LIC AAO 05 Mar 2016 Paper

Directions (141 - 150):
Read the following passage carefully and answer the questions. Certain words/phrases are given In bold in help you locate them while answering some of the questions
Investors have poured billions of dollars Into "Fintech' startups. creating hundreds of new firms determined to shake up lending, payments. broking, and data, among other financial niches. Insurance, however, has not yet been subject to this. That may be changing. Insurance Is tricky to break into. The most important Is regulation. Health insurance — or Its American version, at least — maybe like most heavily regulated Industry In the world. Before a company can even offer a policy, it must have multiple approvals from state and often city agencies and then negotiate agreements with local hospitals. Running the gauntlet of regulations Is costly and furthermore, the company that sets up shop today could not Issue any policies before 2018 at the very earliest. His second reason is capital. Fintech firms typically receive backing from venture capitalists to pay for salaries, systems, infrastructure, but not to support a big balance sheet. Many lend to structure their operations to avoid holding risky assets for any length of time, acting more as Intermediaries between creditors and borrowers. Investors and investments, or the sender of some money and the recipient. This sort of arrangement does not work as well for Insurance. Unless firm serves purelyas a broker, it will end up carrying some risk, and the weighty capital requirements that come with it. What is more, customers will not take out policies unless they are confident that the Issuer will be around to honour them when a claim made. But a startup, by definition, does not have the record or reputation that would help bolster that confidence.
Lemonade, an American startup. plans to offer insurance via a peer-to-peer platform — in effect, acting as a middleman. Others, such as Guevara in Britain and Friendsurance in Germany, try to get groups of friends to pool risks, on the assumption that they know better than the actuaries how accident-prone their nearest and dearest are. This also helps get around the problem of confidence. Metromile, a startup car insurer based in San Fransisco takes a difference lack. Its policies are underwritten by another insurer, National General. For now, that allows it to hone its technology and measure its customer base. But in time retained earnings, reinsurance and debt could enable it to retain more risk, as more mature insurance firms do. Like many insurers, Metromile seeks to cherry-pick the least risky customers. For car insurance that involves working out which are least likely to have an accident. Several big insurance companies. Most notably Progressive in America and Aviva in Britain, have begun to use tracking devices or voluntary apps on cars to monitor how safely their customers drive. How fast they go and how hard they brake are just couple of the factors that can be used to sort the cautions from the reckless. Metromile, in contrast, tracks milage. Customers pay a fee of $ 45.50 a month then $ 0.05 to 0.06 cents a mile. There is a clear correlation, Metromile contends, between miles driven and like likelyhood of an accident . It reckons there are 75m vehicles in America that are driven only rarely , but insured at a cost of $73 billion a year . Offering a metered option may not only save their owners some money , but also go some way to disproving the view that insurance and fintech do not mix.