SmallTicket a Korean InsurTech has found a great way to cut Customer Acquisition Cost


SmallTicket, a Korean InsurTech, has found a great way to cut Customer Acquisition Cost (the dreaded killer of B2C ambitions).

SmallTicket does this by selling their products online to groups rather than to individuals.

You could call this P2P or Affinity Marketing or Bulk Buying. Whatever the buzzword, it is the underlying economics that are interesting and that we explore here.

This is also a Femtech story and an Asia story, but first…

Make it up on price what you lose in volume?

It is no secret that Millenials are buying less Insurance and that both Agents and their customers are ageing. In a sentence, that is the big problem facing Insurers. It is one we see again and again as we survey the InsurTech landscape.

Some data from Julie Kim, founder and CEO of SmallTicket, reveals the rather destructive strategy employed by many Insurers – hike up fees to motivate agents to sell more. As reported in this Malaysian publication, Julie Kim details the hidden fees such as operation fee and fraud detection fee as well as the normal commissions and marketing costs. The staggering claim:

“With all these fees, the value of the coverage is actually less than half the premium”.

The obvious solution, as many others have discovered is to sell directly online. The question is how to do this efficiently, how to reduce Customer Acquisiton Cost (CAC). The answer, similar to what we have seen in other ventures is using the “birds of a feather flock together” principle behind techniques such as cohort analysis and affinity marketing. SmallTicket takes that a step further, right to the buy button.

SmallTicket acts as a risk-sharing network, allowing each group to pool their premiums so as to mitigate individual losses. Any funds left in the pool when the coverage ends are given back to the group in the form of bonuses or cashback.

Anyone can open an account on Smallticket and create their own groups. While the members are free to determine whether the group is private or public, it must not exceed 200 members. The platform currently has seven groups of more than 280 users each.

“It is like a Facebook page — you can join a group or create your own with people who have similar lifestyles. And we curate the insurance products for you to choose from,” says Kim.

Kim, clearly a pet lover, uses this example to explain more:

“For example, if you want to buy pet insurance for your French bulldog, you can create a group with your friends who also own French bulldogs and buy a policy from one of our partners. Thus, members will have to try their best to keep the loss ratio low. In the case of pet insurance, members will have to keep their pets healthy by giving them regular vaccinations, better food and sufficient exercise.”

Smallticket currently provides insurance policies from Samsung Fire & Marine Insurance, Hanwha General Insurance, Kyobo Lifeplanet Life Insurance Company, Shinhan Life Insurance, Meritz Fire & Marine Insurance and Axa General Insurance Korea. So, I would put Smallticket in the Robo Broker category, but with far more value  than first-generation comparison sites.

Young Koreans

Smallticket is targeted at South Korean youths — the age group that is buying the least amount of insurance products and that rejects the high pressure sales tactics of the traditional agent. Millennials want to buy, rather than be sold to, particularly if they can buy those products with their friends.

Smallticket’s initial focus is travel insurance.

Smallticket also allows individuals to create their own groups — comprising family members, friends and even other people with the same insurance needs to collectively assume responsibility of the group’s risk profile.

Kim outlines how peer pressure reduces claims:

“And since this is a group reward, people will be pressured into making sure they do not get into situations that require them to make a claim. For example, if we are in the same motor insurance group and I keep getting into accidents, you can warn me to be extra careful to make sure we can still get some good rewards.”

This is also a Femtech and Asian story. 

Julie Jung-Eun Kim, Founder & CEO at Smallticket, is American educated (Northwestern University) but she is Korean and built the company in Korea. As women are woefully underrepresented in tech startups (as we explore here) it is great to see an Insurtech venture in Korea led by a woman.  We have earlier covered Insurtech innovation from Singapore, but this is the first venture from Korea (strategically located between China and Japan, superb infrastructure and education, strong diaspore ties in USA).

Despite the business being based in South Korea, the programming and development team is based in Singapore. Kim plans to expand her business to Singapore before establishing a presence in Hong Kong and Malaysia.

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Bernard Lunn is a Fintech deal-maker, investor and thought-leader. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

P2P Insurtech for Bitcoin and Ether exchanges needed


No, that headline was not created by a random buzzword generator – fun as that could be as a side project.

