ITC DIA Europe

Lemonade: the market most talked about disruptor

Written by Roger Peverelli and Reggy de Feniks - Founders The DIA Community on Aug 28, 2017

Lemonade, is an American insurance carrier offering homeowners and renters insurance. It is fully powered by artificial intelligence and behavioral economics. Launched in September 2016, the startup enjoys an unrelenting wave of positive publicity and steady growth: they are already well on their way to reaching 50% of the US population. Their approach is refreshingly different. By replacing brokers and bureaucracy with bots and machine learning, Lemonade promises zero paperwork, instant everything and killer prices. And as a Certified B-Corp, where underwriting profits go to nonprofits, Lemonade is redefining insurance as a social good, rather than a necessary evil.

Lemonade uses bots, software that automatically performs simple tasks, to deliver insurance through its app and at Consumers also file claims with the bot, which is authorized to pay claims instantly and without human intervention, creating an “delightful” insurance experience for customers which are often compelled to share the experience on social media. Lemonade’s renter’s insurance starts at $5 a month and home insurance for as low as $25 a month, which is up to 80% cheaper than its competitors while it takes less than 90 seconds to purchase it. The Lemonade app has a rating of 4.2 out of 5.
Unlike traditional insurance companies, Lemonade takes a flat fee and gives back unclaimed money to social causes which policyholders care about. This unique blend of technology and social innovation is appearing more and more frequently in novel organizations all over the world.

“Insurance that doesn’t suck”
The company’s tagline is “Insurance that doesn’t suck.” The existing insurance business model is broken from the start, with misaligned of incentives between the insurers, who want to pay out as little as possible and the customers, who expect the insurer to pay when needed.
Lemonade CEO Daniel Schreiber explained this in our book Reinventing Customer Engagement. The next level of digital transformation for banks and insurance: “Insurance is one of the most disliked sectors. A key cause is the profound conflict of interest at the very core of the insurance business model. As an insurer, every dollar that I pay you is a dollar less to my bottom line. Insurers basically make more money by denying claims. Conflicts of interest doesn’t get more entrenched than that. Lemonade is built as a new kind of insurance carrier. Our starting point is that you cannot be in conflict with your customers. You cannot make  money by denying them. We needed a broader mission: how can we earmark that money to the good of the community? In this way when you think about embellishing your claim, you are not hurting some unanimous insurer who you don’t trust, but you’re hurting friends, your community, things you care about. This modifies behaviour profoundly. We call this partnering on purpose. This is not about altruism, but about enlightened self-interest. It is about realigning incentives and creating a new point of equilibrium where every player acts better.”

Honesty baked into the claims process
Lemonade bakes honesty into the claims. Lemonade’s Chief Behavioral Officer is famous behavioral scientist Professor Dan Ariely. He helps design systems and processes that ensure that the interests of the insurer and the insured are aligned. Lemonade’s “Giveback” program derives from his studies and has earned Lemonade a B-Corporation certification.
Ariely “People are generally honest. We all have a trust self-image that we might push from time to time. It’s like speeding; that doesn’t make us feel like bad person when we do it. The same goes for insurance. People don’t feel aligned to the insurer, but they do feel the relationship is adversarial. This gives people a sense of entitlement and leads to embellishment and even fraud.”


It’s a platform
Lemonade has taken out the “winners and losers” dynamic that today’s insurance model is built upon. They addressed the conflict of interest between insured and insurer by simply eliminating it. Operating as a platform and not as an insurer means that, Lemonade does not gain from the non-payment of claims. It takes a flat fee for running the platform and makes its profit from the fee. Non-payment of claims does not increase the bottom line.

It’s peer to peer insurance
Unspent premiums are put to good use. As a signed-up member of B-Corp, Lemonade groups its customers by affinity to good causes. This means that, for example, everyone who cares passionately about local youth development is grouped together or those who care about finding a cure for cancer. Unspent premiums from the risk pool are donated to the good cause at the end of each term.
When a customer makes a claim, he or she knows that the payment will be taking money away from the good cause they support, not from the so-called “fat-cat insurers.” This is smart. It creates a dynamic where the insurer’s job is to pay claims, and the insured’s motivation is to help others.

