The Attachment Point – SlackChat #10: Discussion on Lemonade’s Policy 2.0

Welcome to The Attachment Point. This is our SlackChat content where volunteers on The Insurance Nerds Slack Channel (join here) discuss various topics. We do very little editing (so excuse the typos) and we try to keep it as conversational as possible. Enjoy!


Nick Lamparelli: Hello everyone – in this SlackChat we will be discussing Lemonade’s new policy form:

World’s First Open Source Insurance Policy – Lemonade Stories
https://stories.lemonade.com/worlds-first-open-source-insurance-policy-blog-9c3ebb70edff

Tony Cañas: Great topic for this SlackChat Nick!

Nick Lamparelli: Tony I had a conversation with my co-Founder about this. The form is much simpler to read, no doubt. We also feel like they are just vague enough on some specifics that a good plaintiff’s lawyer could probably win some cases based on ambiguity.

Tony Cañas: I think it’s crazy that they literally use the word “stuff” on the policy form, it seems easy to read but legally I’d be shaking in my superman-themed-Nikes that a good lawyer will drive a cargo plane through the simple language.

Tony Cañas: I do love some things about the way they’re doing it: 1. It’s dynamic, you can change sublimits right on the policy wording and see the effect on your price. Boom, done. 2. The fact that they’re asking the community to come together to help write it. 3. They’re making the result available for other competitors to use it too.

Tony Cañas: Also, very interesting how the discussion will take place in GitHub, traditionally a place to exchange code

Tony Cañas: Also, given that they can’t start using it until the community has had it’s input AND the regulators have approved it, it might never actually see use, it might only be a marketing play.

Tony Steuer: Tony, that’s a lot of if’s and it’s unlikely regulators would approve.  You’d also have to convince consumer advocates at NAIC that it makes sense.

Tony Steuer: What makes more sense is what they talked about for Mutual Fund and that is a 1 page summary prospectus that’s readable sort of like an annotated declarations page – it wouldn’t cover everything and it wouldn’t be the policy, it would just be something to boil down the important components. My 2 cents

Nick Lamparelli: Like the Zero Everything plan perhaps?

Nick Lamparelli: Listen, I love simplicity, this might be too simple as you mentioned. Also, when they throw words out like “stuff” it makes me cringe, in a they-are-trying-too-hard-to-be-hip sort of cringing

Nick Lamparelli: another thing Tony – I didn’t see a definitions section. They define assault weapons but not “Business”

Tony Cañas: It makes me cringe in a they-are-going-to-get-owned-by-lawyers-who-will-define-stuff-super-broadly sort of cringing!

Nick Lamparelli: haha

Nick Lamparelli: very true

Kyle Babirad: I don’t see how this would actually ever become their actual legal Policy Form — I’m looking at their Form and Rate filings in their major states and there are no filings to propose anything like this. They’ve even been making form filings as they roll out in new states recently and the Policy Form they’re filing is still the standard ISO HO form. I know NY for one would definitely not approve this as an actual filed policy form. Maybe its just a notice / summary of benefits but not the actual contract?

Tony Cañas: We should start a friend’s pool on what the first lawsuit is on, my money is on using “damage others may accuse you of causing” instead of “liability”.

Garrett White: Hello Everyone, well this was the first email I read this morning and at first it was refreshing to see something written in common English. On the second hand to Tony point, unless they have some very defined sections and limits. I do love how they are moving outside the box on what a policy form is, and it is challenging my box of what is this form…. Basic? Broad? Special?

Tony Cañas: Kyle, what they say is that they didn’t think regulators were ready for Policy 2.0, so they’ve been using a traditional ISO form, but the plan is to file this one once it’s finished by the community.

Tony Cañas: Even bodily injuries are called “damage to other people”. I can see a cargo plane going through that one.

Nick Lamparelli: Tony “You hurt my feelings” thus damaged me

Derek Lynch: Nick, we cover claims of bodily injury or property damage, not stress, mental anguish, or reputational damage. No coverage if they just stressed you out.

Kyle Babirad: Thanks Tony, I missed that part — I’ll definitely be keeping on eye on their filings for that… I have seen much tamer attempts to file creative policy language fail. There is a ton of language that needs to be in there even by statute (which I see they have a blank for, but the state will still make them revise all the wording) Also they don’t even have an in-house filings team (they outsource their entire filings role) so I’m not sure how confidently they can say they’ll be able to get this approved.