This is science fiction. If I worked for a big management consulting company I would call it Scenario Planning. Or you can call it “Venture Wanted”. AFAIK no venture addresses this need. If I am wrong, please tell me.

The idea came from reading our new Author, Ilias Louis Hatzis, who is writing our Blockchain, Bitcoin & Crypto weekly post on Monday.

The issue he was addressing was how Crypto Exchanges such as Mt Gox and Bitfinex have lost a lot of customer funds. He described traditional insurance addressing the problem in Japan (which we reported on here) but he also floated the idea of an an FDIC like organization for Bitcoin/Cybercurrencies and the idea from Andreas Antonopoulos that Bitcoin exchanges should create a “common risk pool fund”, that would insure customer funds in case of theft. Maybe a P2P Insurance venture looking for an early adopter market with a serious pain point is listening?

If you like this idea and want to contribute to making it happen – or know of a venture already offering it, please go to this thread on the Fintech Genome – the place where great conversations make things happen.

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Bernard Lunn is a Fintech  deal-maker, investor and thought-leader. 

Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.

Parsing Lemonade PR to see if P2P insurance is game changer or a mirage


One of our 2017 Insurtech Predictions was:

#2 P2P Insurance does not (yet) live up to its promise.

We will see many drop out, leaving one or two well positioned to win big in 2018 and beyond. The term P2P Insurance will fall into the slough of despond.

Today we dig deeper into that subject.

A lot of the InsurTech innovation we see can be coopted by the incumbent carriers relatively easily. Knowing how to build a compelling digital user experience is not enough to create a moat and sustainable advantage. So a lot of people are looking at P2P insurance as the disruptive game changer. 

Ever since Lemonade did their $13m Series A funded by the hot hands of Sequoia Capital just over one year ago, there has been a lot of speculation about whether Lemonade will prove this model to be a game-changer or whether the whole thing is a mirage.

Now that Lemonade is releasing some information, we take a look at what we can learn about the whole sector.

P2P insurance 101

P2P insurance, sometimes also called reciprocity insurance, reduces the inherent conflict between insurance carriers and their policyholders. Policy holders are given more control in return for taking reciprocal risk (i.e. paying out to other members). Peers control decisions that are traditionally made by the insurance carrier, such as:

  • forming their own risk pools for deductible coverages
  • making decisions about the proceeds of the pool
  • allowing peers to adjudicate their pool’s claims.

Variants of P2P insurance

  • By country: Both regulations and social networks vary widely by country, so it is natural to see entrants from so many countries.
  • By risk type coverage: some go after automotive, others move into new insurance needs related to the sharing economy. Other examples are liability insurance, household contents insurance, legal expenses insurance and electronics insurance. Which one gets traction first is still unclear.
  • Broker model: a part of the insurance premiums flow into a group fund, the other part goes to a third party insurance company. Claims are firstly paid out of this group fund. Claims above the deductible limit are paid by the insurer. When there is no insurance claim, the policyholder gets his/her share refunded from the group pool or credited towards the next policy year. If the group pool happens to be empty, a special insurance comes into force.
  • Carrier model is similar to the broker model, except that as the peer-to-peer provider is also the carrier. If the pool is insufficient to pay for the claims of its members, the carrier pays the excess from its retained premiums and reinsurance. Conversely, if the pool is “profitable” (i.e. has few claims), the “excess” is given back to the pool or to a cause the pool members care about. Peer-to-Peer insurers take a flat fee for running the operations of the insurance enterprise. The fee is not dependent upon how many (or how few) paid claims there are. The carrier model can be launched by incumbents or full stack, regulated InsurTech startups.

Social and affinity networks

Trusting your peers is critical to the model, so Social and affinity networks will play a key role. The trust is not based on personal relationships, more to do with affinity. To take one example, window cleaners need insurance and if you are a window cleaner you and your peers understand the risks better than any insurance company can as long as you all have access to the same data.

In the broker model, the only requirement is that all group members must have the same type of insurance. In the carrier model, the only requirement is that the group members have something in common, such as being members of the same club or profession or believing in the same charity.