It’s all about trust and behavior
Lemonade bakes honesty into the process of filing claims, in part by using Dan Ariely’s, own research. For instance, the Duke University professor has found that when people sign forms at the top of a document it encourages them to be more honest — so Lemonade uses that policy in its own applications. And when they do pay a claim, they remind the policy holder that the leftover money is going to a charity the person cares about.

It’s about the greater good
Lemonade is a public benefit corporation. This means it balances the needs of shareholders with a social responsibility to make decisions for the greater good. Like a government department, Lemonade has a corporate duty to make decisions that do not put profit and returns to shareholders first.

Killer prices…

How can Lemonade be so much cheaper? According to co-founder Daniel Schreiber it is by building an insurance company, from the ground up, powered by A.I. and behavioral economics. Not brokers and bureaucracy. Their acquisition costs are already 10x lower than legacy carriers. It’s achievable without being reckless or naïve. It is available 24/7, a bot who creates a $5 policy in 90 seconds and with zero paperwork. It couldn’t be easier or faster. There are no forms to fill out. The customer only speaks to the camera. So it takes 90 seconds to get insured and only 3 minutes to get paid. At Lemonade they treat the premiums not as if it’s their money. With Lemonade, everything becomes simple and transparent. They take a flat fee, pay claims super fast, and give back what’s left to causes the consumer cares about. Lemonade reverses the traditional insurance model.

Why we selected Lemonade for DIA Munich
Lemonade created a new business model for insurance based on behavioral economics and technology. Using artificial intelligence and chatbots to deliver insurance policies and handle claims for its users on desktop and mobile without employing the use of insurance brokers. Social good is another, important aspect of the business model, where underwriting profits go to nonprofits of the customers’ choice, in the company’s annual “Giveback.” Lemonade is harnessing a compelling mix of behavioral economics, artificial intelligence and great design.

At DIA we look for companies that have the potential to radically improve customer engagement. Lemonade is revolutionizing insurance, transforming one of the largest and most outmoded industries into an enjoyable experience for consumers. It’s unique blend of technology and social innovation appear more and more frequently in novel organizations all over the world. We are convinced Lemonade will make insurance even more enjoyable, affordable and instant.

Who is Lemonade?
Lemonade is founded by Shai Wininger and Daniel Schreiber, two relatively seasoned entrepreneurs. They first launched Lemonade in New York in September 2016. While New York is the most highly regarded, exacting and regulated state for insurance.

The startup is headquarted in New York City with around $60 million in its coffers — from some big-name backers, including GV (formerly Google Ventures), Sequoia Capital, and Ashton Kutcher’s Sound Ventures. Allianz added its name to the list of investors in April 2017. The company has some top-notch reinsurance partners, including Lloyd’s of London.

Schreiber, a lawyer, who has been a general manager at SanDisk, a president at wireless charging company PowerMat, the wireless charger for Samsung devices. Wininger was a cofounder at Fiverr, a big Israeli startup success story. They based their innovative business model around donating all unclaimed money to charities of the policyholder’s choice. Their goal? To ultimately rebrand the insurance industry as convenient and beneficial.
When they entered the insurance industry, they knew one of the biggest problems with traditional insurers was the endless amounts of red tape and long wait times. That’s why they committed to ‘instant everything’ since day one. From the world’s first 90 second sign-up to their world-record-setting claims process, they’ve already hit some pretty exciting milestones.
Impressively Schreiber and his cofounder, Shai Wininger, raised the cash from Sequoia Capital without a demo app or even so much as a slide deck presentation. The meeting with Sequoia was “just two guys and an idea. It helps that they are two relatively seasoned entrepreneurs, not 19 years old. They had a credible thesis. We were thoughtful about the [business] model. It was talking it through,” Schreiber said. “For Sequoia, the opportunity was pretty compelling. And they liked that they were going after the trillion-dollar property insurance industry.”

Shai Wininger (l) and Daniel Schreiber (r), founders of Lemonade

Making insurance instantaneous and delightful takes more than breakthrough technology, it takes a new way of doing business. One that’s less conflicted. Insurance that is a social good rather than just necessary evil. And that takes new business models, new actuarial models, and new corporate structures”. Daniel Schreiber, CEO and Co-Founder Lemonade


Presenter: Daniel Schreiber

Contact info: Yael Wissner-Levy
Email: [email protected]

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