Garrett White: It seems that broad liability definition of “Damage to Other People” seems to possibly open some flood gates…

Cara Carlone: I think the new policy language is awesome since NO ONE wants to read ISO forms or any other type of policy. It’s too confusing w/ so much legalese. However, I agree with Nick and Tony that this is going to create some problems w/ coverage/claims.

Tony Cañas: “This policy covers your stuff, up to a limit of $10,000 per year, for damages caused by fire or smoke, theft or vandalism, burst pipes or appliance leaks. Everything else, such as “I lost it,” “my dog ate it,” “my kid dropped it,” “my power went out,” “my computer died,” “my roof is leaking,” “I overfilled my bathtub,” or “I had a wardrobe malfunction,” aren’t covered.” So I think that means named perils only. Interesting that they’d go with named perils when it’s replacement cost.

Cara Carlone: And I’m confused that if they didn’t file it, then how they can even make it public? Couldn’t this create legal issues?

Tony Cañas: They’re calling it Open Source. Calling out to the community to help them refine it, then they’ll file. They’re not using it until they file anyway. That’s my understanding of it.

Nick Lamparelli: Tony Cañas, I think they are crowdsourcing it and letting the public complete it for them, so they can file it in the future

Garrett White: @channel, has anyone used GitHub here? Trying to navigate this editor function seems to be a little challenging

Tony Cañas: I’ve never heard of anything other than code being done on GitHub

Cara Carlone: Isn’t that super ballsy? If one of their insureds sees it and misconstrues it as their actual policy, I would think it would cause a lot of issues, no?

Nick Lamparelli: Being Open Source means anyone can go in and change the code/wording. There must be a lock down at some point. I’ll see if Ryan Deeds can comment

Kyle Babirad: “Open Source” is kind of a misnomer anyways isn’t it — all insurance policy forms are “open source” already because all rate and form filings are public record

Garrett White: One item that seems cool would be the potential live time clicks and changes….

Tony Cañas: But ISO policies for example, you can get the text from the filling, but it’s copyrighted, you can’t use it unless you’re an ISO subscriber. They’re using “copyleft” on this, meaning anyone can use it.

Nick Lamparelli: Garrett White, seems interesting indeed. Policy forms SHOULD be interactive like that.

Ryan Deeds: I would say the principle of open source is to leverage collective knowledge in an organized way. GitHub is an example as is Wikipedia

Kyle Babirad: that sounds like crowdsourcing to me, but maybe the distinction doesn’t matter here

Tony Cañas: Ryan Deeds, why would they use GitHub for this instead of using a wiki since it’s not code?

Kyle Babirad: Git will let you “fork” the code and have two different versions running simultaneously (if the contributing community has a difference of opinion on where the form should go), not sure if Wiki would let you do that

Ryan Deeds: You can use git for any type of document it will version anything – so if I had a txt doc that was tracked by git it would show changes and allow contributions

Ryan Deeds: There is an approval system where changes get merged into the main repository

Ryan Deeds: In the code world it makes it very easy to code on one machine and deploy to another

Tony Cañas: Ok, so GitHub does make sense for something it like this

Ryan Deeds: I haven’t read the whole thread – I’m in transit to NetVu but will and get back to you on that

Tony Cañas: I’m wondering if any actuaries have thoughts on this… Obviously every change to the policy changes things for actuaries pricing it, a radical change like this has to be crazy

Kyle Babirad: Agreed (Actuary here), which is why my first thought went to “this will never get filed”

Kyle Babirad: the current version of it cannot be priced, but that’s probably not even in the Top 5 issues

Tony Cañas: “Cannot be priced”. Those are strong words. Is it literally impossible? Why?

Kyle Babirad: they don’t know what claims activity will look like on a policy that says “we’ll cover your stuff”

Kyle Babirad: losses, loss adjustment expenses, etc

Kyle Babirad: I mean, anything can be priced, but can it be priced confidently and correctly

Kyle Babirad: unless it’s a safe assumption to say that there will be literally no change in claims activity and people will behave and attempt to make claims the same on the new policy vs the old, with just some minor adjustments for limits, etc

Kyle Babirad: but the adjustments to limits and what is and is not covered is just the tip of the iceberg for the pricing implications of such a form

Tony Cañas: Kyle, what are the top 5 issues?