Some P2P Insurance Players

You can see from this list why analysts focus on Lemonade. Most others have not raised much. One that has – Huddle Money from Australia – positions more broadly as a P2P Bank.

Name Country $m Raised
Huddle Money Australia 6
Friendsurance Germany 15.3
Lemonade USA 60
Besure Canada Undisclosed
TongJuBao China Undisclosed
PRVNI Czech Republic Undisclosed
insPeer France Undisclosed
PeerCover New Zealand Undisclosed
Riovic South Africa Undisclosed
Guevara UK Undisclosed

There are many others. This thread on Fintech Genome is where the list is being crowdsourced.

Now for the case for a game changer presented by Tigger and the case for mirage by Eeyore. Note for those who did not grow up with Winnie The Pooh stories, here is the cast of characters:

– Tigger is the excitable cat, full of enthusiasm for every new technology which will surely change the world for the better and do it right now.

– Eyore is the old grey donkey who thinks it is all rubbish, that all this change will only end badly or won’t happen at all.

– Winnie The Pooh is a humble “bear of little brain” who somehow gets to the right answer by asking good questions. We all want to be that insightful bear, but in the tech world the market is the only judge of what works or does not work.

First, lets look at what information Lemonade actually released.

Lemonade’s recent PR 

  • A ‘world record’ for the speed of paying a claim. The company claims that at seven seconds past 5:47pm on December 23, 2016, Brandon Pham, a Lemonade customer, hit ‘Submit’ on a claim for a $979 Canada Goose Langford Parka. By ten seconds past the minute, A.I. Jim, Lemonade’s claims bot, had reviewed the claim, cross referenced it with the policy, ran 18 anti-fraud algorithms on it, approved the claim, sent wiring instructions to the bank, and informed Brandon the claim was closed.

The case for game changer by Tigger

  • P2P Insurance fundamentally aligns the interests of the insured and insurer, breaking the win/lose basis of traditional insurance.
  • Affinity networks lead to organic customer acquisition, reducing CAC.
  • Millennials are under-insured and a natural target for renters insurance.
  • Lemonade is a great UX that is personalized & relevant, with a new backend that was built from the ground up (not a new UX on a 30 year old legacy system).

The case for mirage by Eeyore

  • Risk assessment is hard and no UX gloss can change that.
  • There is nothing new about mutual business models.
  • It’s just some social marketing and incumbents can easily copy that.

Our take

I incline to the Tigger game-changer case. Possibly that is me being an entrepreneur and thus having an optimistic mindset, but I also think that the combination of deep-pocketed Reinsurance and full stack new Carriers using a new model and new social techniques and new UX and new anti-fraud technology stands a very good chance. It is still really early in this game, but Lemonade are making all the right moves. A few more thoughts:

  • Quick payout is a big win for consumers. Doing that on big claims may require reducing settlement latency via a blockchain network. So they are smart to focus on really quick payouts on really small claims that do not have that dependency.
  • Loss leaders are a normal way to get early traction for well-funded startups. You cannot glean unit economics from that PR story about one claim to payout thatr was done in seconds.
  • Their PR story does not match the focus on renters insurance. Maybe they had a PR deadline and this was a story that fit, but this seems like a misstep. Or maybe the PR story about instant payout will give their anti fraud tech a real stress test as the bad guys swoop in. Maybe that was the real audience for their PR?

Two horse race at moment

Friendsurance, out of Germany, started earlier, in 2010. Their investors – Horizons Ventures – are not as famous as Sequoia Capital, but a quick glance at their portfolio and the people behind them like Li Ka-shing (the richest person of East Asian descent in the world and the 11th richest person in the world with an estimated wealth of US$26 billion) generates a lot of respect. Expect a move into Asia by Friendsurance given the credentials of the Horizons Ventures team – but not in any hurry as Germany is a very big market on its own and they will be passported into the rest of Europe.

For discussion, please go to this thread on Fintech Genome

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With Lemonade out of stealth, the Fintech Genome community has a P2P bellwether to analyze


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We held our breath for nearly 9 months after the $13m Sequoia Capital Seed round for Lemonade was announced at the end of 2015.

Release breath – they are out of stealth mode.

