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Thanks - and good luck with your renters insurance search. You're right we don't currently give advice for comparing through the tool - but I've written about

Thanks - and good luck with your renters insurance search. You're right we don't currently give advice for comparing through the tool - but I've written about it on our blog, and have a even more low tech comparison tool there (google sheet!). https://blog.goodcover.com/save-time-and-buy-home-condo-renter-insurance-with-confidence-98b1e4526f48 https://blog.goodcover.com/save-time-and-buy-home-condo-rent... Hopefully that could help you out in the mean time. Regarding returning unclaimed premium - good question. The way insurers make money is by 1) collecting premiums and holding on to them, generating some interest, and 2) keeping more premium than they need to pay out in losses and expenses, which is called "Underwriting Profit." Typically Home/Renters insurance is written in such a way that a company tries to keep 5-15% of premiums as Underwriting Profit. We think that the conflict over underwriting profit is at the heart of why the insurance experience is bad - there's not much incentive in improving a user experience that you don't want users to use... So we want to give that 5-15% back in the good years where we don't need it to pay claims. So, what you would see is a dividend at the end of the insurance year. It's not going to be much, but it is "putting our money where our mouth is" on our commitment to policyholders. Turns out that's really hard to do legally and financially - mutual insurers would technically do this, but starting one is a hugely capital intensive process. We're on the path, and hope to be able to share more about the process soon!

berbec 8y ago
A question about this "dividend". Obviously, this is a major source of profit for a insurance company, but I imagine is also used to refill reserves after a big payout year. Insurers must have been piling cash away for years after Andrew, Katrina, Sandy etc to recoop payouts. How would this balance with returning money on good years?
- chrisplotz 8y ago
  Underwriting profit hasn't always been a big component of insurer profits - typically "float" or that interest on the premiums held has been the big driver. But in a low interest rate world, companies have had to keep more and more underwriting profit in order to exceed cost of capital. As they need more UW profit, so the fight over claims gets worse... You are right though that money needs to be set aside for bad years - in insurance we call it "reserving", and actually it is already accounted for before the 5-15%. It is stashed away in the loss ratio as "incurred but not reported" or is paid in reinsurance premiums, which are a fixed cost. 5-15% is what is left over after all that (and admin expenses).
  - phonon 8y ago
    CAT Reserves are not IBNR...IBNR would, e.g., be after the CAT event happens, but before the claims are reported. I'd like to see a definition that says otherwise!
    - chrisplotz 8y ago
      Yes, correct, IBNR can come from cat, or non-cat.
      - phonon 8y ago
        I am not sure you understood. This sentence-- "You are right though that money needs to be set aside for bad years - in insurance we call it "reserving", and actually it is already accounted for before the 5-15%. It is stashed away in the loss ratio as "incurred but not reported" Is not correct. CAT reserves are not related to IBNR. IBNR is a) we know the loss has already occurred b) the policyholder has not reported the loss yet. (Or at least in a probabilistic sense, like the hurricane has landed, and we know it will take 10 days for all the claims to be reported, and that 2 days after landfall, say 20% of claims have been reported, and the other 80% of those hurricane claims will be reported over the next 8 days. So at that moment "2 days after landfall" the actuaries will estimate how much IBNR there is.) What you described is a CAT reserve...it's a seperate reserve taking into account, say, over a 10 year period, the odds and severity of a CAT risk. If you still are unclear about the distinction, please consult your local actuary or CPCU :-)
- SmellTheGlove 8y ago
  Underwriting profit shouldn't be a major part of the business model. If you're making too much money year to year from that, there's going to be regulatory pressure to lower your filed rates in a given market, and absent that, competitive pressure, because your competitors are going to have similar loss behavior in your segments and will cut rate to take market share from you. Customers see insurance as ~fungible and they will shop, although not as often as they should. EDIT: I see the OP responded to you, and independently, I'll say he gave a great explanation and probably knows WTF he's doing. Didn't expect to see IBNR explained on HN!
  - chrisplotz 8y ago
    Thanks! Oh IBNR... I'm surprised too, but glad it got a chance to shine! And you are right - UW profit shouldn't be a big part, but it's a contentious issue right now with interest rates where they are. Since it shouldn't be a big part of our profit model, we're looking to put our money where our mouth is and return it.
SmellTheGlove 8y ago
What will you do in a bad year when a couple of cats drive your loss ratio north of 110%? I imagine the answer to that is a big part of the regulatory challenge! I wish you the best, I do like your goal. I spent almost 15 years from post-college to ~present in insurance before moving on recently to something else here in SF. Ping me if you ever need anything or just want to bullshit about the industry :)
- chrisplotz 8y ago
  Awesome, I will - thanks! Property insurance attritional losses are fairly predictable, and reinsurance is there to smooth out Catastrophe loss years; they'll be there to support us and bring our Loss Ratio back under control. So key is to charge enough to cover attritional (i.e. predictable) losses + reinsurance premiums. But yes in those bad years where there's no UW profit, there's no dividend - everyone's contribution was needed.
  - phonon 8y ago
    If you're covering CAT risk 100% using reinsurers, you are at a competitive disadvantage compared to insurers who can cover some of that risk themselves...reinsurers have their own returns they look for.
    - chrisplotz 8y ago
      That's true, but I've yet to see a primary insurer that doesn't use reinsurance.
      - phonon 8y ago
        It's not about using "reinsurance", it's about how much risk you are laying off to them. Large insurers don't insure "just the predictable losses" (unless they set up their own reinsurers) because it lowers their ROE too much to give reinsurers so much of the underlying risk.
phonon 8y ago
> So we want to give that 5-15% back in the good years where we don't need it to pay claims. Isn't that what Lemonade initially tried to do? They ended up having to go to their charity angle because of rebate laws. How do you think you are different? Mutuals do not seem to have a competitive advantage when it comes to Loss Ratios...what is your thesis exactly? Not to mention Lemonade is running at almost 3x their filed Loss Ratio now. End of the day, personal lines is a very competitive market, where insurers are happy to get a net ~95% combined ratio (including CAT). Why would you think you will do better?