Kyle Babirad: #1 issue is it probably won’t be approved by any state, for many reasons,

Kyle Babirad: can I cheat and just turn that into 5 issues by saying it wont get approved in each of the top 5 states

Kyle Babirad: I think Cara mentioned above that it also is misleading if somebody actually thinks its their policy form when it’s not filed

Tony Cañas: Hahahaha

Nick Lamparelli: This is where I think the naïveté of insurtechs hit them. The regulators are going to be viscous when it comes to these forms, how they are worded, how they are files and how they are priced. There _IS_ a reason why policy forms are complicated…and it’s not because insurers are trying to obfuscate their responsibilities.

Nick Lamparelli: Nick uploaded a file:

Nick Lamparelli: Shall we mail a copy to the NYC offices of Lemonade???

Tony Cañas: *vicious

Tony Cañas: viscous is slightly different ?

Tony Cañas: hehehehe

Kyle Babirad: haha agreed, although part of me also wonders if its not really “naïveté” and they actually have no intention of filing this at all. its a pretty good way to create more buzz and that may just be all it is.

Tony Cañas: Yeah, that’s kind of my thinking, it’s pure marketing knowing it’ll never actually become an actual policy

Nick Lamparelli: I think a LOT of what they do is for buzz. Hey, that’s how you can keep the valuation up. Which I believe is right now around $500M for a company that sells predominantly renters policies!

Kyle Babirad: just got my copy of this a few days ago, looking forward to reading it

Nick Lamparelli: I just got my copy TODAY! Im afraid to bend it

Tony Cañas: Bill WANTS you to dog-ear it, he says it in the intro

Jeff Kleid: My first thought is that the team at Lemonade is constantly wearing their marketing hat, but I am not sure if the guys who focus on their marketing have any true insurance knowledge. After that, I do see a way where they can manuscript a policy that they could feel good about and get the states to follow form, if they really sat down and figure out what would make sense to those states. Unfortunately, in our world of litigation has I am sure several others have said or will say, Plaintiffs attorneys will find the holes in this policy concept almost daily. If they really want to do something with all that great tech and money they have received, they need to embrace creative front line insurance thinkers. As a broker I had several crazy concepts, but once vetted out with underwriters and buyers we created some amazing proven approved products. If the team at Lemonade gets out of their own way, they can do that to.

Nick Lamparelli: Hey Jeff! Didn’t I read recently that they were subtlety courting agents and brokers?

Nick Lamparelli: What would the state regulators mostly focus on with this sort of policy wording?

Cara Carlone: Yes! Especially when they made the big statement about not covering firearms and limiting them to special limits only, etc….Even though this is standard in ISO forms. For pure publicity.

Nick Lamparelli: but it’s so perfect right now

Nick Lamparelli: Cara Carlone, did you see that they added the “assault Weapons” definition? From what I understand, that definition is too specific, and it’s easy for gun dealers to amend the gun to still be assault style while also not fitting into the definition.

Jeff Kleid: Nick didn’t see that, but when they are ready to listen, I am here to help them.

Cara Carlone: I did! I don’t know if regulators will ever approve this.

Tony Cañas: You can always get a signed copy and a display case ?

Cara Carlone: I find Lemonade SO intriguing and ultimately great for the industry. But what kills me is that they tote being a “technology company doing insurance”. I understand this is appealing to a lot of the population who don’t trust insurance companies, but this can also be reallllllly bad. This being an example

Nick Lamparelli: Cara Carlone, I think they use that to market to the customer base they want, which is predominantly urban, highly educated and digital savvy.

Cara Carlone: I agree. It’s just annoying.

Cara Carlone: The insurtech company I work for does the same, but at least we’re insurance people!

Kyle Babirad: Yeah, there are many great insurtech companies with legitimately creative ideas, with people that understand insurance, and its a shame when all the air gets sucked out of the room by one firm like this

Nick Lamparelli: When I see Hippo and compare them to Lemonade, I see two digital companies solving similar problems. One is more methodical and the other is looking to get positive attention for everything they do. Now, I do give Lemonade credit, if I were an investor, I’d be pleased at their ability to get currency from every little press release, but I think I respect Hippo’s attempt at this more because they seem to be legitimately trying to build an insurance business. I just feel like all of Lemonade’s moves are short term and that an exit is imminent and that is the main intent.

