Cheap, Fast, and Convenient: New Norms of Insurance
Founded by two entrepreneurs outside of the insurance industry in 2015, Lemonade made its statement to disrupt the market as the prominent name amongst the insurtech players. The founders’ vision was to “reinvent such an unloved sector that had gone unspoiled by innovation, and do it through a mix of value, values, and technology,” and that resonated with some big backers such as Google Ventures , Sequoia Capital, and Ashton Kutcher’s Sound Ventures and Allianz.
The company’s delightful experience resulted in an increase in annual recurring revenue (ARR) from $1m to $10m in 10 months, and from $10m in $100m in 2.5 years, which is one of the best in class according to the State of the Cloud report. The company growth is due its stance with its customer, as being both a B Corp as well as a public-benefit corporation.
What’s the Big Deal?
Lemonade’s business strategy is to befriend its customer in a sector where the customer and the company are accustomed to sit at opposite ends of the table. Instead of the conventional model, Lemonade only takes a fixed fee, typically 25% of premiums, while using reinsurance to limit losses from high claims. Moreover, the leftover premium then goes into the Lemonade Giveback, where the company donates to the charities chosen by their customers.
This model also allows them to serve at very affordable prices, which is up to 80% cheaper than its competitors. Lemonade’s renter’s insurance starts at $5 a month and home insurance for as low as $25 a month, and are fully customizable according to the customer’s need.
However, the customer-centricity is not only attributed to the prices, but also to the ease of use. Lemonade committed to “instant everything”, aiming delivery of all the offerings from onboardings to customer service in record breaking times. They even set the world record for sign-up with 90 seconds in the industry.
The Core Disruption
This record speed is only achievable with the companies’ investment in data and analytics. Lemonade has three AI’s called Jim, Maya, and Cooper. AI Jim, the claims bot, handles the entire claim through resolution in approximately a third of cases and pays the claims %96 of the time. It’s customer service chatbot, Maya gathers 1,700 data points. In comparison, typical insurance companies gather 20-50 data points per policy.
Their automation of processes does not feel like no one is taking care of the customer, but only enhances the overall experience with conscious design built on transparency and trust. Lemonade has the famous behavioral scientist Professor Dan Ariely as its Chief Behavioral Officer to create the best journey possible. Company collects tons of data from each step of the customer journey to iteratively eliminate friction points.
The trust also resonates with the company culture, as all of the employees are invited and encouraged to challenge the industry norms to innovate insurance. Their internal automation brain, Cooper, helps set meetings, assign tasks, answer knowledge base questions, help find documents, on-board new employees and much more to leave employees enough time to get creative.
The Digital Superpowers
Design: Using machine learning algorithms to detect the drop-off point in the customer journey, Lemonade re-designed the process for Extra Coverage service that led to a 50% increase in overall conversion.
Connectivity: Lemonade’s platform takes in data through third parties and its own customers at the point of policy issuance and stores it to use across the whole insurance value chain.
Speed: Lemonade’s claims bot can review a claim within a few seconds. The chatbot cross-references the claim with the policy data and applies anti-fraud algorithms in a matter of seconds.
Intelligence: Lemonade conveniently handles 32 percent of its support requests via AI, and that represents a dramatic increase from just 6 percent at the end of 2017.
Even the insurance is prone to innovation and disruption, and that is what ignited Lemonade’s journey. The company strives to align itself with the customer, offer fast and convenient solutions, and leverage analytics to do more; which could be its recipe for success.
There are many entrants to the market now. Insurtech is getting more competitive. Legacy insurers have their own initiatives. As the flagbearer, Lemonade’s customer-centric innovation approach seems to give the company a good stance.