World’s First Open Source Insurance Policy

Why we’re throwing out the traditional policy and creating Policy 2.0!

Open to change

“Every act of creation is first an act of destruction” — Pablo Picasso

To create an unconflicted insurance company you have to rethink the very business model of insurance; to make it transparent you have to take a bulldozer to its foundational document: the Policy.

Lemonade is committed to both.

In late 2016 we launched Lemonade with a novel business model, but sensed that razing the ‘industry standard’ insurance policy was more than our regulators and reinsurers could stomach.

That was then. This is now.

Transparency is the best policy

“A lack of transparency results in distrust and a deep sense of insecurity” — Dalai Lama

To normal people, insurance policies are the ultimate word salad. The renters policy we launched with is ‘industry standard,’ which is to say it’s 40 pages long, and contains some 20,000 words, many of them from middle-English.

But more troubling than words like ‘pewterware,’ ‘smudging,’ and ‘bailee,’ is how the policy contorts even simple words, like ‘Employee,’ into gobbledegook:

The most lethal ‘transparency-killers,’ though, aren’t quaint words or wordy definitions — they’re the exceptions. As John Verdon put it, “an exception is a resentment waiting to be born.” And since insurance policies read like a laundry list of exceptions, with exceptions to those exceptions, and exceptions to those exceptions, they ooze resentment.

Take the simple question of how much ‘personal property’ is insured by your policy. If you bought a $20,000 personal property policy, you might expect the answer to be $20,000. Which is true, except…

• There’s a $1,000 limit for the removal of your neighbor’s fallen trees… But there’s a $500 limit for any one tree… And you get nothing if the trees didn’t damage ‘a covered structure’; Except, that is, if they block the driveway; On condition the blockage ‘prevents a “motor vehicle” from getting by; Except, that is, if the “motor vehicle” isn’t “registered for use on public roads.”
• There’s a $2,500 limit for pewterware (whatever that is).
• Your claim’s capped at $1,500 for “furnishings” of a “watercraft” (huh?)
• You’ll see only $250 for “antennas, tapes, wires, records…” (naturally…)
• And you’ll get zero if your pewterware, furnishings, antennas, tapes, wires or records were in the hands of a “bailee” at the time they were stolen.

And so it continues for 20,000 words! Any wonder people feel the deck is stacked against them?

Aims of Policy 2.0

“Everything should be made as simple as possible, but not simpler” — Albert Einstein

We’re taking a run at creating ‘Policy 2.0,’ with 4 overarching goals: Make a policy that’s simple, approachable, relevant, and digital.

Simple:

The key to simplicity is consistency. Exceptions make actuaries happy, but their costs, in complexity and transparency, are just too high.

Zero exceptions may be unrealistic, because the price of such a policy would be unattractive, but the goal must be a radical reduction in exceptions, and ensuring they’re easy to understand and remember.

Approachable:

There are good reasons why policies use lingo that requires a law degree and a broker’s license to understand, but Policy 2.0 is about using contemporary English that everyone understands.

And the policy has to be way shorter. No document is ‘readable’ if it’s so long that no one actually reads it.

Relevant:

Policy 2.0 doesn’t aim to increase or decrease coverage per se. It aims to balance relevant coverage with affordability, while allowing users to choose additional coverage that makes sense for them.

Today’s policy deals at length with volcanic eruptions, nuclear fallout and ‘civil commotion,’ but says nothing about laptops or smartphones. Say what?!

So Policy 2.0 will drop coverage for ‘volcanic action’ and suchlike, while doing away with ‘gotcha’ limits for jewelry and electronics (not to mention ‘antennas, tapes, wires and records.’)

After all, people are more likely to be hurt by incomprehensible coverage, than by a volcano.

Digital:

Each Policy 2.0 will be unique and dynamically-generated, based on the choices the user made. While people can print Policy 2.0, it’ll be at its most powerful on a screen. When the policy says that $20,000 of property is covered, for example, our Live Policy technology makes that sentence clickable, so the user can instantly change that to $30,000. If the user wants to add earthquake coverage, to take another example, they can initiate that from within the policy itself, and the policy will morph to include earthquake coverage.

Being digital means Policy 2.0 will shape-shift on command.

Our ‘open policy’ policy

“Sunlight is said to be the best of disinfectants” — Louis D. Brandeis

We’ve received tens of thousands of questions about our ‘industry standard’ policy, and these conversations have guided our work on Policy 2.0. But we’d like more input. Writing an entirely new policy hasn’t been done in generations, and there are many perspectives to bear in mind:

• Consumers (trade-offs around making it comprehensive yet comprehensible, relevant yet affordable.)
• Contract-law (making it certain and enforceable, while avoiding legalese or industry jargon.)
• Regulatory (complying with regulations, on a state by state basis, that weren’t written with Policy 2.0 in mind.)
• Actuarial (the further we travel from the traditional policy, the harder it will be to use historical loss-data to price Policy 2.0.)
• Mobile-first (ensuring the policy can be communicated on a 5 inch screen, in just a few seconds.)

So before we bring Policy 2.0 to market, we invite consumers, advocacy groups, regulators, insurance enthusiasts, data scientists, designers, competitors, and techies, to all jump in. We’re big believers in ‘wisdom of the crowd,’ and hope broad participation will make Policy 2.0 all it can be. We invite you to join the conversation and contribute on Github.

Open source

Policy 2.0 is open in another sense: not only do we want broad participation, we want broad adoption.

Policy 2.0 is available under a ‘Copyleft’ license to all our competitors, free of charge (Open Source GNU FDL license).

Making insurance simple, approachable, and relevant should be a common goal, a communal effort, and a universal benefit.

Insurance needs you!

“Act as if what you do makes a difference. It does.” — William James

The first Policy 2.0 we’re publishing is ‘Renters Insurance Policy 2.0’, though more lines, countries and languages will follow. Weighing in at 2,300 words, this Policy 2.0 is almost 90% lighter than its predecessor, and hopefully far simpler, more approachable and more relevant too.

This draft was created in consultation with state regulators, and will be submitted to all states once the community has had its say. Until the approvals are in, Lemonade will continue to offer an industry-standard policy, with a view to letting users switch to Policy 2.0 once its available in their state.

But for now, please click here to read Policy 2.0 and help make it that much better. As Che Guevara put it, “The revolution is not an apple that falls when it is ripe. You have to make it fall!”

Join the conversation

• Read Policy 2.0 in full on Lemonade.com
• Contribute to Policy 2.0 on Github