Kenneth Hendricks: One of the more fascinating aspects of startup / entrepreneurial culture is that so many companies get into it to basically be a really appealing buck (?), looking just majestic enough for a hunter to take them out as a prize.

Nick Lamparelli: hahaha!

Kenneth Hendricks: This Policy 2.0 is, honestly, the first “insurance” document I’ve read that I didn’t need to grab a colleague to explain terms. However, I completely understand what others have mentioned here in that our current term sheets are phrased in specific ways **because** we are a very litigious society (in the states).

Tony Cañas: Personally, my bets are on Hippo and Root being the ones that really revolutionize the personal lines side of our industry

Tony Cañas: True insurance people, with solid tech brains and solid funding

Nick Lamparelli: My company is working on a customized new policy. We are trying to make it as simple as possible. It is really hard because at every turn we can conceive of situations in which a lawyer could poke holes in our form. So we add more words, sentences, paragraph to state out intentions. I think we are on the right track, but it is really hard to do and I suspect that Lemonade’s open source format will evolve to a more complicated form. Someone, somewhere will look to define “stuff”

Kenneth Hendricks: Yeah. I could see a database used to store the defined legal definition of “stuff” but then do you have a print that DB whenever the policy is printed? I don’t envy the difficulties in trying to crack this.

Nick Lamparelli: it would need to be defined in the policy simply because the state regulators would want/need/require to see it

Kyle Babirad: some states do allow variable wording — you file a rule or supporting document that outlines ALL the potential responses for the blank and how the responses would be determined, so I suppose something like that could theoretically be possible,

Kyle Babirad: but I’d say over half the states would not allow it, period, either by statute or based on the reviewer’s opinion

Nick Lamparelli: That makes sense Kyle Babirad, having 50+ different regulators is part of the issue. Making all of them happy will be expensive AND could sand the edges on the innovation trying to be generated

Derek Lynch: I bet that they know this will not make it through regulators. Their big marketing pushes have been vilifying the industry. This gives them a chance to say, “Look we let the people writer their form, and the mean old insurance industry is trying to squash the revolution. A Lemonade policy is a vote for freedom, any other policy is just communist, viva Le Revolution” Ok maybe a little over the top, but so is Lemonade’s marketing.

Derek Lynch: We cover claims of bodily injury or property damage, not stress, mental anguish, or reputational damage.

Derek Lynch: No coverage if they just stressed you out.

Nick Lamparelli: Derek Lynch, I don’t disagree. They probably know that the regulators will force them back to some contract standardization and then, as you said, they can say, “hey it’s not us – it’s them”

Tony Steuer: Tony Cañas, that’s a lot of if’s and it’s unlikely regulators would approve. You’d also have to convince consumer advocates at NAIC that it makes sense.

Tony Steuer: What makes more sense is what they talked about for Mutual Fund and that is a 1 page summary prospectus that’s readable sort of like an annotated declarations page – it wouldn’t cover everything and it wouldn’t be the policy, it would just be something to boil down the important components. My 2 cents

Nick Lamparelli: So Tony Steuer, are you suggesting that accompanying the policy is a prospectus style document – an executive summary of the policy contract?

Tony Steuer: Nick, an executive summary is exactly what I’m thinking of. That way you could keep the policies that have already been by approved by regulators and in compliance with NAIC model regs with all the involved stakeholders. The executive summary, if written in plain English, could be part of a collaboration with the NAIC consumer reps who are always interested in something that helps consumers understand their policies. And if consumers understood the main points of their policies it could help with retention and lessen buyer’s remorse. Granted, insurance policies should be updated and customized which is something a company is now doing – inserting the name of the insured where it reads insured in a policy and so on. That is a big move. Better to start off small.

Nick Lamparelli: Tony Steuer, I really like that idea! Are there any insurers in any line that have tried this?

Tony Steuer: Nick There is one carrier that is experimenting with this – however the names escapes me for now. I’ll try to see if I can recall who…..

