First P2P insurer says it will slash fraud costs
Do insurance consumers have a thirst to buy policies using their smartphones? Will they be less fraud-prone knowing some of their excess premiums get donated to charity? And will the prospects of quick claim cash motivate them to switch carriers?
One new insurance startup is betting yes, offering to quench that thirst.
Lemonade, the first so-called peer-to-peer insurance company, debuted this week to much fanfare.
Started by technology entrepreneurs, the company is targeting smartphone users by offering ease-of-service transitions and cheap prices on homeowners and renters coverage.
Lemonade says most insurance “sucks” (their words) because insurers hassle claimants, are bloated and make too much profit. And thus, claimants are more likely to file inflated or fake claims.
The company says it will undercut traditional insurers by using streamlined, tech-oriented transactions and reduced fraud costs. In an interview this week, Lemonade president Shai Wininger said:
“With insurance, over 90 percent of the fraud is perpetrated by supposedly normal upstanding citizens like you and me. So what is about insurance that brings out the devil in us? Why is it that when it comes to insurance, we feel entitled to break the law?”
Research suggests consumers are less likely to defraud a company they feel good about. Customers designate a favorite charity to receive their share of company profits at the end of the year, if there are any.
Call me skeptical, but I doubt Lemonade’s approach will make that much difference in policy pricing.
Still, Millennials who love transacting business on their cellphones and are socially conscious should be drawn to this model. It will be interesting to see if Lemonade has a magic formula to reduce fraud. We’ll be watching to see if this new player leaves a sweet or sour taste in the mouths of its customers.
About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.