Insurance Startup Uses Behavioral Science To Keep Customers Honest (fastcompany.com) 52
tedlistens quotes a report from Fast Company: Insurance startup Lemonade won itself headlines in January with the boast that it had successfully approved a claim in just three seconds. In that time, Lemonade's software had run 18 anti-fraud algorithms and sent a payment to the lucky customer's bank account -- a process that would have taken a traditional property and casualty insurer days, if not weeks. But it's what happened before Lemonade's artificial intelligence kicked into gear that makes the renegade insurer so potentially disruptive to this trillion-dollar industry, for which premiums alone comprise 7% of U.S. GDP. The customer, Brooklyn educator Brandon Pham, opened Lemonade's mobile app, signed an "honesty pledge" to attest to the truth of his claim, and then recorded a short video explaining that his Canada Goose parka, worth nearly $1,000, had been stolen. That deceptively simple claims process is the byproduct of academic research on psychology and behavioral economics conducted by Dan Arielyblog, one of the field's most prominent voices and Lemonade's chief behavioral officer. "There's a lot of science about when people behave and misbehave that has not been put to use," says Lemonade cofounder and CEO Daniel Schreiber. Lemonade is even applying behavioral science to itself, publishing unusually transparent blog posts that include data on customer growth, bank account balances, and more.
Re: (Score:3)
The founder of this company has set things up such that they get a fixed percentage of every premium people pay and everything else that doesn't get paid out in claims gets donated to a worthy cause.
So there is no way to increase their revenue/profit by denying claims.
Re: (Score:3)
So there is no way to increase their revenue/profit by denying claims.
Yes, there is.
Let's say that the sweet spot for funding this insurance requires a premium of $100 a month, but that your market research indicates that if you sell premiums for $70 a month, that you'll get 10 times as many customers. This will incentivize you to deny claims.
Also, another thing you could do is to simply overinflate any claims made by your family or your friends. So your incentive would be to deny claims, so that there would be money left over for your friends/family's overinflated/fake claim
Re: (Score:2)
$1000 for a parka?! (Score:1)
$1000 for a parka?! What the fuck?! What the hell kind of parka is this?! I know some fashion can be fucking insanely expensive, and that this is probably pretty cheap compared to a lot of crap out there, but seriously. Even specialty coats meant for use in the Arctic, Siberia or the Antarctic can be purchased for a fraction of that.
Re: (Score:2)
And if the traditional algorithms actually only take 5 minutes to run, not days or weeks, it is all within the margin of error explained in the fine print!
Re: (Score:3)
Actually, Canada Goose make gear for arctic (and antarctic, the ones I have seen) use, and they ARE the real deal.
However, yes, many of their items look like fashion accessories for people with more money than sense.
The larger issue here is going to be when they REFUSE a claim, based on some fuzzy AI probabilistic interpretation
of how someone acted during the claim. THAT aint going to hold up quite so well. Accepted claims are the EASY part.
I suspect they are actually relying on people making less false cla
Re: (Score:1)
I suspect they are actually relying on people making less false claimed because they are afraid of the 'all knowing AI'
False claims, and probably some true claims too. "I'm pretty sure I'm telling the truth, but what if the 'all knowing AI' says I'm not? Will I be punished somehow? Without a chance to explain myself?".
Re: (Score:2)
Yes, they are pretty much the #1 brand of gear if you want to stay warm while in the arctic or antarctic (the "Canada" part should give it away as to where they're located AND why they're popular).
In fact, once you head into the arctic region of Canada, pretty much everyone is either wearing nat
Re: (Score:2)
Re: (Score:3)
Naturally you paid a lot less for it, it used to be owned by Mr. Pham.
Seems like everyone in NYC has one of these. IT'S NOT THAT COLD!
Done in the 90's? (Score:2)
Re: (Score:1)
I bet they didn't donate part of the profits. That is the millennial spin on this one.
Re:Done in the 90's? (Score:5, Insightful)
I attended a presentations in the mid 90's sometime by Dr. Hecht-Neilson [ucsd.edu] who had a company that evaluated people for their credit worthiness using neural networks.
That's like saying that Amazon is making money by providing customers with an online shopping cart.
Algorithms are no longer a barrier to entry in analytics; you can get them for free from various Apache projects (Spark, Mahout, etc). The challenge is in acquiring the right data sets and finding features that deliver the kind of indicator you need by constantly evaluating samples and tuning your model. Everyone and their neighbor is using neural nets these days; most fail at achieving something meaningful with them.
