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Insurance Startup Uses Behavioral Science To Keep Customers Honest (fastcompany.com)
tedlistens quotes a report from Fast Company: Insurance startup Lemonade won itself headlines in January with the boast that it had successfully approved a claim in just three seconds. In that time, Lemonade's software had run 18 anti-fraud algorithms and sent a payment to the lucky customer's bank account -- a process that would have taken a traditional property and casualty insurer days, if not weeks. But it's what happened before Lemonade's artificial intelligence kicked into gear that makes the renegade insurer so potentially disruptive to this trillion-dollar industry, for which premiums alone comprise 7% of U.S. GDP. The customer, Brooklyn educator Brandon Pham, opened Lemonade's mobile app, signed an "honesty pledge" to attest to the truth of his claim, and then recorded a short video explaining that his Canada Goose parka, worth nearly $1,000, had been stolen. That deceptively simple claims process is the byproduct of academic research on psychology and behavioral economics conducted by Dan Arielyblog, one of the field's most prominent voices and Lemonade's chief behavioral officer. "There's a lot of science about when people behave and misbehave that has not been put to use," says Lemonade cofounder and CEO Daniel Schreiber. Lemonade is even applying behavioral science to itself, publishing unusually transparent blog posts that include data on customer growth, bank account balances, and more.
$1000 for a parka?! What the fuck?! What the hell kind of parka is this?! I know some fashion can be fucking insanely expensive, and that this is probably pretty cheap compared to a lot of crap out there, but seriously. Even specialty coats meant for use in the Arctic, Siberia or the Antarctic can be purchased for a fraction of that.
I attended a presentations in the mid 90's sometime by Dr. Hecht-Neilson who had a company that evaluated people for their credit worthiness using neural networks.
have this applied to the goons on top - foremost the compulsive liars creating all those smoke screens for doing it apparently right but in reality cheat the world until blood drips out!
The founder of this company has set things up such that they get a fixed percentage of every premium people pay and everything else that doesn't get paid out in claims gets donated to a worthy cause.
So there is no way to increase their revenue/profit by denying claims.
potentially disruptive to this trillion-dollar industry, for which premiums alone comprise 7% of U.S. GDP
Those insurance startups don't disrupt the trillion-dollar insurance industry any more than hotels.com disrupt the business of Hilton or Starwood. This is not at all a situation similar to Airbnb or Uber. For the most part these startups are simply an additional revenue stream for the big companies, allowing them to reach out to the low-end market without having to foot the bill for all the automation and streamlining required to turn a profit on policies with a razor-thin margin.
Traditional insurance companies don't make the bulk of their profit by charging more in premiums than they pay in claims; they make a profit by investing those premiums until the moment where the money goes back to policy holders as claims are submitted. Insurance companies will never be made obsolete by the small peddlers; they will however go out of business if the financial system keeps making low-risk investments worth less than inflation. The disruption here comes from the retards at the Federal Reserve who keep handing taxpayers money for free to Wall Street banks; Lemonade is just an iPhone version of a traditional insurance broker.
lucm, indeed.
I bet they didn't donate part of the profits. That is the millennial spin on this one.
It is very difficult to "exploit the fuck out" of insurance companies because they pool hard fraud indicators and they have access to more computing power and advanced software than some guy with a $25/month AWS instance.
The weakness in this industry is soft fraud: people claiming that their Xbox One Special Edition With 1TB SSD was stolen, while they actually had the Xbox One Cheapskate Edition ("sorry I lost the receipt but I have a blurry picture of this device which unfortunately you can't inspect since it's gone!"). There's room for abuse but it's not really a huge business opportunity unless you control a big network of people who consistently make inflated claims.
lucm, indeed.
I'd worry that the statistical confidence they depend on is based on a random sample of insurance customers, not a sample of the self-selected customers that their policies will attract. (Recall the Sears Diehard lifetime-battery fiasco? People who bought those batteries tended to keep their car 15 years, unlike the average battery customer.)
can i save 15% or more?
The press release is from lemonade, but it sounds like an onion article.
Fast Federal Court and I.T.C. updates
So there is no way to increase their revenue/profit by denying claims.