Tony Cañas: I think the problem is that the courts could interpret the readable summary as part of the policy and find coverage in any ambiguity

Nick Lamparelli: Tony Perhaps not if in big *BOLD* RED letters it says, “THIS IS NOT YOUR POLICY!!!!”

Nick Lamparelli: RTFP!!!

Kenneth Hendricks:(Time for the Marketer’s Daily Prayer: “People don’t read.”)

Derek Lynch: I like the general idea of an executive summary like this. A disclaimer along the lines of “the policy is the policy, but here is a document to clarify our intentions and give our customers a leg up on understanding a complex contract” It would lend to more contract ambiguities being covered, but that is pretty much how it is supposed to go now “contract of adhesion”. It would be a nice gesture and probably very well received. You just need to be really careful that the document DOES line up with your intentions and does not mislead or give away coverage. (not necessarily an easy feat)

Derek Lynch: I also actually really like the potential ability to get common endorsement changes through easy links in the summary. Although if you think about it wouldn’t a standard dec page that we have now, but with clickable links be a more compact method to do the same thing?

Derek Lynch: The flip side is how many people do the whole name your price deal and pick as cheap as possible and end up with almost no coverage…….can we just get agent copies of the Decs that let us fire off/quote super easy endorsements on basic things like deductibles and limits? I think that some insure tech needs to build this and sell it to all the companies starting TODAY

Chris Murphy: Does the 7/8 reduction in words mean CPCU will be just one exam in the future?

Nick Lamparelli: Chris Murphy, haha. Perhaps it means the personal lines exam will be 7/8th the size…so just 10 questions

Tony Cañas: Question 1. Is your stuff covered?

Nick Lamparelli: Ans: Yes, always…in under 3 seconds

Nick Lamparelli: @channel, I just got a note from a friend who said that what they are doing is not true crowdsourcing. Copy-left work is released under a “viral” license and derivative works must follow the same licensing agreements. So, you can use it free of charge, but you cannot make changes to it that violate the license.

Derek Lynch: Tony define is in that question, the rest was perfectly clear.

Nick Lamparelli: @Derek Lynch, I have written about letting customer pick and choose coverage like a cafeteria plan. Humans are horrible at assessing risk. Allowing clients to go into the policy and pick and choose their coverages would be a disaster. I’m confident Lemonade sees this differently

Tony Cañas: I think a cafeteria style plan could be done well, if we take behavioral psychology into account and properly inform people, like good agents do

Derek Lynch: Exactly why I started with that is cool and then said… well let’s put that in the agents hands so that people don’t accidently light themselves on fire, coverage wise. People name their pick their coverage with directs already Lemonade would just be putting it on steroids by opening up a bunch of quick easy switches.

Tony Cañas: Let’s get Robert Cialdini, the best UI designers and some insurance nerds in the same room with a few million of capital and see what happens! (prior I would’ve said Dan Ariely, but he’s gone to the dark side ? )

Nick Lamparelli: “ok, I don’t need lightning because we don’t get wicked storms. I don’t need vandalism because I live in a safe neighborhood”…

Nick Lamparelli: I think they call this adverse selection

Tony Cañas: *Robert Cialdini, the best UI designers, the best AI designers and Bill Wilson in the same room and see what happens!

Derek Lynch: Don’t forget that I am a safe driver so I don’t really need auto coverage, because I will never get in an accident. (never mind the 6 speeding tickets, my safe driving is just a little faster than most.)

Nick Lamparelli: Derek Lynch…EXACTLY!

Garrett White: I see a hard time with DOI’s and form/rate filings… Would any DOI accept a variable form?

Nick Lamparelli: Garrett White, I’m assuming that the code/wording would get locked down at some stage and only the locked down version would be filed or used.

Daniella Murphy: I just ordered this one!

Patrick Muscenti:  I’m late to the party ? ISO Basic form has 14 perils listed. We have to warrant on our E&O apps that we don’t sell basic policies. Open Source 2.0 has 6 perils listed! 6!!!! I also love “stored securely and used responsibly” as if accidents don’t happen with guns lol. There is no gun coverage, in essence.

Patrick Muscenti: I wish this craze would catch on though. I want BMW to outsource their engine design. I want Rolls Royce to outsource the mechanical engineering portions of their jet engine builds. Farmers could outsource irrigation techniques because the general public probably have great ideas.

