.

So I would not consider health care insurance in the same category as other
insurance types. It's a sick care payment plan, and if it weren't for the
government making it illegal now, you'd still see lifetime maximum caps. Get
too sick? Go fuck yourself. Die, don't die, go to the ER, charge it to a
credit card, declare bankruptcy, we do not care about you. We don't care. We
don't give a fuck about you.

That is the American healthcare and insurance system.

------
nappy
I'd suggest to the mods that all threads about health insurance be removed and
perhaps moved to a new post. Though an interesting discussion, Aaron's article
explicitly does not address healthcare. The dynamics of healthcare are so
different than P&C, it is a wildly off-topic discussion.

------
TimPC
Attempted tl;dr version:

Insurance is a horrendous industry and someone should reform it because it
sucks and could do so much better.

Insurance exists in a horrendous sales market where connections are required
to multiple providers across multiple roles in a complex sales process.

Insurance is subject to highly fragmented regulatory complexity making it
difficult for any company to scale to multiple markets. This not only affects
you, but it affects many of the providers you build partnerships with, making
each new market often require new relationships.

So my takeaway is don't do insurance unless you have something so overwhelming
that you can't do it no matter what. Also expect that Idea & Working
Technology gets you 1% of the way there and 99% will be building
relationships, sales channels and regulatory compliance.

------
elihu
It seems like for health insurance at least, the problem of trying to optimize
insurance premiums based on any risk factor you're legally allowed to
discriminate on is a problem that just sort of goes away in a medicare-for-all
style single-payer insurance system. Everyone pays taxes and receives health
care services -- you just have to make sure your taxes rate is set properly to
cover the costs incurred.

(I think governments are sometimes unfairly criticized for inefficiency
because they incur higher costs simply by not having the option to cherry-pick
their customers the way private companies usually can. There are of course
cases where the criticism is justified.)

------
hardtke
I'm surprised he didn't call out title insurance as a place for potential
innovation. This insurance pays out at something like 1% of premiums
collected. Historically, the customer acquisition was handled by making a
large kick back to the real estate agent. The research involved (look for
contractors liens and such) seems like something that could be automated using
NLP.

------
johnobrien1010
One thing I'd add is that the potential for new technology to better identify
risks also is the potential to nullify the need for insurance. It is
fundamentally the uncertainty over which house will burn down that leads to
the need for insurance; if anyone had a 100% accurate model, the folks who
were definitely not going to have their house burn down would not need
insurance.

------
corford
Would be interesting to know how many of these points map over to the
insurance landscape in Europe? I know next to nothing about either but, from
talking with Stateside friends, have the (possibly wrong!) impression that the
insurance market in Europe is less sclerotic and a little more
modern/competitive/innovative.

~~~
zerni
Regulation is based on country instead of changing from state to state. The EU
helped to streamline most of it for all European countries so you can float
freely by passporting across regions.

------
incan1275
Yonatan Zunger posted a really awesome piece about the origins of insurance,
that complements this nicely.

[https://healthcareinamerica.us/how-to-ask-good-questions-
abo...](https://healthcareinamerica.us/how-to-ask-good-questions-about-health-
reform-725887002c03)

------
kapsteur
In France some new players come like [https://blog.alan.eu/alan-the-first-
digital-health-insurance...](https://blog.alan.eu/alan-the-first-digital-
health-insurance-company-in-france-59351fe3a411)

~~~
lucaspiller
What does private health insurance in France give you over what the state
provides?

------
chasely
If you had domain-level expertise that would be relevant to providing
analytics for P&C (re)insurance providers/consumers, but didn't know how the
insurance market works, where would be a good place to start?

------
blazespin
Insurance is fundamentally a 'data' problem, if you can numerically analyze
human interaction. I know insurance brokers, they definitely set up their book
based on what they know about their customers.

------
mooneater
Insurance can be a catalyst for a million other things. Amazing how often the
answer to "why cant we do innovation X" is: because insurance.

~~~
harryh
What are some examples of X? I've never gotten the "because insurance"
response so you've raised my curiosity!

~~~
akharris
One example - startups that are looking to sign large enterprise contracts are
often prevented from doing so because they don't carry a sufficient level of
errors and commissions (E&O) insurance to satisfy customer requirements.