Re: (Score:2)
I attended a presentations in the mid 90's sometime by Dr. Hecht-Neilson [ucsd.edu] who had a company that evaluated people for their credit worthiness using neural networks.
There's these biomass machines with neural networks that do this a lot. It takes a bit of processing power (several billion neurons), and on the latest hardware, it still can take a few hours or days, but it has surprisingly good accuracy.
Even more important (Score:2)
have this applied to the goons on top - foremost the compulsive liars creating all those smoke screens for doing it apparently right but in reality cheat the world until blood drips out!
Re: (Score:3)
It is very difficult to "exploit the fuck out" of insurance companies because they pool hard fraud indicators and they have access to more computing power and advanced software than some guy with a $25/month AWS instance.
The weakness in this industry is soft fraud: people claiming that their Xbox One Special Edition With 1TB SSD was stolen, while they actually had the Xbox One Cheapskate Edition ("sorry I lost the receipt but I have a blurry picture of this device which unfortunately you can't inspect since
Re: (Score:2)
If somebody is engaging in that sort of behavior because of their mental illness they will most likely escalate the behavior and get caught. It is actually quite rare for somebody to be willing to take the risk of theft or fraud for some small gain and be also OK with just that small gain. The person risk-averse enough to maintain their boundaries and not escalate will probably not take the risk in the first place!
It may even be some high percentage of the people who get caught for insurance fraud would be
misleading numbers (Score:5, Interesting)
potentially disruptive to this trillion-dollar industry, for which premiums alone comprise 7% of U.S. GDP
Those insurance startups don't disrupt the trillion-dollar insurance industry any more than hotels.com disrupt the business of Hilton or Starwood. This is not at all a situation similar to Airbnb or Uber. For the most part these startups are simply an additional revenue stream for the big companies, allowing them to reach out to the low-end market without having to foot the bill for all the automation and streamlining required to turn a profit on policies with a razor-thin margin.
Traditional insurance companies don't make the bulk of their profit by charging more in premiums than they pay in claims; they make a profit by investing those premiums until the moment where the money goes back to policy holders as claims are submitted. Insurance companies will never be made obsolete by the small peddlers; they will however go out of business if the financial system keeps making low-risk investments worth less than inflation. The disruption here comes from the retards at the Federal Reserve who keep handing taxpayers money for free to Wall Street banks; Lemonade is just an iPhone version of a traditional insurance broker.
Re: (Score:1)
The disruption here comes from the retards at the Federal Reserve who keep handing taxpayers money for free to Wall Street banks
It's a good thing for the American people that simpletons like you aren't in charge of our monetary policy. We'd appreciate it if you'd just shut up and say thank you, but I suspect that even that is too much to ask from an ingrate such as yourself.
Re: (Score:2)
What monetary policy (Score:3)
The disruption here comes from the retards at the Federal Reserve who keep handing taxpayers money for free to Wall Street banks
It's a good thing for the American people that simpletons like you aren't in charge of our monetary policy.
Okay I will explain it so even you can understand. Whenever the Fed lowers the interest rate, to a point where it gets to zero or near zero, they make it cheaper for the banks to get money from them than from you and me, so the banks have no incentive to pay you and me interest on money we put in their care. That's why a certificate of deposit at Bank of America currently pays a magnificent 0.05% annual return. Yes, this means that in order to make a $1 return you need to invest $2,000 for a year.
What do yo
conditional probability? (Score:1)
I'd worry that the statistical confidence they depend on is based on a random sample of insurance customers, not a sample of the self-selected customers that their policies will attract. (Recall the Sears Diehard lifetime-battery fiasco? People who bought those batteries tended to keep their car 15 years, unlike the average battery customer.)
Yes but, (Score:1)
can i save 15% or more?
Onions (Score:2)
Not so much... (Score:3)
....because throwing $1000 away validating some dumbasses' claim on a parka (seriously, $1000 for a jacket?) is WORTH IT to be lauded across the world's media organizations for some hand-wavy claims of magically quick claim resolution?
Behavioral algorithms, my ass. In my day we just called this what it is: a publicity stunt.
humans adapt (Score:2)
Behavioral science generally measures the behavior of people who don't know what the experiment is about, don't know the outcome the experimenter desires, and don't care about the actual outcome. Fraud involves people who have a strong interest in specific outcomes and can shape their behaviors accordingly.
So, if you use behavioral science, humans will figure it out
Hard to be less honest than that industry (Score:2)
This smells like B.S. (Score:2)