The 3 Second Pay-Out – Don’t Believe the Hype

lemonade 3 second payout

Did you the hear the one about the 3 second insurance claim pay-out? The was the much-vaunted message from Lemonade, the new-kid-on-the-block, online insurance platform bent on delivering disruption to the industry.

So, for fear of rehashing what you’ve probably already read, what happened was this:

A Lemonade customer, Brandon Pham, submitted a claim via the mobile portal (by pressing submit, most reports helpfully inform us), to claim for a Canada Goose Langford Parka, valued at $979.

Three seconds later, Pham received a message to say the claim was resolved and the money had been wired to his bank account.

Among other boasts about the super-fast resolution, it is being heralded as a World Record for speed of settlement. Which is probably true, given there was no previous record to break.

This is a revolutionary moment for the industry, is it not? Set to rock the old foundations to their very core?

Well, let’s not get completely ahead of ourselves.

Easier to pay out when it’s not your money

Lemonade is one of the new breed of brokers with a business based on a peer-2-peer model. A model which, not dissimilar to mutual insurance, is built upon a pool of policyholders each paying premiums into a collective pot, out of which smaller claims will be paid.

Now, there’s nothing inherently wrong with the peer-2-peer model. It is, after all, a model that has been around for centuries – and not nearly as revolutionary, foundation rocking, and disruptive as we might be led to believe.

In the case of the lost coat, the claim was paid out almost instantaneously. With the cash coming from the collective pot.

But, given that the claim was settled, not from the coffers of the insurer, but from the funds accrued via other customers, shouldn’t we expect a higher level of rigour than displayed here?

Where, for instance, was the verification of the incident?

Are they really saying that they’re settling claims in super-fast time? That their claims bot –  A.I. Jim – can deliver the appropriate checks and balances so rapidly that customer’s will be reimbursed like Mr Pham, as a matter of course.

Something likely to be tested on future, similar, claims. Will they get the same instant pay out, or was this a one-off?

That’s the danger – that all customers will now feel entitled to having their claim settled with, minimal at best, follow-up or verification action. Furthermore, if each claim is settled so fast, how much will that drain the collective pot of customer premiums ? That refund you were promised (from the end of year excess in collections) may be in serious jeopardy.

Not to mention the fact that, as we hear time and again in regard to whiplash claims, the more we pay-out, the higher those premiums go. Such rapidity in settlement, one suspects, may well offer the less-scrupulous to chance their arm and put in a claim that’s not wholly honest (we’re certainly not suggesting this was the case here, by the way, but pondering the precedent it sets). Further draining the pot, with the peers footing the future bill.

3 Seconds of Brilliant PR

The story is a superb publicity stunt to raise the profile of their brand, their systems, and the fact that, yes, automation is certainly the way forward for a more seamless, user-friendly way of doing business in the insurance sector.

They want to demonstrate a new and rapid way of doing things, and this near-instant pay-out is a great way to promote what they’re about, isn’t it?

All well and good, tech is the way that the insurance industry has to go; and automation – as we’ve said on these pages before – benefits the productivity of the broker and the experience of the customer. The promotion of that philosophy is to be embraced, for sure.

Lemonade and other insurance platforms embracing the digital age and the automated technology that exists, do offer exciting opportunities about the possibilities available to the industry in the future. But services need to be delivered responsibly and consistently – using tangible examples of processes rather than one-off headline grabbers.

A lost coat, reported via a 60 second audio claim, and paid out in 3 seconds. It’s essentially the company saying, ‘OK, let him have it’.

Paying out with scant regard to the claim, with no guarantee that the next claimant will be so lucky, suggests a haphazard approach to claims handling. Which could lead to higher long-term premiums and a devaluing of the service being delivered.

And a generally flippant way of handling a claim, of dealing with other customers’ money, and of the use of technology.  Just to make a bit of a PR splash.

Begging the question, to borrow from Dr Ian Malcolm from Jurrasic Park, were they:

“so preoccupied with whether or not they could, that they didn’t stop to think if they should?”



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