Getting that level of coverage can be difficult because the few people on the
insurance side really understand how to price software/security risk, and
because the size of contract isn't meaningful to the seller of the policy,
though it is critical to the startup in question.

~~~
FLUX-YOU
That seems straight-forward to do (although difficult finding _great_
developers to assess this stuff):

\- Development process (Agile, Scrum, Waterfall, Panic, etc.)

\- Architecture

\- Testing processes

\- Pentesting

\- Credentials of all of the developers

\- Credentials of the managers

\- Even the presence of physical security

There's already "cybersecurity" insurance and surely someone from that
industry could join and tell you how to price security features and processes:
[https://www.dhs.gov/cybersecurity-
insurance](https://www.dhs.gov/cybersecurity-insurance)

I can't really speak against it not being worth it for the insurance company
though. How do you build a cheap but high coverage insurance product for
startups that have limited cash?

------
creeble
> Each of the players in the structure needs to get paid.

No, they don't. They exist merely as a means for insurance companies to
extract more profit out of their customers because they believe they are
"overexposed" to certain risks -- despite the fact that exposure to risk is
_exactly_ their business.

You may make the argument that reinsurers, ILS buyers, and fronting carriers
are all essential to the insurance business because they lower overall costs
by spreading risk. But if this is so, then they don't "need to get paid", they
are a cost _savings_.

Which is it?

------
jarsin
\- Cyber Insurance -

Lifetime offer: 99% discount if you switch to Linux.

------
CptJamesCook
It's surprising to see an article about insurance without references to black
swan risks.

------
iamnotlarry
I have come to believe that the insurance industry in the U.S. has become part
of the cause of expensive medical care. I am not opposed to the idea of
insurance, but here are some of the problems I see in how it works today.

I do not believe that insurance companies actually negotiate the price down. I
have seen too often that the price goes up when I produce proof of insurance.
While it may seem counter-intuitive, insurance companies have perverse
incentives to push prices up. Even the most well-meaning insurance company
will opt for certainty over potentially inexpensive. But I don't think they
are well-meaning to begin with and I think that it isn't even structurally
beneficial to them to reduce costs. For an example of when lower costs benefit
insurers, see the price of identical healthcare purchases outside the U.S.
Products manufactured inside the U.S. magically become cheaper in Belgium and
Nigeria.

The insurance industry has worked with the medical industry to obfuscate the
cost and price of healthcare. This is in both industries' interests. If I pay
$100 for a doctor to splint a broken finger, I'm happy I had insurance to make
it so cheap. I'll let my insurance company pay the other $1700 and I may never
even look at the bill that shows a total cost of $1800. I won't see that they
charged $25 for the popsicle stick, $25 for the tape, $5 for the pen used to
fill out the medical chart, $30 for the receptionist, $75 for the nurse, $300
for the PA, $200 for the xray, $200 for the radiologist, $50 for the
ibuprofen, etc. If I actually had to pay that bill, I would argue it line by
line. I would absolutely refuse to pay large portions of the bill. $5 pens
that they reuse for the next patient are obviously an unethical ripoff. But I
don't have to pay those line items, so I don't fight it. I just have to pay a
$1500 premium every month. And I'd be crazy to refuse to pay that.

We all know that insurance premiums are high because healthcare costs so much.
This is because of lawsuits and freeloaders. This is how price obfuscation
shifts the battle. We don't question anybody's integrity over the $5 pen
because the discussion is all about lawsuits and freeloaders. If I had to pay
the bill myself, I'd ask why I got billed for 4 x-rays, but only received 3.
That 4th one that didn't turn out because the radiologist put the cartridge in
backwards? I'm not paying for that. I'd ask why the receptionist seems to be
making $500/hr. I'd ask what the lab fee was for. I'd comb my bill and
question everything. $1800 is a lot of unplanned expense for me. $100? Not so
much.

If I had to pay my medical bill in full then file for reimbursement, I'd fire
a company with 90 day turn arounds and switch to the insurance company with 5
day turn arounds. And the next time I got stung by a bee, I'd maybe not run to
the emergency room. Yes, that could lead to bad outcomes. But the current
practice has its own bad outcomes.

If I had to keep fighting an insurance company for timely reimbursement and
started noticing that I pay $1500x12 every year to cover 80% of my ~$6000
medical expenses, I'd start getting all kinds of ideas. I would think about
putting $1000 a month into an HSA and look for a $40000 deductible policy. I'd
think about pooling my HSA with 100 of my closest friends to start a
healthcare co-op where I could borrow up to 1x my balance for 1 year at low
interest to pay for big medical bills and then get a $60k deductible policy
instead. Then, in five or six years, when I've built up $30k, I'd drop my
monthly payment into my HSA to $500, and just let the balance earn interest.
Then, when the unthinkable happens, I drain the account, borrow another $30k,
file a claim on everything else and spend the next year paying back the $30k
and lining up contingencies for any event that will happen before I can build
my HSA back up. I'd start daydreaming about pooling my $12k/year with others
to build and staff a very small clinic that could take xrays and treat bee
stings. Just 100 founders paying the same $1000/month could generate $1.2M per
year. That could secure a 15-year $3M bond to build the clinic. It could pay a
long way into supplies and staffing, too. One could even imagine that members
get free services (ignoring the $1000/month) while non-members could pay $1800
for a broken finger.

In other words, I'd figure out how to rely as little as possible on insurance
companies. And the money I now spend to fund their paperwork and profit would
stay in my account.

------
artur_makly
really dumb idea but..

What if the insurer and healthcare provider were one and the same?

Wouldn't that remove the fraud 'game' , increase transparency, and lower
premiums?

or will it actually make it 2x worse for the patient?