Patrick Muscenti: And yes my tongue is firmly in my cheek right now

Garrett White: This is kinda what I was wondering as well, how will they allow a pick and choose option in a form that is not ISO and possibly “variable”?

Nick Lamparelli: Patrick Muscenti, Garrett White and I were discussing this and in one of his LinkedIn articles he partially quoted a VC who said something to the effect of “I am extremely skeptical of ideas when I know the subject matter at hand well and get incredibly giddy when I am presented with new ventures outside of my core strengths”. Point being, the excitement is being brought on by those ignorant of the wars that have already taken place in insurance…who use our skepticism as evidence that the boring ole legacy minions are trying to preserve the status quo.

Nick Lamparelli: Thanks everyone for a lively chat. I am closing this channel. I am certain this topic will come up again.

 

About Nick Lamparelli

Nick Lamparelli is a 20+ year veteran of the insurance wars. He has a unique vantage point on the insurance industry. From selling home & auto insurance, helping companies with commercial insurance, to being an underwriter with an excess & surplus lines wholesaler to catastrophe modeling Nick has wide experience in the industry. Over past 10 years, Nick has been focused on the insurance analytics of natural catastrophes and big data. Nick serves as our Chief Evangelist.

2 thoughts on “The Attachment Point – SlackChat #10: Discussion on Lemonade’s Policy 2.0”

  1. For some reason, I’m not receiving SlackChat notices anymore. In any case, here are some comments about the comments above for what they’re worth:

    “and it is challenging my box of what is this form…. Basic? Broad? Special?”

    None of the above. If you took an old 1943 New York Standard Fire Insurance Pollicy and coupled it with the old Extended Coverage Endorsement, you’d have more coverage than the current proposed form. Pollicy 2.0 covers about a half dozen perils.

    “Obviously every change to the policy changes things for actuaries pricing it, a radical change like this has to be crazy”

    Actually, it’s probably very easy. Since so few perils are covered, it shouldn’t be hard to determine a rate at all. And, since they appear to have an annual aggregate limit on personal property plus a per-item sublimit, unlike any other renters form I’ve ever seen, that further limits their exposure and makes losses more predictable.

    Another example is this…if you use your riding lawn mower to more your neighbor’s yard, does YOUR current homeowners policy cover you? What if you use your riding mower to cut your church’s property and the parsonage yard (hint: with ISO forms, it may matter which order you do this)? What if you hook up a small flatbed trailer and haul kids around the neighborhood on Halloween? I can tell you, just from ISO homeowners forms, whether you have coverage or not for each of these claim scenarios depends on the edition date of the policy (1991, 2000, 2011) and, in the case of mowing the church property and parsonage yard, whether you mow the parsonage yard or the church property first.

    Policy 2.0 avoids that. How? As i read the current draft, there is NO coverage for using a riding lawn mower. So, in this example, they make losses more predicable by simply eliminating ANY coverage. Is that a good thing? Not if you’ve ever looked at the statisics involving lawn mowers.

    “I think a LOT of what they do is for buzz. Hey, that’s how you can keep the valuation up. Which I believe is right now around $500M for a company that sells predominantly renters policies!”

    Much of the PR seems directed at keeping attention focused on them. They introduce a change that is BAD for consumers, then twist it and pitch it to make it sound like it’s something good. Is that just marketing or is there an ethical issue here? In any case, the insurance media just keep on chugging the Kool Aid…er, I mean Lemonade.

    “Don’t forget that I am a safe driver so I don’t really need auto coverage, because I will never get in an accident. (never mind the 6 speeding tickets, my safe driving is just a little faster than most.)”

    I’ve seen that logic many times from consumers who don’t buy the rental car loss damage waiver or choose not to buy physical damage coverage on their own auto…it’ll never happen to me. Even if they ARE great drivers, many of the people on the road are not and that’s a major source of physical damage claims.

    Reply
    • these are good points Bill. When I get challenged by someone about Policy 2.0, I ask them to think about contents. When are your contents covered? and then I start to list all of the ways in which losses to contents could occur and it becomes clear that it is really hard to use words to limit the intended scope of coverage. People dont get that and they think the forms are complicated because of some sinister grand conspiracy to deny claims…

      Reply

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