Peter Diamandis Talks About the Demonetizing of the Insurance Industry

September 27, 2016 – Yesterday I received one of Peter Diamandis’ email blasts and found it most intriguing. The focus was on how the insurance industry is being disrupted by technological advancements leading to a rethink of the way these businesses will operate in the near future. Here are his thoughts.

Massive reductions in insurance costs are coming, along with a wave of disruption. Traditionally, insurance premiums are determined by actuaries… a function of big numbers, statistics and probabilities. That’s what you have to do when you don’t know what’s really going on. You hope that the pool of insured individuals is big enough to account for the variation in your predictive model. But exponential technologies — namely computation/digitization, artificial intelligence, machine learning, sensors, networks (especially social networks), and genomics — will change all of that.

Disrupting Insurance

I have been advising and am a proud board member of a new company called Lemonade Insurance Company that is rebuilding the insurance model from the bottom up. It is the world’s first “peer-to-peer” (P2P) insurance company. Imagine just 90 seconds to get insured, 3 minutes to get paid. Zero paperwork.

P2P reverses the traditional insurance model. It treats the premiums you pay as your money. With a P2P like Lemonade everything becomes simple and transparent. The company takes a flat fee, pays claims really fast, and gives back what’s left to causes you care about.

This week Lemonade launched its service and announced that it has been licensed as a full-stack insurance carrier by New York State for homeowner and renter’s insurance. The work it’s doing is brilliant so I’m using them to express some of the following ideas which look at five exponential drivers impacting the insurance industry.

1. Digitization

Fraud consumes as much as 38% of all money in the traditional insurance system, inflating premiums by $1,300 and making the claims process protracted and unpleasant. This happens because there is a lack of transparency in a largely analog (rather than digital) system with many humans in the loop. If you could digitize the entire process, from sign up to submitting a claim, and give the insured individual full transparency over the status of their request adding in automation and machine learning, you can dramatically reduce processing time and costs.

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

2. Implications of Social Networks

Social networks allow us to create true peer-to-peer insurance models. Imagine finding a group of peers, who you trust and can vouch for, and coming together as a group to self-insure. You skip the centralized, expensive middleman insurance carrier. Instead, a technology stack (app, database, AI-bot) manages a decentralized network of people who pay premiums and file claims that the group approves. This takes out an enormous percentage of the cost structure of traditional insurance. Instead of paying fees and insurance company salaries, your peer group is able to decide what to do with the extra cash that wasn’t paid out. In the example of Lemonade, you actually have the option to donate underwriting profits to nonprofit organizations of your choosing. The hope is to remake insurance as a social good, rather than a necessary evil.

3. Implications of Genomics

When talking about life insurance, it’s going to be difficult to ignore genomic data. Your DNA is your medical future. It’s predictive of what’s likely to inflict or kill you. In 2008, a United States federal law called the Genetic Information Nondiscrimination Act (GINA) was passed to protect people from genetic discrimination in health insurance and employment. The law states, “Genetic discrimination is the misuse of genetic information.” However, life insurance companies are exempt from GINA.

I imagine that, soon, groups with great genes will coalesce and self-insure. It’s in their best interest to do so. You’ll be able to upload your genomics data and find others in your peer group that have similar or better risk profiles than you do.

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

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

4. Implications of Sensors

Sensors allow insurance policies to be based on actual data (e.g. usage, health), rather than general heuristics and rules. As an analogy, check out Progressive Insurance’s SNAPSHOT Automotive Sensor package. It’s a sensor you put in your car that tracks how well you drive. (Do you brake hard? Speed? Take high-speed turns?) When your insurance policy is based on how you actually drive, rather than just your age, gender and what kind of car you own, safer drivers win.

Sensors will have the biggest impact on health insurance, as hundreds of new health sensors are coming to market in the next 5-10 years. Sensors tracking healthy behavior such as how much you exercise and what you eat, will get you low insurance costs.

A number of health insurance companies are already using health sensors in their policies. One notable company called Oscar uses technology to simplify the entire health insurance experience. You can use its app to talk to a doctor and get prescriptions without leaving home. The app helps you keep track of your health history with a timeline and you earn rewards for staying active with a free Misfit step tracker.

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

5. Implications of A.I. & Sensors

The car insurance industry is about to get disrupted in a huge way. Every major car company is working on full or partial autonomy, and since these cars are projected to reduce accidents by up to 90%, they are the beginning of the end for car insurance.

On top of that, why would I need a car insurance policy if I never drive? Or if I don’t own a car? Accounting firm KPMG predicts that the motor insurance market may shrink by 60% by 2040. I think that number is a serious underestimate.

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

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

Peter Diamandis isn’t the only one predicting a major disruption to the insurance industry. See a recent Communitech-hosted event in which Paul Desmarais of Power Corporation discusses the industry in light of technological advancements.