~~~
ens
Not dumb, it's called integrated care! Kaiser Permanente and the Mayo Clinic
do just that.

------
nafizh
Is there any startup focusing on the healthcare insurance industry?

------
jheriko
> Insurance is fundamentally a data problem.

this is a special sentence. it reads roughly as "i am ignorant of reality" to
me. :(

very american.

------
pasbesoin
Two comments from me (amongst many I might make):

1\. A while ago, as a somewhat pointed quip, I started pointing out that in
the U.S., for health insurance we pay "whole insurance" rates (yes, that term
applies to life insurance, but is an apt comparison in terms of pricing) for
what is essentially "term insurance" (which, in the life insurance segment, is
quite a bit less expensive, because after the term, you're uninsured).

2\. I tried to do eveything "right". Carried insurance when I could, when I
was younger. Carried it with the best company and policy I could get. Didn't
resent that I was paying it much more than I was getting out: It's
"insurance", and if I'm healthy, I've already "won". I'm glad the money can go
to those who need it (patients, I was assuming).

Despite doing everything "right", my last corporate job got off-shored. At a
time when the individual insurance market was going from ridiculous to
impossible. I managed to hold onto some form of insurance by dint of personal
connections, to watch exclusions slapped onto my individual policy (for things
the doctor had said he wouldn't treat -- too minor, risk/benefit not worth it
-- while I was still on the corporate group policy). To watch my premium rates
_triple_ in three years.

The ACA came along just in time to rescue me from the looming vast pool of the
uninsured. Which, once you entered, you had a _very_ hard time exiting.

I never received a subsidy from the ACA. It simply _allowed me to
participate._

And by the way, the biggest injury to it? It was written to make insurers
whole for their losses, until they had a handle on their demographics. Well,
under Congress, funding is always a separate exercise -- the budget process --
from the laws and activities that that funding in turn enables.

And the Republicans simply refused to produce the funding mandated in the ACA.
The numbers I heard from and expert in the field is that insurers were getting
about 17 cents on the dollar for losses the ACA law told them would be
reimbursed.

In other word, it wasn't simply imperfect and in need of improvement. A
starting point, per those who negotiated and accepted some pretty terrible
compromises in order to get it passed and some improvement in coverage
started.

It was actively sabotaged.

Ok, I find I have a third point to make right now:

3\. When the ACA was proposed, I believe it was not at all a "left"
initiative. It was meant to be pretty middle of the road.

Around that time, 2007-8, and for some years prior, _businesses_ were crying
bloody murder at the year over year increases in health care costs they were
facing. Often well into the double digits, year after year.

And they were saying, 'We can't compete with foreign competition from
societies that have universal health care, where their costs are perhaps half
ours and are increasing at single digit percentage rates.'

