[gen220]

At most big old and public insurance companies, claims payable represents a significant chunk of expenses, but not even close to 100% (it's closer to 60-70%). The rest is, generally, "administration" (humans processing papers, and managing humans processing papers, in cushy offices).

This is where better technology can result in lower costs. It's a volume/unit-cost game. Their unit cost per person is maybe a few cents or a few dollars cheaper, but at huge volumes it makes a big difference.

[ddevault]

In addition to increasing efficiency, another way that comes to mind is to lower risk for the population as a whole. For example, investing in safer building codes, local emergency services, mass transit, etc.

[gen220]

Yep! One way that insurance compmanies can achieve this is by providing members of their insured population access to services that reduce their individualized risk.

Pre-COVID, many health insurance companies (my industry) were gearing up to offer free Doctor on Call (a service that, if well-implemented from a tech PoV, has near-zero margin costs), because access to such a program reduces the risk of expensive claims later down the line.

I'm sure there are equivalents in the kind of insurance that Lemonade provides. For example, they might offer free or heavily subsidized home security installation in certain zip codes with a history of burglaries.

[chimeracoder]

> At most big old and public insurance companies, claims payable represents a significant chunk of expenses, but not even close to 100% (it's closer to 60-70%).

By law, it's required to be at least 80%.

[arkades]

That applies to health insurance. I don't believe it applies to any other kind. Lemonade isn't a health insurer.

[gen220]

Yep, this is a huge caveat that this thread missed. Thank you for raising it.

For health insurance, the rule is:

> Health Insurance companies must spend at least 80% of the money they take in from premiums on health care costs and quality improvement activities. The other 20% can go to administrative, overhead, and marketing costs.

As a health insurer, you can lower premiums while increasing spending on "Quality improvement", to provide a better experience at a lower rate, and increase your market share. This is one dimension of competition that is only beginning to be competitively explored.

If you can get quality improvement at lower marginal costs (which is ultimately a tech problem), you're a more competitive health insurance company.

[nostromo]

Which creates a perverse incentive for insurers not to care about payouts (If you want to increase profits, you have to increase payouts) -- so long as they can compete on costs with other insurers.

[chimeracoder]

> Which creates a perverse incentive for insurers not to care about payouts

Yes, this is a common criticism of the ACA.

[arkades]

It's a bad one.

Controlling medical expenses isn't easy. Neither is getting admin + overhead under 10%. You need both to get a reasonably profitable insurance product.

[hedora]

I think this summarizes why single payer health insurance makes so much sense. The insurance companies are taking about 20% of health care dollars and provide no value.

If you assume it costs the health care providers the same amount to file a claim as it takes to process it, then the total overhead of having the insurance industry jumps up to > 30%.

I’ve heard the US numbers are comparable to that, but it is nice to be able to derive it from first principles.

Interestingly, this analysis suggests that the cost of filing a claim should be paid by insurance, not the customer.

Currently the cost is an externality for the insurance company, so they can waste time with nonsensical revisions and rejections before finally paying out.

If the insurance company had to pay for the paperwork on both sides of the process, they’d have a strong incentive to streamline claims.