All of us have to deal with insurance companies, and it’s not fun. Endless paperwork, confusing conditions, fine print, long queue and so on and so on. EY Global Consumer Insurance Survey 2014 found that insurance is one of the least trusted sectors of the U.S. economy and ranking extremely low in all customer satisfaction categories. Yet, insurance services constitute a multi-trillion dollar market within the financial sector of economies worldwide. Most countries mandate certain insurance services by law making insurance an inseparable part of our lives.
It’s no wonder millennials and younger customers are looking for another way to deal with the insurance hassle. What about a techy alternative that’s easy, intuitive, paperless and fast?
Meet Lemonade, the 3-year-old insurance company and fintech star based in NYC.
Lemonade is arguably the most talked about InsurTech company to date – and for a good reason. The insurance newcomer that acts like a SaaS company broke into the insurance market with an extremely user-friendly UX and UI, and impossibly fast claim processing times thanks to machine learning and their charming chatbot.
How did it start?
In 2015, the two veteran tech entrepreneurs but insurance industry newcomers Daniel Schreiber and Shai Wininger founded Lemonade. Coming up with a better alternative for insurance services, they recognized the flaws of the largest incumbents in the market: lack of innovation and low customer satisfaction. Schreiber notes:
“Insurance has been unspoiled by innovation in 100 years.”
Coming from the tech world they approached the non-innovative and cumbersome insurance market from a different perspective. They aspired to set up a new way of doing insurance, one that would align the interests of the insurer with the expectations of the insured. This was an essential idea that was embedded in the company philosophy from the get-go by Dan Ariely, a Duke University professor, author and economist who joined the company as its Chief Behavioral Officer. Ariely incorporated his years-long research into Lemonade and its innovative business.
In 2015, Lemonade secured its first seed funding of $13 million from Sequoia Capital and Aleph, followed by another round of VC investment in 2016 totalling $47 million. After that, it only gained investor interest garnering $60 million in 2017, while being supported by Allianz SE and Ashton Kutcher’s Sound Ventures.
What makes the Difference?
Lemonade is not like other insurance companies. It doesn’t have stores, branches or offices. It’s online-only, where users can buy and manage their insurance policies, claim reimbursements and receive other services in record times of up to several seconds.
Zero everything. A newly introduced policy by Lemonade offers an insurance service for renters and coop owners that eliminates industry-standard deductibles – a prominent consumer pain point of paying extra when filing an insurance claim. This transparent and customer-friendly policy is a game changer in the industry and a key to increasing Lemonade’s growing market share.
AI. The AI-powered chatbot Maya is your virtual assistant that walks you through various use cases and processes, saving time for the customer and saving staff costs for the company. The result is an instant, digital settlement of insurance claims with no waiting time or inconvenience.
Giveback. Lemonade promotes the concept of peer-to-peer insurance, where certain customer groups form insurance pools they pay into and get paid from if need be. The key difference from other insurers is what happens to the excess funds that don’t get used by the pool in a given time period. Such excess profits are annually donated to a charity chosen by the pool group, highlighting Lemonade’s commitment to the public good. This is both a selling point and a strong PR tool for the company.
How do they make Money?
Lemonade has a more transparent business model than the traditional competition. They keep only a flat fee of 20% of the insurance premiums, while using the remaining 80% for purchase reinsurance (40%) and claim settlement (40%). The unclaimed funds from the latter go annually to the charity.
Lemonade aims to continue penetrating the traditional insurance market, while also looking at niche markets like real estate insurance services with no deductibles. Another focus of the business model is the relatively young customer base of under 35-year-olds, who are likely to become long-term clients of the flourishing start-up.