The ACA was meant to address "conservative" business problems as much as
"social" individual and community problems.

All that was sabotaged, dealt with in bad faith, for the sake of the political
and power agendas of the selfish.

By the way, the ACA has produced substantial improvements on the group
insurance side of things. For individuals, and for businesses, by holding cost
increases down.

And insurers have made good profits on these changes and their group policy
business. Money they _don 't_ include in their accounting when they turn
around and describe all the losses they've faced under the ACA marketplace
plans (which are classified as "individual" insurance plans, not part of the
traditional group policies/business).

~~~
cmurf
There really is no nice way to put it: Republicans are assholes. Back with
ACA, the risk reduction pools were called insurance company bailouts. And
Republicans sabotaged it by drastically defunding it. And right now? Oh, we'll
just bump those subsidies right back up to stabilize the market, make us look
like fucking heros! This is market _stabilizing_ now. Dicks.

This is what's insidious about them: it's not that they're stupid. They think
everyone else is stupid, and won't learn about these things, and they'll get
away with it.

 _But when the time came to pay up for risk reduction in the Obamacare
exchanges, Congress reneged and paid only 12% of what was owed to the
insurers._ [http://www.marketwatch.com/story/im-a-former-health-
insuranc...](http://www.marketwatch.com/story/im-a-former-health-insurance-
ceo-and-this-is-what-obamacare-repeal-will-do-2017-01-02?siteid=rss&rss=1)

~~~
sctb
We don't need you to be nice, but we do need to post civilly and
substantively, and this doesn't cross that bar. We have to ask you again to
comment within the guidelines or not at all.

------
honestoHeminway
Denial of Service by Obfuscation, Denial of Service after exceeding a certain
amount, Denial of Service by Way-Lawyering, these is all information that
needs to be compiled from anecdata into solid numbers, that anyone can
instantly acess and that allow for a metric on insurance quality.

------
bitJericho
The best solution is the complete outlawing of health insurance. It'll take
riots for that to happen.

------
wyager
> Insurance carriers set their rates based on actuarial models designed to
> predict the likelihood of future events.

Sure, until the government says that you are no longer allowed to set rates
based on actuarial data; maybe you aren't allowed to charge people
appropriately if they have some expensive "pre-existing condition", or because
of certain "protected" but statistically relevant characteristics. This throws
a big fat spanner into the whole expectation value thing, because you're no
longer an insurance company but a weird privatized subsidy pool that isn't
allowed to make expectimax decisions anymore.

Your clients aren't allowed to expectimax anymore either; if they catch on to
the fact that they're actually subsidizing someone else, they're not allowed
to form their own rational insurance pool (because it would violate
restrictions on "discrimination", e.g. ACA section 1557) and if they choose to
opt out of the irrational "insurance"/subsidy market you hit them with a hefty
fine.

I encourage everyone to look up expectation values for payin/payout of medical
insurance for different customer types under current regulations (start with
[https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/)
). TL;DR If you're a reasonably healthy man below retirement age, you're
getting screwed hard. Maybe society can collectively agree that this is a good
idea, but we should at least be honest and stop referring to it as
"insurance". Actual insurance markets without coercion are a net positive for
all participants, rather than a convoluted scheme to (effectively) transfer
money from one demographic to another.

~~~
xenadu02
Car and homeowner's insurance only works /because/ insurers have imperfect
data /and/ because purchasing it is mandatory in most cases (eg: auto
liability is mandated by the government and homeowner's policies are mandated
by banks lending against the purchase of a home).

If you had perfect actuarial data it would mean you would charge predicted
"losers" the entire cost of their expected claims plus your costs and profit.
Conversely you'd charge the expected "winners" almost nothing because their
premiums are pure profit. Insurance requires large risk pools to function as
insurance. The entire point of it is that everyone in a large group pays in to
cover those who suffer a loss.

For healthcare (which is not what this article is about) that means collecting
premiums from younger, healthier people to cover older sicker people.
Healthcare is also the only kind of insurance where everyone is guaranteed to
make claims - very much the opposite of most other kinds of insurance.

The last point I'll make is that everyone gets older eventually. Higher
premiums when you're younger are a form of pre-payment for the care that will
absolutely be required when you age. Unless the government forces people to
pay these premiums the most rational thing for any individual actor to do is
cheat and skip paying premiums when young, then force the cost on others by
buying in when you're old. It becomes a classic tragedy of the commons
situation where only sick people buy policies, resulting in massive losses and
sky-high premiums no one can afford to pay.

Your argument basically boils down to "fuck other people" \+ "I'll never get
old, I'm going to be young and healthy forever!". I don't want to live in that
world.

As a practical matter I'd also like to make it easier for people to start new
businesses so I favor universal baseline healthcare coverage paid for by
taxes. Shrinking hospital billing departments, insurance companies, and bill
collectors would be a net win for our economy. I don't know why everyone
believes scaling up drives efficiency for a startup, yet requiring every
individual doctor to employ a bill collector is somehow a net win.

