Lemonade is one of the best-funded P&C insurtech stratups currently available worldwide, one of the most carefully followed in recent years: founded in New York in 2016 by Daniel Schreiber and Shai Winniger, Lemonade immediately stood out for its technology and business model.
Its technology, involving artificial intelligence, machine learning and chatbots, has been built around some key principles: customer experience, that means eliminating all possible issues between the insurance company and its customers, such as complicated processes, lengthy times, red tape, high costs; and ethical business, since Lemonade devolves part of the proceeds to charity (it is also currently the only B-Corporation certified insurance carrier).
The model (which implements the theories of behavioural economics) brings in a premium giveback system, integrated into the insurance product: Lemonade asks customers to appoint a charity when they buy a policy. Then, the premiums of people who choose the same “worthy cause” are grouped together in a single fund to cover claims. At year-end, money not used for claims is donated by Lemonade to the charity chosen by that group, Lemonade holds nothing back. How does it earn? Lemonade retains a fixed fee in the monthly payment of users and sets aside the balance for claims.
This “magic spell” has won over customers by expanding from the New York State to most federal states, an event not commonplace in a highly regulated market that differs from state to state, where even standard operators are deep-rooted and diversified; it has sold over half a million policies and, according to Fortune, has reached $57 million in turnover last year and is on track to make $100 million this year. “In less than three years, Lemonade has expanded in the United States, donated money to dozens of charities chosen by our community, and radically changed the way a new generation of consumers interact with insurance companies.”, said Daniel Schreiber, CEO and co-founder of Lemonade. The Millennials are the new generation of consumers, its main target: 75% of its subscribers are under 35, 90% have never taken out insurance before (source: Lemonade).
On the investors’ side, it has attracted leading funds, starting with Sequoia Capital, the historic US venture capital fund, which was its first large-scale investor, investing $13 million in a seed round, the largest seed investment ever made by the fund; followed by GV (Google Ventures), General Catalyst, Tusk Ventures, XL Innovate, Allianz and now Softbank (a giant venture capital fund), which invested $120 million in 2017 and now a further $300 million. All in all, it raised $480 million from venture capital and is valued at over $2 billion. It sounds like an insurtech giant.
According to Schreiber to TechCrunch “Our ultimate challenge is to manage growth. How to create an organization always in need to be transformed? The organisation we were two years ago and the one we are today have little in common. We moved from a single product in a single State to thinking about multi-product across continents and five office locations. How doing this without putting a strain on the system and still keeping up the good quality of service?”
$300 million undoubtedly help, of course we will consider which steps will be taken soon, as the next passage for Lemonade is getting beyond the United States, bringing the home-insurance model to Europe, and the recruitment season is already underway.
All records for Lemonade
Other records mark it out: Lemonade has managed a claim in 3 seconds; it is the first insurtech startup to have obtained certification as a benefit corporation; it is among the fastest applications in managing a subscription process, which lasts a couple of minutes at most (90 seconds to get insured, 3 minutes to get paid); it has developed one of the most sophisticated technologies available (in this industry) based on artificial intelligence and chatbots. It is probably the first insurance company worldwide to have a ‘political’ approach to policy management: an example comes from the position taken and communicated in a very transparent way by one of the two founders about insurance coverage for firearms ownership and use, which has raised many complaints about social security by firearms owners but also peaks of subscribers. Lemonade is probably the first insurance company to have given the world of developers access to its own APIs: this means that any e-commerce, rental, financial services, home/Iot security websites can supplement Lemonade’s insurance proposals by offering immediate coverage along with their own service. It is the choice for the B2B of Lemonade, which was worth in the first 24 hours over 400 “business” subscribers.