The day we launched Fintech Genome (was it really only 3 months ago, it has been a whirlwind), all we could see was that P2P Insurance was hot and that Lemonade was likely to be a key player.

A few weeks later on this discussion thread all we really knew was that Lemonade was going direct and cutting out the brokers.

@oscar pointed out the significance of this

“I am under NDA with the firms I am working with but I can tell you that the Insurance industry is prepared to go direct and remove the broker barrier. The current broker model is broken, it does not serve any value to a business other than additional cost.”

Now we have some facts about Lemonade

After Lemonade’s coming out of stealth party, the Fintech Genome community weighed in on this thread.

This video is an accessible way to learn about Lemonade and answers some questions – The Science Behind Lemonade.

My takeaways were:

* home owners and renters

* Public Benefit Corporation

* eliminate brokers using AI

@rickhuckstep pointed out we should add fourth bullet point:

* Fundamentally aligns the interests of the insured and insurer

That is a big deal. Rick points out that they don’t profit from withholding a claim and goes on to tell us that:

“Lemonade take a flat fee of 20% of gross written premiums. They make their profit or loss from the fee.

The 80% of premiums remain to settle claims. It’s no skin off Lemonade’s nose if they pay out or not. Any surplus premiums are given to a good cause chosen by the policyholder”

@amyradin was ready to be an early adopter ending her review with:

“I’ll be shopping as soon as they offer coverage in my state!”

@amyradin key takeaways were:

  • “It’s well-known that Millennials are under-insured – what a smart move to make renters part of the V1.0 offering – an easy to understand, basic insurance product to bring a receptive audience into a relationship with the brand.
  • Lemonade has broken the win/lose basis of traditional insurance. In my work within the industry, speaking with people who own or seek to buy insurance, it’s not uncommon to hear people literally say, “when I win they lose.” Or vice versa. Aligning interests between the person buying insurance and the insurance carrier reframes the relationship, can reinstate trust, and gets back to the original idea behind insurance — pooling funds so members of a community can care for each other.
  • Love the Intelligent use of UX + Data + Virtual agent to have a truly personalized, relevant conversation that results in giving the person something they need, in easy to understand terms. This is surely an exemplar that will be studied — with attempts to imitate — within insurance and beyond. But putting ‘lipstick on a pig’ won’t work. The fact that Lemonade has been built from the ground up will make imitation hard.

 A stat shared at a conference I recently attended: 70% of millennials would rather do business with Google, Facebook, Amazon than a traditional FI. Insert “Lemonade” in that sentence. 

BTW also note that Lemonade is powered by one of the most renowned behavioral economists in the world, Dan Ariely.

Kudos for a true disruptor having the tenacity and focus to make a statement about what insurance can be.

@rickhuckstep pointed us towards the next P2P venture – Teambrella

“Lemonade are clearly a Wave 2 P2P insurer – what I call the Carrier Model.

Next will come wave 3 later this year with the likes of Teambrella”

Before it’s news, it’s on Fintech Genome.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech & operates the Fintech Genome P2P Knowledge platform.

Blockchain in Insurance #insurtech


Image from

Early stage investors and entrepreneurs make their money when something moves from bleeding edge (lots of technical risk) to leading edge (market and team risk).  Blockchain in Insurance  is currently at this intersection, which is why we see so much interest in the subject. The technical risk is lessening every day (there is always some technical risk) but there is still a lot of market risk. We are seeing a lot of Proof Of Concept (POC) projects and lots of Minimum Viable Products (MVP), but as yet very little Product Market Fit (PMF). There is lots of good theory on why these MVPs should get to PMF, but there is as yet very little actual proof from the market.

Auto Payout Based on a Trustless Smart Contract

This holds out a win/win promise. Customers know that payout is automatic and immediate (no more hassling for payout during the most stressful times when the bad event has actually happened). Insurance companies get two benefits:

  • Elimination of fraud. The Insurance company does not rely on the customer’s version of truth. There is independently verified data.
  • Elimination of claims processing cost. This is a consequence of elimination of fraud.

For this to work, it has to be binary simplicity. An algo has to make a yes/no decision instantly. Something with complexity (such as who is at fault in an accident or whether a medical procedure is covered) needs human intervention.