~~~
secabeen
> The last point I'll make is that everyone gets older eventually. Higher
> premiums when you're younger are a form of pre-payment for the care that
> will absolutely be required when you age. Unless the government forces
> people to pay these premiums the most rational thing for any individual
> actor to do is cheat and skip paying premiums when young, then force the
> cost on others by buying in when you're old. It becomes a classic tragedy of
> the commons situation where only sick people buy policies, resulting in
> massive losses and sky-high premiums no one can afford to pay.

This is not true. People die young, some die quickly when older, with few
health costs, others linger with huge costs. I can see an appropriate
insurance product that protects against the risk of those varying outcomes.

~~~
notahacker
> I can see an appropriate insurance product that protects against the risk of
> those varying outcomes.

I can also see millions of people unable to access that insurance product
because their health condition or expected health condition makes it
impossible for them to obtain insurance at an affordable level.

Of all the places for hardline libertarians to make a stand, the actuarial
fairness of the insurance market, which literally _is_ redistribution to the
less fortunate which ultimately relies on coercion to function (good luck
handling claims in a world where a legal system doesn't have teeth) seems the
strangest place.

------
billylo
Insurance is essential. They are like brakes in your car. You incorporate them
not because you want to go slow, but because it enables you to go fast.

------
pkamb
Any options for renting vintage furniture by owner? I'd like to pick up more
nice mid-century pieces when I see them cheap at estate sales, but won't have
the space for them for a while...

------
pcunite
Disclaimer: You may not agree with this. A downvote does not change that. A
comment and intellectual conversation goes much further, however.

A quote from the article: _The insurance industry is built on mitigating
downside risk._

Maybe they should have everyone agree to use computers with sensors which can
create accurate maps of everything people have ever done, might do, or should
do. Citizens will be _so much_ better off with this new system of fairness.
We'll call it insurance instead of goverment.

~~~
mindslight
I don't know why you're getting downvoted, but for there being a lot of money
to be made by not understanding where commercial surveillance is ultimately
headed.

The threat of government surveillance pales in comparison to the means of
control that "private" industry will eventually "innovate" for the goal of
"reducing risk". Drinks at dinner in the middle of the week, paid for with
your surveillance card -> higher auto insurance. Not enough physical activity
recorded on your wrist/chest surveillance device -> higher health "insurance".
Fixing something around your house instead of hiring a manufacturer approved
service company -> higher homeowners insurance. Taking a job with a startup
instead of sticking with your predictable job at bigco -> higher mortgage
insurance.

Which could be fine if such risks were priced accurately, but the
centralizers' prescriptive models of the world can never actually capture
reality (eg the difference between a qualified/uncredentialed repairman and a
credentialed/unqualified one). Instead, it will mainly be used for _price
discrimination_ to gouge those who'd like to deviate. As more people fall into
line (eg sign up for the current ruse of adding a driving surveillance device
to save on auto insurance), the ability to even opt out of the surveillance
("no signal") will vanish!

Throw in the fact that many insurances are de facto or even de jure mandatory,
and we've bootstrapped a system of mandatory restrictions (ie "laws") which
are not even token-responsive to the governed. And similar to all teeth of the
totalitarian ratchet, such developments will be cheered on by moralizing
useful idiots gleeful that the "other" will get their comeuppance - blissfully
ignorant that after the initial discount period, their rates will go right
back up.

