![\"Urban](\"\/blog\/wp-content\/uploads\/2017\/03\/urban-dictionary.png\")
<\/p>\nI run an insurance company, and I\u2019m tempted to deny your claims. You see, every euro I don\u2019t pay you, is a euro more to our profits.<\/p>\n
It\u2019s how insurance works, what can I say?<\/p>\n
Problem is, too many media expos\u00e9s have, well, exposed this (e.g. CNN), and consumers are catching on. Want to know what people think of insurance today?<\/p>\n
Check out its definition on crowdsourced \u2018Urban Dictionary:’<\/p>\n
<\/p>\n
Ouch.<\/p>\n
How consumers perceive insurance matters. When people think the game is fixed, they embellish claims to \u2018level the playing field.’<\/p>\n
This gives insurance companies more grounds for denying claims –\u00a0sending insurance Now that\u2019s really bad.<\/p>\n Some studies figure this distrust costs as much as 38% of the money in the system (Wikipedia<\/a>). As crazy as that euro amount may be, the true costs include other currencies too: this distrust corrodes the very fabric and experience of insurance. It\u2019s why insurance is so unloved.<\/p>\n What to do?<\/p>\n Clearly it would be better if everyone just behaved nobly. Problem is neither side has anything to gain by unilaterally<\/em> behaving better<\/strong>. In game theory, such gridlock is known as a \u2018Nash equilibrium,’<\/strong> and at the Nash equilibrium for insurance, everyone loses.<\/strong><\/em><\/p>\n Now, imagine you wanted to break this cycle. You\u2019re starting a new kind of insurance company, and want it to be trusting and trustworthy. What to do?<\/p>\n You\u2019re sincere and well-intentioned, and you could try the \u2018trust me\u2019 approach. It\u2019s the obvious play. But because<\/em> you are sincere and well-intentioned, you<\/em> shouldn\u2019t believe your own pitch. Insurance folks aren\u2019t bad people, and we are no more immune to conflicts of interest than they are.<\/p>\n Oscar Wilde said it best: \u201cI can resist everything except temptation!\u201d<\/p>\n Much as I wish it weren\u2019t so, the problem is<\/em> the system<\/strong>, and good intentions are no match.<\/p>\n This challenge haunted us in the months leading up to founding Lemonade. The more we thought about it the more we became convinced that this was a classic game theory problem.<\/p>\n\t <\/i>It seemed like a variant of the prisoner\u2019s dilemma, where both parties lose out because of distrust.<\/a><\/i><\/p>\r\n\t\t<\/div>\r\n\t\t To validate and refine our thinking we cold-called a Nobel Laureate in Game Theory. He didn\u2019t return the first dozen calls, but ultimately agreed to help if we promised to stop badgering him. This process laid the foundations of Lemonade.<\/p>\n We\u2019ve developed some pretty cool technologies in making Lemonade. But the single most powerful tool we\u2019re deploying is what game-theorists call a \u2018Ulysses Contract.’<\/p>\n The legend of Ulysses tells of an island inhabited by Sirens, beautiful womanoids with beguiling voices. Sadly, they were psychopathic murderers, and sailors lured by their song met a gruesome death. Word spread, so the seamen knew what lay ahead, but each was confident he<\/em> could enjoy the music without being drawn beyond the point of no return. That hubris cost them dearly.<\/p>\n Only one, Ulysses, cracked the code. He had himself tied to his ship\u2019s mast so he couldn\u2019t change course.\u00a0Now that\u2019s<\/em> a structural fix.<\/p>\n Realizing your future-self may be unable to resist temptation, and tying your hands in anticipation, is a proven technique in game-theory to change the Nash equilibrium.<\/p>\n Such a Ulysses Contract underpins Lemonade.<\/p>\n Lemonade is a Public Benefit Corporation, a certified B-Corp<\/a>, and our team genuinely wants to do the right thing. But I\u2019d hate to test our love for social impact against our love for stock options every day.<\/p><\/blockquote>\n No, if we want you to trust us we will have to do more than profess our good intentions. Much more.<\/p>\n We must do the only thing that truly changes anything:\u00a0Tie our hands. So that\u2019s what we\u2019ve done. We decided we\u2019ll take a flat fee, and if there\u2019s money leftover we will return it to a cause of your choosing. That\u2019s a first for insurance.<\/p>\n By placing \u2018unclaimed money\u2019 beyond our reach, we removed temptation, and changed the game.<\/p>\n That changes everything. Insurers typically make money by investing premiums (\u201cfloat\u201d) or by paying out less in claims and expenses than they took in premiums (\u201cunderwriting profit\u201d). Lemonade relies on neither. We collect premiums monthly, so the money earns interest in your bank account, not ours, and we return unclaimed money at year\u2019s end in Lemonade’s Giveback<\/a>.<\/p>\n
\ninto <\/strong>a tit-for-tat spiral.<\/strong><\/p>\n![\"number](\"\/blog\/wp-content\/uploads\/2017\/03\/cnn-fraud.png\")
<\/p>\nStarting from scratch<\/h3>\n
\r\n\t\t\r\n\t\t\t<\/div>\r\n\t<\/div>\r\n \nUlysses as an integral part of Lemonade<\/strong><\/h3>\n
\n<\/em><\/strong><\/p>\nIt’s not our money<\/strong><\/h3>\n