Charting the rise of instant insurance

We all love a world record. Take Usain Bolt’s 100-metre dash. Or Tanya Streeter’s bare­ly believ­able free­d­ive to 160 metres below the sur­face of the ocean. 

And the world record for an insur­ance pay­out? Three sec­onds, set by insur­ance com­pa­ny Lemon­ade in 2017. Some­one called Bran­don used the Lemon­ade iPhone app to claim for a lost coat priced $979. He spent 61 sec­onds explain­ing his claim into the cam­era. Hit send. And three sec­onds lat­er his claim was ver­i­fied. 

Nat­u­ral­ly, three sec­onds is too fast for human judg­ment. Brandon’s claim was han­dled by AI Jim, Lemon­ade’s in-house arti­fi­cial intel­li­gence claims bot. AI Jim reviews the claims his­to­ry, the like­li­hood of fraud and the verac­i­ty of the claimant. If all looks good, it pays out. If there are doubts, a human han­dler is sum­moned. 

“Peo­ple told us they some­times had to wait months before hav­ing their claims paid,” says Lemon­ade co-founder Shai Wininger. “Not to men­tion the has­sle and paper­work involved.” By cut­ting pay­outs to sec­onds, Lemon­ade chal­lenged the entire indus­try. It is now val­ued at $6.8 bil­lion, not bad for a six-year-old com­pa­ny.

“Peo­ple don’t want to wait,” says Matt Con­nol­ly, founder and chief exec­u­tive of insur­ance mar­ket intel­li­gence provider Sønr. “If your flight gets delayed, you might have to wait six months for an insur­ance pay­out. It’s ridicu­lous. It erodes trust and con­fi­dence. So insur­ers are look­ing at ways to pay out instant­ly.”

AI is at the heart of it. Algo­rithms can suck in data from every pos­si­ble data pool, han­dling all aspects of insur­ance inter­ac­tions. Quotes are instant. Onboard­ing is accel­er­at­ed via pre-filled forms by bots that input all known user data. 

The switch to instant is being fuelled by the loom­ing arrival of names well versed in AI. “The biggest threat is from big tech com­pa­nies like Ama­zon, Google and Face­book enter­ing insur­ance, ” says Con­nol­ly.

In car insur­ance, the rev­o­lu­tion­ary entry is Tractable. Found­ed by three com­put­er sci­ence grad­u­ates and incu­bat­ed via the Entre­pre­neur First scheme, it uses AI to esti­mate the cost of car dam­age from pho­tos tak­en by the own­er, slash­ing the time for claims to be processed. 

“When we found­ed Tractable peo­ple thought we were crazy,” recalls chief exec­u­tive Alex Daly­ac. “Back in 2014, no one had talked about AI for years. It was a term asso­ci­at­ed with overblown promis­es.” Now Tractable serves 21 of the 100 largest insur­ers in the world. And the AI engine is improv­ing fast. 

“We start­ed check­ing oth­er peo­ple’s work and look­ing for inac­cu­ra­cy,” explains Daly­ac. “As of today, 25 per cent of the entire insur­ance vol­ume can be put through with no human touch. The remain­ing 75 per cent of cas­es still require a cou­ple of edits by a human, which means it takes them three min­utes rather than the usu­al 30 min­utes. Our goal for the end of this year is to be at 75 per cent com­plete­ly touch­less. It’ll be fan­tas­tic. The trans­for­ma­tion will have hap­pened.”

Many insur­ers are strug­gling with the rise of instant. It’s a trend led by star­tups and insurtechs. A big ques­tion is why incum­bents strug­gle to inno­vate and rely on out­siders for tech­ni­cal solu­tions. 

“When insur­ance com­pa­nies build their own tech­nol­o­gy, the work is done by peo­ple who’ve worked there for 30 years,” says Jan­thana Kaen­prakham­roy, chief exec­u­tive of Tapoly, an insurtech offer­ing com­mer­cial insur­ance for small­er busi­ness­es. “It’s more dif­fi­cult for them to work out where the automa­tion should be.”

This means the race is being won by com­pa­nies found­ed by entre­pre­neurs from oth­er sec­tors. Kaen­prakham­roy, for exam­ple, was an invest­ment banker. “I was one of the inter­nal audit direc­tors at UBS cov­er­ing equi­ty busi­ness,” she says. “It’s a low-touch, high­ly elec­tron­ic, ful­ly auto­mat­ed kind of process. So I could see the impact of a prod­uct line with auto­mat­ed process­es.”

Since enter­ing insur­ance she’s won a slew of awards, from Trail­blaz­er of the Year to a gong at the Efma-Accen­ture Inno­va­tion in Insur­ance Awards. Her knowl­edge from a par­al­lel indus­try seems to allow her to move faster than insur­ance incum­bents. 

Fur­ther­more, insur­ers may want to devel­op instant ser­vices, but they are strug­gling to con­vince boards to pay for the research and devel­op­ment. Cal­lum Rim­mer, founder of By Miles, the UK’s first pay-by-mile insur­er, and By Bits, a tech plat­form for the motor insur­ance indus­try, says it’s a chron­ic prob­lem. “Insur­ers aren’t invest­ing enough. They aren’t going after tal­ent with the same gus­to that invest­ment bank­ing has to give them the abil­i­ty to adapt to the future. Banks his­tor­i­cal­ly have paid bet­ter rates.”

Worse, some insur­ers are lack­adaisi­cal about the future. “They are almost uni­ver­sal­ly hap­py to lag behind and just com­pete on price,” says Rim­mer. “They are still sell­ing the same propo­si­tions they sold 30 years ago, only dig­i­tal­ly.”

In an indus­try which can set­tle claims in sec­onds, dawdling seems unwise. When Ama­zon, Google and Face­book aim their full fire pow­er at the indus­try, lag­gards will be obso­lete. Instant insur­ance will be the stan­dard and cus­tomers won’t wait. In the future, every microsec­ond will count.