One example of where we see that binary result is flight insurance. The flight was either cancelled or it was not. Blockchain systems use external data sources (e.g via the Oraclize service ) to get this proof of what happened. A Proof Of Concept for this flight insurance use case was coded during a weekend at a hackathon using Ethereum – proving that technical risk is not the prime concern.

We expect to see lots of use cases where this binary rule applies where really low cost insurance can be offered (thanks to elimination of fraud and claims processing). This is classic disruption at the edge – where disruption usually gets traction. For example, there are lots of use cases within the sharing economy. These are on demand or just-in-time insurance use cases.

One mainstream use case is Life Insurance. Life or death is pretty binary. Smart Contracts can look at online death registers and make payout to the designated account. Given the stress that grieving relatives are under, this would score high on Net Promoter Scores.

Enforced rules for where to spend the money

In more complex claims processes it is more about enforcing rules on where a customer spends the money. For example, in an auto accident, only go to these garages or in a ski accident, only go to these doctors. This is a win/win as the customer has confidence of getting reimbursement and the insurer gets lower and more predictable claims. Using geo location and smart phones it is pretty simple for the customer to make a decision where to go even in stressful situations and will take this action if there is 100% confidence in auto payout via a Blockchain resident smart contract. Ideally the vendor (garage, doctor etc) gets notification on their phone of incoming customer and notification from the smart contract of what they can charge, so the customer does not have to pay and reclaim later.

The Provenance use case for Blockchain

The use case for Insurance that has been understood for some time is Provenance. This affects assets such as jewelry, art and antiques where it is critical to know that the “asset is what the customer claims it is”. If I am insuring a 1964 Chateau Petrus (currently valued in US$ millions), the Insurance carrier needs 100% confidence that it really is a 1964 Chateau Petrus and not cheap wine with a 1964 Chateau Petrus forged label.

An immutable blockchain database is the obvious solution. You can see all transactions on that 1964 Chateau Petrous dating back to when the farmer sold the grapes in 1964. Ok, that only works for transactions starting now unless there is a conversion of historical data – nobody said this was easy!

An early pioneer in this use case is Everledger (our note on Everledger from July 2015 is here). They focus on jewellery, which is a big niche market.

This is a niche within Property Insurance and one can envisage lower cost insurance offered at the point of sale because a smart contract tied to proven provenance means that many more products can be covered. So this can grow the market.

Blockchain + P2P Insurance = Disruption

P2P Insurance has been suggested by many as the disruptive model for Insurance and we have covered this many times on Daily Fintech. It maybe that P2P is only viable with Blockchain resident smart contracts that can guarantee the payout. For the fundamental theory behind this, read a white paper from Joshua Davis entitled “Peer to Peer Insurance on the Ethereum Blockchain”. The Distributed Autonomous Corporation (DAO) that takes in premiums and makes payouts would be owned and controlled by policyholders who have an affinity (ie part of a cohort with a shared risk profile).

Joshua Davis, who wrote that seminal white paper went on to turn theory into practice by creating Dynamis.  They are not trying to boil the ocean; their niche is supplemental unemployment insurance.

Unbreakable Escrow and Solvency 2 on the Blockchain 

As the WEF report states, Blockhain based smart contract Insurance works through an “unbreakable escrow”. The insurer will pay out before they even know about it. This has dramatic and complex implications on solvency regulation that will take time to play out.

Solvency 2 regulation is designed to ensure that insurance companies have enough capital to pay claims.

The issue is how much capital the investor has to put at risk to enable “unbreakable escrow”. Will it be back to the future where the equivalent of Lloyds Names agree to unlimited liability? Or will Insurance companies have to deposit a far higher % of reserves to guarantee the payout. A P2P DAO owned by the policy holders can afford to do this. A traditional insurance company cannot afford to do this. This is classic disruption.

A Digital Lloyds of London

One of the best visions of what a Blockchain based Insurance marketplace connecting brokers, carriers and reinsurance is from a Blockchain foundry called Chain That. Their video explainer sounds like a back to the future version of the original Lloyds of London – replacing human runners carrying paper between the parties with a shared ledger and smart contracts.
Chain That shows how important existing data standards are. They use Accord data -which serves a similar role to the FIX standard in capital markets.

