Thursday, May 17, 2018
How Eusoh Wants To Fix Insurance With Technology, With Allen Kamrava
The insurance industry is an old industry, with a lot of contradictions--it's one where the more claims insurers pay to help customers, the less money the insurers make--and it's also one that hasn't been disrupted much yet by technology. Is it possible to use technology to replace the age-old system currently in use in insurance? That's what Los Angeles-based Eusoh (www.eusoh.com) is hoping to do. We caught up with Allen Kamrava, the CEO and founder the startup, to learn about how the company is building a consumer platform that allows assembled and self-selected groups to form for the purpose of sharing unexpected costs of life. The startup has so far launched in the veterinary vertical--but has plans to go much bigger.
What is Eusoh?
Allen Kamrava: It's technology which is a true alternative to the insurance market, the first ever. We're building, from the ground up, a completely different way for people to protect from unexpected events, outside of the legacy insurance model.
What's different about what you're doing from normal insurance?
Allen Kamrava: We've learned you do have to put it in context, and then it makes sense. If you consider what insurance is, at its very core, insurance is crowdfunding. Insurance companies collect money from everybody to provide their service. However, they are paid a pretty large fee to act as a central middleman, to basically control those funds, and pay them out when the time is appropriate. We know how that story ends up. Part of the problem, is the way that those funds are controlled by an insurance company, the more they keep from paying out, the better the profits are for them at the end of the year. That means there is a misalignment of interests. They are interested in keeping their shareholders happy, so if they have to pay out a claim, they are hurting their stockholders, and vice versa. That legacy system has been absolutely necessary. However, in 2018, there's now technology to overcome the issues with payment processing, and to build a new system. Those things enable handling of things like promise to pay, guarantee of payments, reliability, scalability, and access to information With technology, we're able to address every single one of those. That enables you to create a completely different system to control for the unexpected. The idea of Eusoh, is we are still collecting from the crowd, but because of technology, we no longer have to keep those funds captive. We collect for the cost only when things happen. We collect when there is a loss, not for risk, so people pay only when things happen. You can assume there is a spikiness, a Richter scale to this. However, because the savings are so big, you can get rid of these legacy systems, the inefficiency of those systems, the misalignment of interests, and drop the average cost dramatically. That means, even in the worse months, it's much less than the average constant premiums in a legacy system.
So explain how it all works?
Allen Kamrava: On a practical level, the way we make money, is our revenues are disconnected from losses. They are fixed and constant, regardless of loss. Our revenues are not affected by losses, it's the same in all scenarios. What we do, is for a low, flat monthly fee—a lot less than Netflix—you become a member of the service, which gives you access to the group, and all of the anti-fraud systems. When you join, you get to join either an existing group, or you can great your own groups. You can request to join a group, and you can pick organically groups you want to associate with. All of these are community groups, so as costs get larger, there's a much smaller basis. We join that with thousands of people in the system, not just the small community, which helps to keep costs at scale.
So how do you adjust for risk and for people making too many claims – there are many examples in the legacy world of that happening?
Allen Kamrava: It's not one thing. There are many pieces of the puzzle. It's true concern, otherwise you could end up belly up. It has to do with claims and how they are submitted, and how they are verified. The system runs checks to make sure the service providers and high quality, and which ones we have to audit. As we get larger and to scale, we'll also be able to control what costs are shareable versus those which are not. It will become much more customizable. Right now, at launch, losses touch everyone. However, overall we'll be customizing that out. The claims themselves have to be legitimate. If you're submitting claims that are not legit, you'll essentially be pushed out of the system. Plus, you're answerable to the group. It's not like a legacy system, where claims go into a black hole. Here, there are 40 people who are connected to you, who have invited you into the system, and are directly connected to you. They've got to advocate for you and you have to have a connection with people at some level. So, you can't be submitting random claims, because those claims are being majority paid by your peers, and those claims are coming directly out of their pockets. Those people can flag you if you're abusing the system, or not playing by the rules. We've converted the entire community base into a watch guard, and made it easy to flag issues and put people on notice, so they check how they act and behave more responsibly than in the current system.
What's your background, and how is it you ended up doing this?
Allen Kamrava: I'm a physician, and also have a degree as well. I have dual business and medical licenses. I worked in the medical field for the Kaiser HMO, and had my own surgical practice in the uber-competitive West Los Angeles market. Manging that, I learned the ins-and-outs of health insurance. I don't think there's any more complex of an insurance platform. I kept thinking to myself, how can we fix this system? It's truly broken. It's a broken system, and it's beyond politics. It's not just insurers, but the problem is a combination of insurers, hospitals abusing the system, ad naseum. The abuse is not just the insurers, it's also the hospitals, who seem to get away with it scott free. There's an interesting statistic, which says that something like 50 percent of Americans account for 2.3 percent of our health care spending, and 10 percent account for something like 22 percent. There's a really small percentage of patients which account for most of the burden. The problem, when you piece it together, is that hospitals are the biggest villains. No one know that they are getting away with murder, and insurance companies are just going along for the ride. By law, an insurance company might only be able to recoup 15 to 20 percent of the costs of a claim for administration. So, to keep their numbers, if a premium is $100, they can only make $15 off that premium, but they really need $30 to cover their costs. The only way to get that $30, is to make that premium $200. They know that hospitals are over changing on things exponentially, and they're fine with that, because that allows them to get those administrative fees out of a bigger payment. They're not exactly in cahoots with each other, but it's an organism which symbiotically works for both of them.
To make a long story short, how you have to address this, is you have to start from the ground up. Technology allows us to do something we've never done before. We're able to build a community-based model, with transparently, where people can't abuse the system and get away with it. If you look at the cash market for healthcare, you'll see that costs are 60 to 90 percent lower than the insurance side. When you push people into that cash market, it shows a tremendous savings. We've built on that, piece by piece. We worked with Orrick, our law firm, to model this, and we've seen that our software make crowdfunding a very reliable way to trust and depend on going forward. We also have had a partner, another major financial player, validate this model, and published the savings that can be seen from this system in a white paper, which was great.
So where are you right now?
Allen Kamrava: The big plan is really healthcare. However, we realized very quickly when we built this, and started pitching for our seed funding round under the guise of attacking healthcare, is that is a massive market with many entrenched interests. However, the model is applicable to any short tail loss in the loss world. We've actually detailed numerous different platforms and industries this would work with very nicely, and I think, ultimately, there's a day that health care will happen at Eosoh, although I can't say anything about timing. However, we found that veterinary care for animals is the perfect market to show proof of concept. In that market, less than 9 percent of pet owners have insurance. There's a huge gap, and there are many people willing to give it a go for something they care about. I think it's a lot like Uber. I still remember when it was unheard of to get a ride from someone. I remember being at a party, and hearing someone was going to use Uber, and get a random ride from someone he found online, and I though he was nuts. However, we've seen that it is safe, and we know the end of the story there. It's now reliable and safe. We expect the movement to Eusoh to be similar, to be pretty quick.
Thanks!