berbec 8y ago

A question about this "dividend". Obviously, this is a major source of profit for a insurance company, but I imagine is also used to refill reserves after a big payout year. Insurers must have been piling cash away for years after Andrew, Katrina, Sandy etc to recoop payouts. How would this balance with returning money on good years?

chrisplotz 8y ago
Underwriting profit hasn't always been a big component of insurer profits - typically "float" or that interest on the premiums held has been the big driver. But in a low interest rate world, companies have had to keep more and more underwriting profit in order to exceed cost of capital. As they need more UW profit, so the fight over claims gets worse... You are right though that money needs to be set aside for bad years - in insurance we call it "reserving", and actually it is already accounted for before the 5-15%. It is stashed away in the loss ratio as "incurred but not reported" or is paid in reinsurance premiums, which are a fixed cost. 5-15% is what is left over after all that (and admin expenses).
- phonon 8y ago
  CAT Reserves are not IBNR...IBNR would, e.g., be after the CAT event happens, but before the claims are reported. I'd like to see a definition that says otherwise!
  - chrisplotz 8y ago
    Yes, correct, IBNR can come from cat, or non-cat.
    - phonon 8y ago
      I am not sure you understood. This sentence-- "You are right though that money needs to be set aside for bad years - in insurance we call it "reserving", and actually it is already accounted for before the 5-15%. It is stashed away in the loss ratio as "incurred but not reported" Is not correct. CAT reserves are not related to IBNR. IBNR is a) we know the loss has already occurred b) the policyholder has not reported the loss yet. (Or at least in a probabilistic sense, like the hurricane has landed, and we know it will take 10 days for all the claims to be reported, and that 2 days after landfall, say 20% of claims have been reported, and the other 80% of those hurricane claims will be reported over the next 8 days. So at that moment "2 days after landfall" the actuaries will estimate how much IBNR there is.) What you described is a CAT reserve...it's a seperate reserve taking into account, say, over a 10 year period, the odds and severity of a CAT risk. If you still are unclear about the distinction, please consult your local actuary or CPCU :-)
SmellTheGlove 8y ago
Underwriting profit shouldn't be a major part of the business model. If you're making too much money year to year from that, there's going to be regulatory pressure to lower your filed rates in a given market, and absent that, competitive pressure, because your competitors are going to have similar loss behavior in your segments and will cut rate to take market share from you. Customers see insurance as ~fungible and they will shop, although not as often as they should. EDIT: I see the OP responded to you, and independently, I'll say he gave a great explanation and probably knows WTF he's doing. Didn't expect to see IBNR explained on HN!
- chrisplotz 8y ago
  Thanks! Oh IBNR... I'm surprised too, but glad it got a chance to shine! And you are right - UW profit shouldn't be a big part, but it's a contentious issue right now with interest rates where they are. Since it shouldn't be a big part of our profit model, we're looking to put our money where our mouth is and return it.

SmellTheGlove 8y ago

What will you do in a bad year when a couple of cats drive your loss ratio north of 110%? I imagine the answer to that is a big part of the regulatory challenge! I wish you the best, I do like your goal. I spent almost 15 years from post-college to ~present in insurance before moving on recently to something else here in SF. Ping me if you ever need anything or just want to bullshit about the industry :)

chrisplotz 8y ago
Awesome, I will - thanks! Property insurance attritional losses are fairly predictable, and reinsurance is there to smooth out Catastrophe loss years; they'll be there to support us and bring our Loss Ratio back under control. So key is to charge enough to cover attritional (i.e. predictable) losses + reinsurance premiums. But yes in those bad years where there's no UW profit, there's no dividend - everyone's contribution was needed.
- phonon 8y ago
  If you're covering CAT risk 100% using reinsurers, you are at a competitive disadvantage compared to insurers who can cover some of that risk themselves...reinsurers have their own returns they look for.
  - chrisplotz 8y ago
    That's true, but I've yet to see a primary insurer that doesn't use reinsurance.
    - phonon 8y ago
      It's not about using "reinsurance", it's about how much risk you are laying off to them. Large insurers don't insure "just the predictable losses" (unless they set up their own reinsurers) because it lowers their ROE too much to give reinsurers so much of the underlying risk.

phonon 8y ago

> So we want to give that 5-15% back in the good years where we don't need it to pay claims. Isn't that what Lemonade initially tried to do? They ended up having to go to their charity angle because of rebate laws. How do you think you are different? Mutuals do not seem to have a competitive advantage when it comes to Loss Ratios...what is your thesis exactly? Not to mention Lemonade is running at almost 3x their filed Loss Ratio now. End of the day, personal lines is a very competitive market, where insurers are happy to get a net ~95% combined ratio (including CAT). Why would you think you will do better?