MicroInsurance for the Underbanked using Blockchain

Consuelo (Spanish word for consolation) from a Mexican company called offers microinsurance for health and life insurance. This is like microfinance – doing something in really small bites at very low cost. Saldo prefer the term non-adjustable insurance, which means replacing the claims process and the claims adjuster.

This fits the Daily Fintech thesis of “first the rest then the west” (that innovation will come from billions emerging into a global middle class because they have greater need and a technological clean slate). What Saldo is referring to is the same Blockchain based smart contracts based on verifiable data from oracles that we described earlier. What is interesting is that this innovation may first get traction among the Underbanked.

Daily Fintech recently described why China and India may define the future of Insurance and InsurTech. At the time we speculated that this innovation could also come from Latin America. It is interesting to see this happening now.

What makes Consuelo particularly interesting is their focus on one of the most critical global networks – diaspora networks. They are focussed on the huge market of Mexican Americans. They call this   “community without borders” in this interview in CoinTelegraph.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.

China & India may define the future of Insurance and InsurTech

rise-of-the-restImage courtesy of Futures Group

A major thesis at Daily Fintech is that digital financial inclusion is driving what we call “first the Rest then the West“. This reversal of the flow of innovation is a big 21st century megatrend. We have already described this happening in mobile payments thanks to real consumer needs and a leapfrogging over old technology. This may also be happening in Insurance, which is a key plank to a middle class life. Both China & India have a growing middle class. So the demand is strong and the lack of a big established insurance industry offers the opportunity to leapfrog the West in the use of new technology and business models.


Zennon Kapron of Kapronasia explains why we should be paying attention to Insurance in China:

“As China’s middle class becomes wealthier, they have increasingly looked at insurance as both a way of protecting their family, but as an investment vehicle. This increased demand has driven fundamental changes in China’s insurance industry both in terms of overall maturity and technology adoption.”

In China the InsurTech company to watch is Zhong An (site in Chinese only).

Zhong An is a pure play InsurTech venture. Zhong An is also a full stack InsurTech venture; they are a regulated Insurance company that can offer a full suite of services. Think of it like a challenger Insurance – digital first. When we write “venture” in the West we tend to think “venture capital”. In China, think “joint venture”. Zhong An was created by three established Chinese companies:

  • Alibaba (think Amazon, eBay & PayPal merged together)
  • TenCent (think Facebook & Twitter)
  • Ping An (Insurance company)

You can see a single round over $900m on Crunchbase; no step ladder funding here.

Zhong An first got traction from return-delivery insurance for buyers on (Alibaba online marketplace) and is a specialist in providing cover for various risks relating to the internet economy.

Zhong An sells direct, not via traditional insurance agents.

According to this WSJ report, Zhong An is headed towards IPO. Zhong An has underwritten more than 1.6 billion insurance policies and paid out 369 million in claims

Another InsurTech venture to watch in China is TongJuBao, which describes itself as a P2P risk sharing platform through communities of shared interests and social relations among Internet users.

Their funding process looks more familiar to the West with an English language site. We can even see a pitch on Angel List.

In the West we have Lemonade, Guevara, Friendsurance, and Inspeer with a P2P risk sharing model. The point about “first the Rest then the West” is that TongJuBao is clearly not a story about China copying Western models. It could be that P2P risk sharing Insurance gets traction first in China.


We are not seeing the same level of ambition and innovation in India despite a similar sized market opportunity.

Crop insurance is a big deal in India where by some estimates close to half of employed Indians work in agriculture. However, rather than technology innovation (perhaps opening futures and options market on farm commodities) we are seeing old fashioned Government subsidies.

One venture getting traction is Policy Bazaar. Their online insurance comparison site claims 5,000,000 customers seeking both life and non-life insurance. Policy Bazaar Has received $69.6m in VC funding and has a Pitch that is designed against traditional agents – “we don’t SELL, we TELL!”

Another InsurTech venture in India to watch is Coverfox. They raised $12m just under a year ago and have a similar comparison model to Policy Bazaar, with a slight edge in mobile UX as per some people.

