Charting the rise of instant insurance

A new type of insurance is on the rise with payouts being made in seconds as artificial intelligence eliminates the need for human intervention


We all love a world record. Take Usain Bolt’s 100-metre dash. Or Tanya Streeter’s barely believable freedive to 160 metres below the surface of the ocean. 

And the world record for an insurance payout? Three seconds, set by insurance company Lemonade in 2017. Someone called Brandon used the Lemonade iPhone app to claim for a lost coat priced $979. He spent 61 seconds explaining his claim into the camera. Hit send. And three seconds later his claim was verified. 

Naturally, three seconds is too fast for human judgment. Brandon’s claim was handled by AI Jim, Lemonade’s in-house artificial intelligence claims bot. AI Jim reviews the claims history, the likelihood of fraud and the veracity of the claimant. If all looks good, it pays out. If there are doubts, a human handler is summoned. 

“People told us they sometimes had to wait months before having their claims paid,” says Lemonade co-founder Shai Wininger. “Not to mention the hassle and paperwork involved.” By cutting payouts to seconds, Lemonade challenged the entire industry. It is now valued at $6.8 billion, not bad for a six-year-old company.

“People don’t want to wait,” says Matt Connolly, founder and chief executive of insurance market intelligence provider Sønr. “If your flight gets delayed, you might have to wait six months for an insurance payout. It’s ridiculous. It erodes trust and confidence. So insurers are looking at ways to pay out instantly.”

AI is at the heart of it. Algorithms can suck in data from every possible data pool, handling all aspects of insurance interactions. Quotes are instant. Onboarding is accelerated via pre-filled forms by bots that input all known user data. 

The switch to instant is being fuelled by the looming arrival of names well versed in AI. “The biggest threat is from big tech companies like Amazon, Google and Facebook entering insurance, ” says Connolly.

In car insurance, the revolutionary entry is Tractable. Founded by three computer science graduates and incubated via the Entrepreneur First scheme, it uses AI to estimate the cost of car damage from photos taken by the owner, slashing the time for claims to be processed. 

“When we founded Tractable people thought we were crazy,” recalls chief executive Alex Dalyac. “Back in 2014, no one had talked about AI for years. It was a term associated with overblown promises.” Now Tractable serves 21 of the 100 largest insurers in the world. And the AI engine is improving fast. 

“We started checking other people’s work and looking for inaccuracy,” explains Dalyac. “As of today, 25 per cent of the entire insurance volume can be put through with no human touch. The remaining 75 per cent of cases still require a couple of edits by a human, which means it takes them three minutes rather than the usual 30 minutes. Our goal for the end of this year is to be at 75 per cent completely touchless. It’ll be fantastic. The transformation will have happened.”

Many insurers are struggling with the rise of instant. It’s a trend led by startups and insurtechs. A big question is why incumbents struggle to innovate and rely on outsiders for technical solutions. 

“When insurance companies build their own technology, the work is done by people who’ve worked there for 30 years,” says Janthana Kaenprakhamroy, chief executive of Tapoly, an insurtech offering commercial insurance for smaller businesses. “It’s more difficult for them to work out where the automation should be.”

This means the race is being won by companies founded by entrepreneurs from other sectors. Kaenprakhamroy, for example, was an investment banker. “I was one of the internal audit directors at UBS covering equity business,” she says. “It’s a low-touch, highly electronic, fully automated kind of process. So I could see the impact of a product line with automated processes.”

Since entering insurance she’s won a slew of awards, from Trailblazer of the Year to a gong at the Efma-Accenture Innovation in Insurance Awards. Her knowledge from a parallel industry seems to allow her to move faster than insurance incumbents. 

Furthermore, insurers may want to develop instant services, but they are struggling to convince boards to pay for the research and development. Callum Rimmer, founder of By Miles, the UK’s first pay-by-mile insurer, and By Bits, a tech platform for the motor insurance industry, says it’s a chronic problem. “Insurers aren’t investing enough. They aren’t going after talent with the same gusto that investment banking has to give them the ability to adapt to the future. Banks historically have paid better rates.”

Worse, some insurers are lackadaisical about the future. “They are almost universally happy to lag behind and just compete on price,” says Rimmer. “They are still selling the same propositions they sold 30 years ago, only digitally.”

In an industry which can settle claims in seconds, dawdling seems unwise. When Amazon, Google and Facebook aim their full fire power at the industry, laggards will be obsolete. Instant insurance will be the standard and customers won’t wait. In the future, every microsecond will count. 

Four instant payout pioneers

1 Hippo

“Get a quote in 60 seconds” is the tagline of US home insurer Hippo. According to co-founder and chief executive Assaf Wand: “My team and I spent months refining our application process. We turned a traditionally lengthy process of applying for homeowners insurance into a 60-second questionnaire that uses multiple trusted data sources to backfill information on homes and offer fast and accurate quotes. Then, we simplified the language in our online application so it’s easy to understand.” It’s a pitch resonating with customers. Hippo is set to join Lemonade on the New York Stock Exchange with a $5-billion valuation. 

2 Zego

The latest member of the unicorn club of startups valued at more than a billion dollars, Zego is the insurtech dominating the gig economy. It offers motor quotes online, but specialises in ultra-flexible coverage times, down to as little as a single hour. This is ideal for occasional drivers for Uber and Just Eat. Zego raised $150 million in a series-C round at a valuation of $1.1 billion. Investors include TransferWise founder Taavet Hinrikus and Balderton Capital. 

3 Thimble

Drone insurance is a growing niche, as commercial operators use them for deliveries and recreational drones remain popular. Thimble is cornering the market in the United States with Verifly, on-demand liability insurance for drones of all sorts. The main selling point is clarity and speed. The app delivers quotes in seconds and documents are provided immediately. This means a drone operator who suddenly realises they lack coverage can acquire it, even as they stand in a field with the drone at their feet. The business attracted $28.5 million in series-A funding. 

4 Cuvva

“Seriously fast and flexible cover,” says Cuvva’s marketing material. It was the first to offer motor cover for just one hour and extends to rolling monthly cover. At every stage it uses technology and automation to cut costs and deliver a livelier customer experience. Founder and chief executive Freddy Macnamara says: “You might only realise in the taxi on the way to the airport that you forgot to take out travel insurance or you might have to drive a friend or family member’s car home, while out and about. The insurance-in-your-pocket nature of Cuvva allows you to get covered instantaneously.” It’s a sentiment that sums up the credo of instant insurance and won Cuvva £17 million in series-A capital.