Peer-to-peer insurance will revolutionise insurance industry, says former AIG exec

Ty Sagalow, the former president of product development at American International Group (AIG), has said his new venture that will develop peer-to-peer insurance products is the most exciting thing he has been involved with in a 20-year career focused on innovation in the insurance industry.

Sagalow was this week appointed as chief insurance officer of Lemonade a New York start-up founded by tech entrepreneurs Daniel Schreiber and Shai Wininger that has already raised $13 million from private equity firms including Sequoia Capital.

The insurance venture has also hired a number of other high profile industry names including Robert Giurlando, previously chief underwriting officer at ACE, who is Lemonade’s chief underwriting officer; James Hageman, previously senior vice president of claims at ACE, who has been hired as chief claims officer; and Ron Topping, previously AIG’s head of financial planning and analysis (P&C), Americas, who is Lemonade’s chief financial officer.

Lemonade, which is set to launch fully in the first half of this year, claims to be the world’s first peer-to-peer insurance carrier. While similar ventures have been launched in Europe, they tend to be managed by brokers as opposed to being a fully regulated insurer with the requisite security.

The company has been guarded on exactly how its offering will work simply stating that it will harness “the power of behavioural economics and the sharing economy, delivering to consumers an insurance experience that is instantaneous, un-conflicted and downright delightful”.

Sagalow expanded on this to a certain extent but the exact nature of the company’s offering remains a mystery. He told Intelligent Insurer that the business will work as expected by pooling the premiums of individuals in a similar way to a mutual or P&I club might work.

But he stressed that there will also be big differences between these business models and what Lemonade is offering. And in contrast to other peer-to-peer products that have been launched elsewhere, any policy will be guaranteed by the carrier, which will also have the ability to purchase reinsurance.

He also stressed that this company, unlike some other peer-to-peer launches in other sectors, has chosen to engage with and embrace the regulators early on in the process. “We took a very different view; we want that understanding and certainty from the start,” he said.

Outside the detail of the venture’s offering, however, Sagalow is energised by the idea of applying the disruptive concept of the sharing economy to the insurance industry for the first time. Using the analogy of the way in which Wikipedia obliterated the need for hard bound encyclopaedias, he said this could revolutionise the industry in an unprecedented way.

“The peer-to-peer phenomenon has the potential to fundamentally change the economic framework of this country,” Sagalow said. “Some 30 years ago, we looked at the internet and concluded the same thing. That has come to pass. You could not imagine the insurance industry today without the internet.

“From my perspective, this is going to represent a big change to the economic framework of this country but for the insurance industry this offers an opportunity to innovate and do a better job for its customers. The industry has never been good at the customer experience and it seems it has taken Silicon Valley to create what should result in a delightful experience for the consumer in stark contrast to the experience of the past.”

He notes that the company’s name is largely based on this principle. “We are taking lemons with their bitter taste and turning them into something more palatable in Lemonade,” he said. “The idea is that the experience should be sweet and delightful.”

He added that he believes this will be the most distortive event he has witnessed in his career. “Choosing Lemonade was a very personal decision for me but in many ways it was a culmination of 20 years of seeking and developing innovation in the insurance industry. But this is the most exciting product or company I have been involved with yet.”