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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.
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Insurance Startup Uses Behavioral Science To Keep Customers Honest

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  • by Anonymous Coward

    $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.

    • by jodido ( 1052890 )
      I have one. It's insanely warm--the warmest coat I've ever owned. And I paid a lot less for it.
      • I have one. It's insanely warm--the warmest coat I've ever owned. And I paid a lot less for it.

        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!

  • 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.
    • by Anonymous Coward

      I bet they didn't donate part of the profits. That is the millennial spin on this one.

    • by lucm ( 889690 ) on Friday March 17, 2017 @10:25PM (#54063517)

      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.

    • 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.

  • 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!

  • misleading numbers (Score:5, Interesting)

    by lucm ( 889690 ) on Friday March 17, 2017 @10:09PM (#54063447)

    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.

    • by Anonymous Coward

      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.

      • Thank you, Colonel Jessup, sir!
      • 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

  • by Anonymous Coward

    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.)

  • by Anonymous Coward

    can i save 15% or more?

  • The press release is from lemonade, but it sounds like an onion article.
  • by argStyopa ( 232550 ) on Saturday March 18, 2017 @08:58AM (#54064801) Journal

    ....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.

  • 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

    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

  • I see the insurance industry as being on par with lawyers and used car salesmen when it comes to honesty. It's rather telling just how much the public sees them as atrociously dishonest as we see when this one is promising to strive for honesty.
  • claims this small would tend to get approved because it's not worth the time/effort to do major investigation. Most of the real work woulda been done when they customer signed up looking into his history to determine how likely he'd be to file fraudulent claims. The video is just there so they can show it to the courts if he keeps filing claims and they actually investigate them.

"One lawyer can steal more than a hundred men with guns." -- The Godfather

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