[joosters]

Can an insurance company really claim, as Lemonade does, that:

the Service Is Available “As Is.” YOU EXPRESSLY UNDERSTAND AND AGREE THAT: (a) YOUR USE OF THE SERVICE AND THE PURCHASE AND USE OF ANY PRODUCTS OR SERVICES ARE ALL AT YOUR SOLE RISK. THE SERVICE IS PROVIDED AND PRODUCTS ARE SOLD ON AN “AS IS” AND “AS AVAILABLE” BASIS. TO THE MAXIMUM EXTENT PERMITTED BY LAW, LEMONADE EXPRESSLY DISCLAIMS ALL WARRANTIES AND CONDITIONS OF ANY KIND, WHETHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO THE IMPLIED WARRANTIES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.

In other words, they are promising nothing. How then can you rely on them for insurance?

[SmellTheGlove]

That might be a cut and paste TOS, with a little CTRL-H for flavor. Otherwise, that TOS hopefully is intended to apply to the website only.

If anyone has gotten far enough with them, I'd love to see their actual insurance contract. I'm too lazy to go pull their state filings.

EDIT: Here's the part that troubles me more -

"GIVEBACK ... our stated intention is to calculate the amount of leftover money by subtracting from the group’s collective premium, our flat fee (currently 20%), the costs of claims, a “rainy day fund” and other insurance expenses like reinsurance – and giving back what’s left (up to 40% of the group’s premiums). ... "

That 20% "flat fee" is about 8% less than the industry standard expense ratio. That's pretty aggressive expense reduction, to the point where I'd wonder if they'll run out of money, or if they plan to write only the most preferred of preferred risk. I know it reads as though a "rainy day fund" and reinsurance are separate items, but a rainy day fund only happens if you run a surplus, and I'd be shocked if anyone is reinsuring this block at reasonable rates unless, again, (very) preferred risk - at which point you wouldn't want or need to reinsure.

I know it sounds odd, but as a startup, I'd be happier as both a potential customer and potential employee (both very hypothetical) if they called it 30% and undershot it. You don't want to run out of money. It's not an industry where you can just fire some employees unless you're really overstaffed, since service level declines drive complaints, and enough complaints and suits put you out of business.

EDIT 2: All of that said, I'm rooting for these guys. This industry needs modernization pretty bad. If they can make their 8% back from process and tech optimization, that's great. I'm not trying to be negative, I really want them to succeed.

[gilsadis]

SmellTheGlove you're right. What joosters pasted is our website's TOS... You can definitely build a profitable insurance business with a 20% expense ratio. Our expenses are much lower than traditional insurers, plus we're not planning on buying any private jets :). We're here for turning insurance into a social good, as it was 400 years ago. Thanks for your support!

[SmellTheGlove]

You can, but there are very few P&C insurers currently doing it, and I've not seen an insurance startup willing to operate the way they do it. In the short run, you're only writing NY insurance, and 20% is completely possible. Scale is going to hurt initially, but if you do it right, it is possible to bring expenses back down. Legal and compliance, as well as handling claims, is going to be expensive on the way to 50 states.

My unsolicited advice, which may be worth exactly the zero that it's costing you, is to establish lean management and process control up front, and take a very hard look at the expenses you add in growth mode and evaluate whether you still need all of that once you've established 50 state operations and presumably can leverage internal economies of scale. That's one hell of a run on sentence.

And fix your website TOS to make it unambiguous that it does not apply to the insurance product or contract. You never know when some regulator is going to take issue.

[joosters]

Sure, it's from the website, but the language makes it clear that it covers everything - the "...SERVICE AND THE PURCHASE AND USE OF ANY PRODUCTS OR SERVICES" part. If you care for clarity, put an actual terms of service up that matches with your company behaviour.

[insurance_gal]

https://news.ycombinator.com/item?id=12557754

50% Loss ratio

[SmellTheGlove]

I was talking about expense ratio, not loss ratio. Thought that was pretty clear in my post, but too late for me to edit.

Also if expected losses really are 50%, are we really talking about a projected 70% combined ratio? Forgive my skepticism, but that's really hard to pull off, and there's going to be regulatory pressure to take rate if that happens with any consistency.