Lemonade’s primacy, the insurance startup now operative in New York

Machine learning technologies, chatbot, peer-to-peer business model, first certified Benefit Corporation insurance. The company enters the market and reveals its full potential, relied on by big investors such as Sequoia Capital

Published on 18 Oct 2016

Lemonade clinched a record even before reaching the market: with its 13 million US dollars, last year it was the most conspicuous seed investment from Sequoia Capital, one of the main and most important venture capital funds in the United States.

In recent days, after a year of “told-untold” about this startup, InsuranceUp had reported the opinion of its founder Daniel Schreiber: Lemonade finally becomes operational with its insurance policies, in the home insurance market of the State of New York (where it is headquartered) and its innovative technological and business structures, are there for all to be seen.

Chatbot, ethics and a lot of money are its tools – says VentureBeat – describing how the startup has been built around a few key principles: customer experience, which means removing all possible misunderstandings between the insurance and its customer, such as complex procedures, the long lead times, the paper work, the high costs; ethical business practices, since Lemonade donates a portion of the proceeds, to charity.

The model works this way: Lemonade asks customers to nominate a charity when they buy an insurance policy. Then, the insurance premiums of those who choose the same “worthy cause” are grouped together and will constitute a single fund to cover the claims. At year end, the money not used for claims, is donated by Lemonade, to the cause chosen by such group.

Where are profits for Lemonade? Retaining a fixed fee of 20% on monthly payments of premiums, it purchases policies from reinsurers (Lloyd’s of London, Berkshire Hathaway’s National Idemnity, XL Catlin and others), is responsible for paying the claim, and still has much money to be donated to charity.

“The awareness that every dollar we are denied in a claim is a dollar more for our insurance company, brings out the worst in all of us. So we concocted Lemonade to avoid conflicts of interest. We take a flat rate of 20%, giving unclaimed money to important charity for our policyholders.” These words are of none other than Dan Ariely, Chief Behavioural Officer of Lemonde, the person responsible for the analysis of customer behavior and the development of subsequent strategies. In fact, Dan Ariely is a professor of psychology and economic behavior at Duke University and author of several bestsellers on the topic.

An atypical but critical role in a startup that is basing its business idea on an assumption of psychological – behavioral nature, namely that if the insurance is better, even customers will be better, that is, more numerous and less likely to defraud the company.

“Since we do not take money unclaimed, we are able to inspire confidence and guarantee to pay claims quickly and without problems. Our customers, for their part, being aware that any fraud harms a charity cause they believe in, rather than the insurance company, they don’t do such a thing, bringing out their better nature. All winners.”, said Dan Ariely to VB

Lemonade, on the basis of this model, has been constituted in the form of Benefit Corporation and is the first insurance company in the world to have obtained this certification.

The technology, based on machine learning and chatbot, is a strong asset of the startup. “The technology pushes all in Lemonade,” said Wininger co-founder and president. “Since the signing of the insurance policy up to the claim, the whole experience is mobile, easy and remarkably fast. What used to take weeks or months, now it takes minutes or seconds. This is what you get when replacing brokers and documents with bots and machine learning”.

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