The online insurance comparison model does not count as innovative these days and has low barriers to entry. The point is that in markets such as India with so much new demand for insurance from an emerging middle class, just making the selection process easier can create a big business.

It is not just China and India. This innovation is also coming from other Asian markets and from Africa and Latin America. It is likely that the future of Insurance will be defined in the Rest not the West.

Please tell us in comments which InsurTech ventures in China and India that we have missed.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.

Lemonade could collapse the Insurance stack #insurtech


InsurTech moved into the limelight on 8th December 2015 when it was announced that Sequoia Capital had done a $13m seed investment into a stealthy venture called Lemonade. Call it the Sequoia effect. Could this be another WhatsApp story (with a $19 billion exit only 3.5 years after Sequoia invested in their A round)?

Lemonade remains stealthy. They have not said what they plan to offer beyond broad generalities. However there was more news this month which gives some interesting clues when it was announced that:

“Berkshire Hathaway and Munich Re back revolutionary P2P insurer”

There were others including: Everest Re, Hiscox, Transatlantic and XL Catlin plus a syndicate at Lloyd’s of London. The amount invested was not revealed. That is not the issue. Lemonade can clearly raise as much as they need. What is significant is the entry of the Reinsurance players. We analyze the PR to figure out where the puck is probably headed.

The current Insurance stack

The insurance industry works through a 3 layer stack:

  • Layer # 1: Brokers. Their job is to gather premiums from customers.
  • Layer # 2: Insurance Companies. Their primary job is claims processing. They take in premiums via brokers, invest the cash flow and pay out claims when needed.
  • Layer # 3: Reinsurance Companies. They are the payers of last resort. They insure the insurance companies. Their job is to have enough capital to pay out claims, even if the models did not predict the volume of claims.

Cui Amisit

During disruption, the big question is who loses? WhatsApp disrupted the Telecoms companies. Who will be disrupted by Lemonade? The news clearly signals that it won’t be the Reinsurance Companies.

Normally one would assume the Brokers to be most at threat. Digitization allows consumers to buy direct. Some Insurtech ventures such as Knip (out of Switzerland) position as brokers. We can call this type RoboBrokers. They serve the traditional job of gathering premiums for Insurance companies; they just do it more efficiently by using digital tools.

Lemonade is probably going after bigger fish. The clue is in the statement from the CEO of Lemonade in the press release:

“Lemonade is the only insurer that doesn’t make money by denying claims”.

Insurance is a rather one-sided business. As consumers our commitment to pay premiums is absolute. If we stop paying we are not covered. The commitment of the Insurance company is to pay out – in certain circumstances. There is a contract, but we have to trust the other party and the other party obviously has an incentive not to pay out.

Lemonade has not revealed how they will do this – they obviously want to stop copycats. The backing of so many big players and the move by a 25 year AIG veteran to become Lemonade’s chief insurance officer plus other key hires, indicates that Lemonade must have a good plan even if they are not yet revealing it publicly.

So we can only speculate at this stage based on the two biggest concerns that consumers have when it comes to Insurance:

  • Concern # 1: Will the Insurance company have enough money to pay me? This is why Insurance is so highly regulated. Scamsters love a business where you can collect premiums and disappear before the claim is paid. The announcement that Reinsurers (the biggest pools of capital out there) are backing Lemonade is designed to allay that fear.
  • Concern # 2: Will the Insurance company find a reason to deny my claim to avoid paying me? Lemonade cannot simply say “trust me”. That is how the Insurance industry works today. Consumer could feel confident of a Smart Contract where they could see that the money is automatically paid out when certain conditions are met (based on a Blockchain based algorithm with the money already in some form of escrow). This is easy in Life Insurance because the event (dead or alive) is binary. However Property & Casualty is more nuanced (how much damage? Who was at fault?) and Health Insurance has a notoriously complex claims process. How Lemonade automates the claims process will determine their success. How will they stop scamsters making false claims? How will they verify the loss? Is this where they will turn the claims process into a P2P process (ie get the crowd to verify what happened)?

Insurance companies can see the damage done to Telecom operators by over the top messaging services such as Whatsapp. They may now need to think hard about the impact of InsurTech disruption.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech. Bernard Lunn is a Fintech thought-leader.