Yes, there is.
Let's say that the sweet spot for funding this insurance requires a premium of $100 a month, but that your market research indicates that if you sell premiums for $70 a month, that you'll get 10 times as many customers. This will incentivize you to deny claims.
Also, another thing you could do is to simply overinflate any claims made by your family or your friends. So your incentive would be to deny claims, so that there would be money left over for your friends/family's overinflated/fake claims.
....because throwing $1000 away validating some dumbasses' claim on a parka (seriously, $1000 for a jacket?) is WORTH IT to be lauded across the world's media organizations for some hand-wavy claims of magically quick claim resolution?
Behavioral algorithms, my ass. In my day we just called this what it is: a publicity stunt.
-Styopa
Behavioral science generally measures the behavior of people who don't know what the experiment is about, don't know the outcome the experimenter desires, and don't care about the actual outcome. Fraud involves people who have a strong interest in specific outcomes and can shape their behaviors accordingly.
So, if you use behavioral science, humans will figure it out and adapt; they will "game the system". That's why the outcome of social policies is often unexpected: after you implement the policy, people change their behavior, and the statistical patterns that caused you to adopt the policy change.
I see the insurance industry as being on par with lawyers and used car salesmen when it comes to honesty. It's rather telling just how much the public sees them as atrociously dishonest as we see when this one is promising to strive for honesty.
Damn_registrars has no butt-hole. Damn_registrars has no use for a butt-hole.
claims this small would tend to get approved because it's not worth the time/effort to do major investigation. Most of the real work woulda been done when they customer signed up looking into his history to determine how likely he'd be to file fraudulent claims. The video is just there so they can show it to the courts if he keeps filing claims and they actually investigate them.
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If somebody is engaging in that sort of behavior because of their mental illness they will most likely escalate the behavior and get caught. It is actually quite rare for somebody to be willing to take the risk of theft or fraud for some small gain and be also OK with just that small gain. The person risk-averse enough to maintain their boundaries and not escalate will probably not take the risk in the first place!
It may even be some high percentage of the people who get caught for insurance fraud would be in the group you describe.
The disruption here comes from the retards at the Federal Reserve who keep handing taxpayers money for free to Wall Street banks
It's a good thing for the American people that simpletons like you aren't in charge of our monetary policy.
Okay I will explain it so even you can understand. Whenever the Fed lowers the interest rate, to a point where it gets to zero or near zero, they make it cheaper for the banks to get money from them than from you and me, so the banks have no incentive to pay you and me interest on money we put in their care. That's why a certificate of deposit at Bank of America currently pays a magnificent 0.05% annual return. Yes, this means that in order to make a $1 return you need to invest $2,000 for a year.
What do you think is the impact of those interest rates? Your pension fund has to take more and more risk just to beat inflation; and that's not enough to meet their payments to current retirees so they have to take even more risk. They have to buy derivative products, they have to invest in startups, they have to gamble YOUR pension money on forex and commodities and whatnot because if they just leave it in the bank it won't be enough to pay you when you retire. And whenever they take a bath like with those CDOs in 2007-2008, they have to double down and take more risk to make up for it.
But see, although they spin things differently (for instance by excluding inconvenient things from the way they calculate inflation), the geniuses at the Fed can tell that their model of pumping your cash in Wall Street banks for free doesn't work. So what's next? They want to be allowed by law to buy stocks. Yes. They think they're so smart that they should be able to influence the stock market in order to fix the economy they've been sabotaging for decades now.
And why does the Fed geniuses do that? Either because their mathematical models tell them that the economy needs a strong Goldman Sachs to survive and they won't let reality get in the way ("Russia was not supposed to default on their bonds! People were not supposed to take mortages they can't afford! etc") or because they want to go work at Goldman Sachs after having spent their purgatory 2-3 years at the Fed.
I'm not a simpleton. The simpletons are the people who gladly bend over and take it from those bastards who play roulette with the savings and pension money of other people.
lucm, indeed.
> gets donated to a worthy cause
There's your weak spot right there. Because "worthy cause" can be anything, including "charities" that have various people on their board as paid members.