I have house insurance for the contents and building. On top of that, I have a specialist insurance policy for my collection of rare things. I recently decided not to renew the latter. Why? Well, the house does have a few rare things inside … but no receipts. The things date back years and, in various house moves, receipts have been lost and proof of ownership and price is no longer in place. It made me realise that, should the worst happen, the insurer would refuse any payout, full stop. No proof, no payment.
This is the issue with insurance. Unless you can provide the provenance and proof of original purchase and price, along with the provenance and history of the rare thing you purchased and the proof that it is the true original, then you are stuffed. It is the secret sauce of insurance. The thing they don’t tell you. We will not be there when you need us, unless you have a bullet-proof claim and proof of everything related to your claim.
You might say that I could take photos of the items, but a claims assessor could claim they’ve been downloaded or photoshopped, and aren’t real.
This is the sickness of the insurance marketplace. Cover the customers in the good times; fight the customers in the hard times. Claims disputes is a core of this marketplace. Why are there disputes? Because there is no trust.
A core of insurance is a principle called uberrima fides, Latin for utmost good faith. The idea is that the customer is honest and declares all that is needed to be known. The insurer accepts this on account opening and whilst premiums are paid but, when the rubber hits the road and the product is needed, they stop. They challenge every moment. This is the weak underbelly of insurance that firms like Lemonade are attacking.
“Lemonade, America's top-rated insurance company, protects your family and your belongings—at home, and everywhere else.”
I was struck by Lemonade’s speed of processing:
Lemonade’s ‘instant everything’ story is refreshingly different. Replacing brokers and bureaucracy with bots and machine learning makes insurance becomes transparent and hassle free. And on top of that, Lemonade gives any unclaimed money to social causes … their goal is to turn buying insurance from a “necessary evil” into a “social good.” And to turn the process of filling claims into a shared interest between insured and insurer.
I was super impressed by the idea that I could file a claim for a lost MacBook and get $1000 paid into my account within seconds, thanks to their AI and bot machines … but then …
Lemonade Insurance sparked outrage this week when it took to Twitter to boast about how its AI system was able to boost profits by automatically denying claims based on analyzing videos submitted by customers.
Now I understand the need for risk management and proper processes to ensure claims are valid, but what happens when that homeowner has a fire and says they had an original Picasso painting that went up in flames?
Insurers say that they have to find the receipt.
It got burnet in the fire.
Find the provenance.
It got burnt in the fire.
Prove you bought this painting.
It was in 1992 and the company we dealt with is no longer in existence.
That’s my view of insurance and it’s sad, as I spent years working in the industry. I believe general insurance for vehicles and property are fine, as their value can be easily proven. The same for other basic insurances but, if you want to insure anything more complex, don’t bother. Find your own safety as the insurance blanket will not be there. As they say, it’s an industry to give you an umbrella on a sunny day, and ask for it back when it rains.
Postscript: to be clear, this blog was not inspired by a failed insurance claim. I am just highly aware that most insurance will not pay unless you have all the documentation to prove your ownership of an item and, in too many instances, you don’t have exactly what they need.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...