“His coat was stolen on a sub-zero Saturday night. He hoped it might turn up, but six freezing days later Brandon despaired of finding it and did something no one has ever done: he took out his phone and set a world record…”*
It took Lemonade, a New York startup 3 seconds to pay Brandon an insurance compensation for his stolen coat. The Guinness Record Book rejected the application on the basis that throughout 3000 years of its history, the insurance industry never created a time measuring standard for the payment of insurance compensations. No wonder. After all, there is nothing to be proud of.
Compensation not for the insured
The payment of insurance compensation is probably the most neglected stage of customer service in the insurance industry. It is often dragged out for weeks and with more complicated damages such as receivables insurance or construction guarantees, it could go on for years. There are two reasons for this.
First, it was not traditionally the insurer’s priority to have swift customer service, but rather to protect themselves from extortion and inflated claims. This requires a thorough analysis of the claim and time consuming, manual human intervention.
Second, compensating damages, despite being promised and in the interest of the insured, stands in contradiction to the insurer’s interest, whose underwriting profit lessens with every paid insurance.
Only a few startups in Europe settle claims
“Our analysis of over 2500 European insurance-related startups allowed us to observe that only 15% of pure Insurtechs deal with topics related to settling insurance claims and combating extortion. The remaining 85% focus on new distributions channels, new insurance products or risk evaluation and assessment. This is no surprise since claims and fraud are the links of a value chain, which require the combination of advanced technologies and expert knowledge and these do not always go hand in hand.”
— says Florian Graillot, the founder of astorya.vc, a venture capital fund investing in young insurance startups in Europe.
The startups above can be divided into two main categories. The first consists of companies which focus on improving the current claim management process, digitizing and automating it, or supporting claim managers with new tools. The second category encompasses startups which shift the paradigm of claim settlements.
Claim settlement on steroids
Well-thought-out startups are born in response to existing problems. The power and time consumption of manual labor, the hardships of coordinating many entities (i.e. the insured, the insurer, the mechanic), and the lack of easy access to information are common enough to become a promising business opportunity.
A Lithuanian startup called Claims Control and a Dutch Openclaims offer platforms, which bring together all entities engaged in handling a claim. This allows for easy and rapid access to information, photo sharing and keeping all communication in one place.
The British Tractable, which has already gathered €31M from its investors, instructs participants of car accidents on how to photograph their vehicle to evaluate a claim, then based on these photos, they predict the costs of repair. Another British startup RightIndem, offers insurers a fully digital and customer first self-service claims settlement process.
Director of Innovation at a big insurance company in Europe said this about their cooperation with Tractable:
“We decided to collaborate because the startup has the technology to improve our claim verification process efficiency many times over. At the same time, the service is simple to embed in our business process. Thanks to this project we generate savings which contribute to improving our competitive position.”
The French Zelros focuses on what they call an augmented insurer, which is essentially a comprehensive insurer. It solves the problem of the claim manager’s limited access to information and knowledge about the client. Zelros gives claim managers a tool which connects them to clients’ data and uses Artificial Intelligence to reduce every part of the claim processing: claim filing, missing information in a complex case, processing time, etc. resulting in making decisions related to handling the claim quicker.
“The measurable RoI (of implementing Zelros) is related to time saved by our claim managers in treating each dossier, which we’ve estimated to be reduced by 40–50%. It, therefore, reduces significantly the cost of each phone call. In fact, the solution allowed us to automate all repetitive tasks.”
Says a Bancassurance Director at a French bank.
The solutions above are often one of a kind and most of them bring insurers a return on investment already in their pilot phases. This is because startups solve their actual problems. But what about the clients’ problems?
The new school of claim settlement
The revolution in paying insurance compensations comes into existence when you get to the root of the problem, which is the previously mentioned conflict of interest between the insurer and the insured. The forenamed Lemonade or Laka, a London startup insuring the biking community based on a peer-to-peer model, built their business models in a way that best serves the client.
Lemonade, the worth of which is valued at $500M, charges a flat fee upon each insurance premium. The premiums remaining after the paid compensation are given to public benefit organizations, which reduces extortion by suggesting that the one to lose would, for example, be a children’s hospice. Laka went a step further. They charge a fee upon each properly paid compensation. The remaining premiums are then deducted from future ones. If there is no claim, the premium that month is zero.
The immediate payment of compensation is only possible with a very thorough fraud detection system. Lemonade built a number of algorithms within their company, which examine each claim in this respect.
A French startup called Shift Technologies, whose clients are traditional insurers from all over the world specializes in creating such algorithms. Thanks to the fact that Shift uses many databases to build its algorithms, they are more precise than the ones built by companies in-house. This benefits the startup as well as the insurers who hire it.
It is worth to mention another segment that undermines the insurance status quo, which is parametric insurance — “insurance without indemnity”. This means the insurer pays a predetermined amount without carrying out any kind of analysis. The compensation payment is executed when a certain set parameter is exceeded. The British FloodFlash attaches a water level meter to all its flood insurance policies. When the water reaches above a certain level, for example in a production hall, the claim is automatically accepted for payment.
The French startup Descartes Underwriting is developing a method of using publicly available data (such as satellite photos or flight delay information) for parametric policies. The German Wetterheld offers weather insurance to farmers, restaurant owners, public events organizers and many other entrepreneurs whose businesses rely on weather conditions. The weather parameters pre-established with the client, such as low temperatures which harm apple and cherry orchards, are compared with data published by weather stations. If the parameter was a certain number of cold days, then after this number is reached, Wetterheld informs its clients of the possibility to claim compensation, without even taking a look at their fruit orchards.
A lot of time will pass before the mentioned startups, even the ones with their own insurance license, become true competitors or equal partners for traditional insurers. There is no denying, however, that in meeting client needs and analyzing data, they are the more mature players. What some insurers consider their competitive advantage, startups believe to be obvious — a smooth claim settlement process. It’s worth taking a look at what they have to offer.
Leveraging its own sourcing technology astorya.vc identifies promising startups, structures their growth through its extended network of mentors, and develops new business opportunities with its insurance investors.
Raised from insurance players, astorya.vc is the first early-stage investor in Europe, focused only on the insurance industry.
Learn more on http://www.astorya.vc