Why we have decided to become a B Corp ?
One year ago, we launched the Luko insurance. A different kind of insurance, oriented towards its clients and social good.
One year later, where are we? And why did we decide to get the B Corp status?
Let’s review our track record.
Building a new model
What is the real purpose of insurance
Insurance is not a new thing. Since Antiquity, groups have been gathering to face adversity and pool their ressources.The first craftsmen’s guilds were created during the Middle Ages, which constituted “relief funds” for the benefit of their members. But it was not until the 19th century that insurance companies flourished, taking over from corporatists or state initiatives.
If we go back to the founding principles of insurance, what are they?
It’s about people, concerned about the same problems, who come together to “pool their risks”. It means they agree to set aside and to share a certain amount of money “just in case”. One year it’s Mrs X who takes the pot, next year it will be Mr Y. The principle of insurance therefore embodies solidarity, mutual assistance and, above all, the trust of a community, whose members agree to put money aside in common in the event of a hard blow.
As a result, insurers should act as the trusted third-party, who collects the money, keeps it safe, and pays it to the members facing a hardship.
Why today’s insurance model is outdated
Do you like insurance? Do you trust your insurance? The answers are rather unanimous: no.
Insurance no longer inspires trust today because it is based on a conflict of interest.
The insurer collects premiums to pay back claims. However, if there is any remaining money at the end of the year, it makes a profit for the insurer. In the current model, insurers are both judge and jury. So why would they pay back claims quickly and fairly? Why would they highlight the exclusions in the contract? This would have a direct impact on their results.
Traditional insurance is no longer the trusted third-party it should be.
The industry has no interest in putting clients first, since the less it pays claims, the more it makes money.
The model seems absurd : how can you create trust when you are both judge and jury?
Becoming this trusted third-party again
…thanks to an independent compensation method.
To reverse this conflict of interest, we decided to start from scratch a year ago at Luko.
One of our priorities has been to fix the compensation model:
In order to overcome the conflict of interest, it was important to separate the money dedicated to Luko’s remuneration from the money dedicated to the reimbursement of claims.
When an insuree pays his or her premium to Luko, the money is directly split between 2 separate pools :
1. Luko receives 30% of the premium
This money finances claims management, customer service and the development of our protection technologies. These make up Luko’s structure costs, and they are the lightest on the market 💸
2. The remaining 70% is place into a separate account
This money is pooled among all insurees who have chosen the same charity (see details below). This fund is 100% dedicated to the reimbursement of their claims.
At the end of the year, if there is money left out of this pool (i.e. if there have been fewer claims than reserves), we donate it to the charity that our insurees chose. This is called the Giveback.
Luko never takes money from the 70% pool. Thus, our remuneration is totally independent from the reimbursement of your claims. We have no interest in not paying them back efficiently.
It is by separating our remuneration from reimbursements that we can prove ourselves a trusted third-party, a founding model for a successful insurance company.
Information is power
The second pain point that we have all faced when it comes to insurance is its opacity.
In France, it is mandatory to insure you home, however, it is difficult to understand insurance products. What do they cover? Are they all mandatory? Which one is right for me?
This persistent problem of insurance opacity goes hand in hand with the conflict of interest: why be transparent about the benefits and exclusions to the contract? This could affect your bottom line.
Not coming from the financial world, we started from scratch and went back to the fundamental principles of insurance when we create Luko. And we have set ourselves the goal of making insurance as simple as we can.
And simplicity does not mean a discounted contract with little coverage. We worked on the best protection, at the best price, and explained in a simple way. Our contracts are simple enough for everyone to understand them and know exactly what is included, and most importantly, what’s not.
👩 This requires a lot of effort to avoid technical language while highlighting precisely what is mandatory, what is covered and what is not.
Technology for a better world
If one of the primary missions of insurance is to protect, why are insurers only reacting to situations today ? And why repair damages when you could have prevented them ?
Thats is why we have decided to integrate protection technologies into our product. We believe that insurance should also help us to protect our home on a daily basis in order to anticipate disasters.
It is essential today to be part of a sustainable approach where insurance not only repairs broken pots but also helps you keep them intact. It’s good for our wallets, but above all it’s good for the planet. Why buy new things when the old ones worked well and could have been preserved?
Technology vs. bureaucracy
Technological solutions also allow us to work on our mission of simplifying insurance. Thanks to them, we offer our clients a wide range of services: providing them with a tailor-made contract in 2 minutes, making their contract evolve over their lifetime in a few clicks, reimbursing them in a few hours thanks to video expertise, etc.
We have developed new technologies and AI algorithms to transform insurance contracts into something flexible and adapted to our current lifestyles.
Be responsible or not be
As you have understood, what is important to us is to build a responsible company that meets a real need and provides a sustainable solution.
Having in mind the challenges that surround us, it seems impossible to create in 2019 a company where commitment and responsibility would not be at the heart of the model.
We therefore wish with Luko to :
- Build an insurance free from any conflict of interest, that puts our community of clients at the centre
- Bring effective protection and sustainability to homes through our technologies
A virtuous model that proves its worth
1 year after the launch of our insurance, let’s make a first assessment.
Our insurees… love us 💙
“I love insurance”.
Is that a sentence you’ve already said? Imagined pronouncing?
