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November 2016

Lemonade

Recently, a new start-up direct insurance carrier has started operations, calling itself Lemonade—a peer-to-peer insurance company. It touts itself as a direct-to-insured app-based insurance carrier, which means you can apply for property insurance (only), directly from an app on your smartphone by answering a handful of questions. This Demotech-rated carrier also allows an individual to form groups with other individuals to pool resources, which are used to pay out claims. In theory, if there are remaining resources in a pool after all the payouts, the individuals either can receive a refund or donate the money to a charity.

Dispute its appeal this business model is worrisome. The first questions raised by this practice are, “How are the claims going to be handled?” and “Will people be pressured to not file a claim to receive a refund?” We’ll have to wait and see how this plays out as people use Lemonade.

Currently, the carrier has filed—and has been approved—for property-only insurance (utilizing the Insurance Services Office Inc. 2010 HO-3, HO-4 and HO-6 programs). In New York, insurance carrier filings are available to the public on the New York State Department of Financial Services website. PIA obtained a copy of its filing for review.

After reviewing the filing and obtaining an online quote, what concerns me is that Lemonade has filed for—and has been approved for—credits and surcharges that are not addressed in the application process. When will these credits and surcharges be applied? During the application process, Lemonade gives the client the option of canceling his or her current insurance and getting a returned premium. If the coverage is bound, will on-site inspections then be ordered to determine eligibility for the surcharges or possible credits? If they are, how high will the premium be adjusted after coverage is bound?

We all have seen the bait-and-switch tactics of direct writers in the auto market: A quote is given, an attractive price is received and coverage bound. Then, the actual driving reports are ordered and the new premium is received (sometimes double the original accepted quote).

Lemonade has gone on the record to state it can keep its prices low because it does not pay commissions. However, after reviewing its filing, I find that it stretches the truth on this one statement. True traditional carriers file a commission and acquisition expense load between 15-20 percent. Lemonade filed for 0 percent for these expenses; however, it did file for more than an 18 percent general expense load (compared to traditional carriers that file a 1-3 percent general expense load). In essence, it is a wash in the end. It just depends on what you call it. I filled out an application for a policy with Lemonade to see if this is truly too good to be true. The company recommended a coverage amount that was 33 percent below the value of my home (it asked for the square footage of my home). Breaking it down, the recommended liability limit would not meet the minimum requirements of my umbrella policy; and the recommended personal property (contents) limit does not match my current percentage amount. I have 70 percent of Coverage A for guaranteed replacement coverage—Lemonade offered me 50 percent of the guaranteed replacement coverage. This substandard coverage was available for double of my current premium. In the end, it was less coverage for double the price. No thanks, sometimes something that sounds sweet can leave a bitter taste.

March 2015

The Hartford redefines regular use

According to a recent announcement from The Hartford, the company has redefined the term "regular use" to include the use of an insured vehicle an average of one time per month or 12 times per year. Drivers who meet this criteria must be added to the insurance policy, whether they live in the house or not, or have their own car or insurance. This change went into effect Feb. 21, 2015.

What this means to agents:

This change applies in the following states: New York, Connecticut and New Hampshire. PIA has reached out to The Hartford for additional clarification, which PIA will share with its members.

February 2015

PIA discusses agent notice with Progressive; changes made

Progressive Insurance Group recently began to notify its agents and brokers of changes the company will make to its personal automobile policy effective Wednesday, Feb. 4, 2015. PIA reached out to Progressive last month for clarification of the notice and the company issued a new, reworded notice to agents. PIA explained that the original wording was misleading and could be open to misinterpretation.

At the request of PIA, Progressive agreed to reword the letter and issue a more comprehensive Q&A to allow their agents to better respond to inquiries from their clients. PIANY volunteers discussed these changes when they met in Glenmont recently and evaluated the possibility of further action by your association.

Additionally, Progressive is amending/restricting the following coverages on its personal auto policy:

  • lienholders—restricting coverage so that it doesn't protect the lienholder's interest when coverage is not available to the insured for the loss;
  • roadside usage cap—allowing only three covered claims within a six-month policy period;
  • duty-to-report changes—Progressive could deny coverage if significant changes occur and the insured has not reported them;
  • unrelated rated driver—expanding coverage to cover their claim in excess of any coverage provided by the vehicle's insurer; and
  • damage caused by nuclear, biological or chemical weapons—additional clarification explains these events are not covered.

PIA will continue to keep you apprised of these and other issues as they arise.