World’s First Open Source Insurance Policy

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 everyoneunderstands.

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 relevantcoverage 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.