You’d be surprised how many times we read sentences like that on the Luko chat. And it warms our hearts. We have succeeded in transmitting our vision to our insurees and building a close relationship of trust over the last 12 months.
Our clients are our first ambassadors, and one of Luko’s main growth drivers.
How did we do that ?
A transparent product, which brings confidence as explained above.
But above all, we have surrounded ourselves with caring people who are committed to transmitting and helping people understand insurance.
We have made the choice not to have any sales representatives at Luko : no one sells insurance. No one tries to convince you or offers you an “exceptional discount”. We are convinced that insurance should be bought but not sold. Everyone must read, understand and build their own contract, adapted to their own situation.
Zero churn post-disaster
No client has left us after a claim 🙌
This is a figure of which we are proud and which confirms our model of trusted third-party. And which is very rare for an insurance company. Claims are often pivotal moments for traditional insurance companies.
We are learning as we go along, but we try every day to make the management of your claims faster, simpler and more transparent.
Of course, some people left Luko this year. It’s life: you move and join your partner who already has insurance, you move abroad, etc. But we hope to see you again soon 👋
Technology + trust = fraud reduction
On the insurance side, our transparent compensation model also has the advantage of reducing fraud.
Indeed, the insurees who would be tempted to free-ride do not fraud Luko but fellow clients who have chosen the same charity. And in the end, the charity that was supposed to benefit from the extra “70%”.
Luko does not get the 70% of the premiums dedicated to the reimbursement of claims. This money is 100% devoted to refunds and charities (if the end of year balance is positive).
This model therefore makes it possible to make policyholders more responsible and to avoid certain types of fraud. Of course, there will always be fraud and malicious people. Unfortunately, we cannot eradicate it — for the time being. But this system limits “small fraud”, eg when you say to yourself: “Well, if I said that I also had my computer stolen in addition to my TV — who cares, insurers are crooks”.
Lowering our rates for 2019
Virtuous model, accountability, use of technologies, no sales team, reduction of fraud, etc.
Taken together, all these efforts and innovation allow us to contain our prices and even announce a decrease in our rates in 2019 (2% on average). Meanwhile, the industry was reporting an increase of 1 to 2% — just like every year for the past 10 years.
🎉 The payment of our first Giveback
This is an important moment for us, one that tests our model.
We have just closed our accounts for the 2018 financial year, i.e. the premiums paid in 2018 to pay claims for the year 2018.
There were 2 pooled funds to reimburse claims this year, the “Simplon Fund” and the “Terre & Humanisme Fund” (the two charities proposed to our policyholders in 2018):
🔵 The Simplon insurees have a positive balance.
On average, they had fewer claims, so the contribution money was not completely consumed by the claims refund.
It represents 7% of their contributions, which will be donated to the association as Giveback this year.
🔴 The Terre & Humanisme clients had a negative balance.
That is, they have more claims than money collected by premiums. They didn’t get to donate a Giveback for the year 2018.
Of course, all this might change in 2019, as the lives of our policyholders and their contracts evolve. We look forward to seeing you early 2020 for the payment of the 2019 Giveback!
In addition, this year we are welcoming 2 new associations: Emmaüs Défi et Habitat & Humanisme.
B Corp: the formalization of our commitment
- Prove that we can do insurance in a different way
- Prove that that economic performance and social impact can be combined
With Luko, we want to :
This is why we wanted to join the B Corp movement, a community of pioneering companies that want to conciliate social good and profits. Worldwide, 2800 companies are B Corp certified (Patagonia, Ben&Jerry’s, Natura, Bulb Energy etc.), including more than 500 in Europe and 70 in France (Veja, Innocent, La Ruche qui dit Oui, Nature et Découverte). Cock-a-doodle-doo!
We have followed their strict certification process and are now the first insurance company in Europe to be B Corp certified 🇪🇺
This certification means a lot to us, it is a concrete expression of the work we have been doing for more than a year now:
💪 Yes, we can transform an industry perceived as a “necessary evil” to put customer service and general interest back at the center.
💪 Yes, we can combine strong growth and social responsibility.
Beyond the result, working towards B Corp certification has allowed us to formalize our actions and commitment.
What we are already doing that has allowed us to obtain the certification
- Mixing insurance and social impact
- Every Luko employee is associated with our success and has shares in the company
- New working methods: horizontal management, open communication, reduced meetings, remote work open to all, etc.
- Waste reduction, recycling policy and measurement of our energy expenses (with reduction targets)
- Constant learning policy — still to be improved
What we can still improve
- Our involvement with partner charities : organize volunteer days and skills exchanges
- Reduce environmental impact through the improvement of our Luko Water and Elec sensors
- Improve the selection criteria for our providers
We obtained certification with a score of 80.5 points. At the next certification, we set ourselves the objective of being at 85 🎯
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So that was our first year assessment and our achievement of the B Corp. status. And now, a huge thank you! Thank you for following us, thank you for trusting us, thank you for your support, thank you for your ideas 💙
We are proud to have undertaken this great initiative to change insurance, and more generally the way households are protected. It is thanks to you and the strength we bring together that we are making such progress. And it’s only just beginning !
Benoît, Raphaël & the Luko team
Originally published at https://www.luko.eu on July 18, 2019.
