Tag Archives: market share

Lemonade’s Crazy Market Share

It’s the craziest thing: In the State of New York, Lemonade appears to have overtaken Allstate, GEICO, Liberty Mutual, State Farm and the others in what is probably the single most critical market share metric of all.

But I’m getting ahead of myself.

Our story starts a few months back, when a few digits in a tedious insurance report woke me with a jolt: “723,030.”

Why the drama? 723,030 was the number of New Yorkers with renters insurance, and Lemonade had sold way more than 7,230 renters policies to New Yorkers. The upshot: We captured more than 1% market share in just a few months.

That seemed crazy.

In homeowners insurance in the U.S., a 1.6% market share makes you a top 10 insurance company. And this exclusive club has been at it, on average, for 104 years. Lemonade launched in September.

See also: Lemonade Reports: ‘Our First 100 Days’  

I went to my shelf, pulled my copy of “Microtrends” and highlighted its punchline:

“It takes only 1% of people making a dedicated choice — contrary to the mainstream’s choice — to create a movement that can change the world.” (xiv)

Then It Got Crazier

No sooner had we come back down to Earth, when a new study suggested that our “movement” was on the move. This survey, dated April 2017, updated Lemonade’s NY market share to a crazier 4.2% (E:+2.1/-1.4).

Note that while our market share numbers are from dependable sources (reports by regulators, surveys by Google), differing methodologies and timeframes make a conclusive number hard to pin down. That’s just fine by us. For one, we’re growing fast, making any precise number passé by the time it’s computed. For another, “overall market share” — whatever the number — misses the craziest part.

The Craziest Part

Most New Yorkers got their insurance policy before Lemonade existed. That means that “overall market share” pits our few months of sales against sales made by legacy carriers in the decades before we launched. Which raises the question: What’s our market share among New Yorkers who entered the market since we did? What’s our share of brand new policies?

Looks Like We’re Number One

It’s totally crazy but also totally logical. Given that about 90% of the market bought their policy before we launched, it stands to reason that our “brand new” market share will be about 10x our “overall” market share.

Logic is nice, of course, but it’d be better if there was some empirical evidence to back it up.

There is. A second survey broke down marketshare based on when people first bought insurance and found that Lemonade’s market share among first time buyers is more than 27%!

27% share among newcomers to insurance! You don’t need clairvoyance to see the predictive power of that metric. Nothing foretells tomorrow’s “overall” market share like today’s “brand new” market share.

Note that the margin of error in the survey is wide (+12.6/-9.8), so our true “brand new” marketshare could be as little as 18%. Again, I’m not spending any time narrowing the range. Pick any point within the margin of error, and the thrust of the story is unchanged: It’s crazy.

Crazy Is the New Normal

Lemonade is growing exponentially, and today’s subscriber base is more than 2X what it was when those surveys ran 10 weeks ago. In fact, new bookings have doubled every 10 weeks since launch and show no sign of letting up.

But exponential growth isn’t the craziest part. The craziest part is that, even if that acceleration stopped, even if we just maintained the status quo from April, within a few years our overall market share would automatically climb to match our “brand new” market share.

That’s what “brand new: market share means; and that’s why it’s probably the single most critical metric of all. Today’s crazy is tomorrow’s normal.

See also: Lemonade: From Local to Everywhere  

I know: We’re still tiny, and incumbents won’t stand idly by as we coast from #1 in “brand new” to #1 nationwide. But that’s the trajectory we’re on. And with a nod to Newton’s first law, we’ll keep moving along that trajectory unless stopped by an external force.

Game on.

Start-Ups Set Sights on Small Businesses

When start-ups jumped into insurance, many focused on the personal auto industry. Not surprising, considering it is arguably the least complex line of insurance and is often the first to be disrupted (going back to Progressive in the ‘90s). Now that InsurTech investment is at an all-time high, more start-ups are entering the market and have become increasingly confident in their ability to tackle complex lines of business. If recent start-ups like CoverWallet and Next Insurance are any indication, small commercial business is the next line to face aggressive disruption. If carriers want to stay competitive and grab profitable market share, they will have to adapt to today’s standards for the customer experience.

Small Commercial an Obvious Move for Startups

Targeting the small commercial business market makes sense, given a recent McKinsey study that calls the line “one of the few bright spots in P/C insurance.” The study points out that, since the 2008 recession, the number of small businesses has grown, and 40% of sole proprietorships don’t have insurance.

Unfortunately for the traditional carrier, the majority of small businesses are also open to purchasing policies online. But remember that saying you’re open to purchasing online and actually purchasing online are two very different things – especially if we use the recent past as an indicator.

See Also: So Your Start-Up Will Sell Insurance

Google Compare terminated operations after sluggish growth across the U.S., with many of their leads failing to purchase. This is not atypical for this insurance shopping method. Several years ago, Overstock also tried selling insurance online outside of personal auto – including commercial business – and that closed down quickly.

That two business giants failed doesn’t mean online purchasing won’t eventually catch on. Start-up culture is largely a test-and-learn environment.

But these initial growing pains do indicate that traditional insurance still has a chance to stay alive amid disruption if they provide an efficient, engaging consumer experience.

Consumers Want Both Confidence and Efficiency

It’s not that consumers don’t want to work with carriers and agents, it’s that the customer efficiency of 30 years ago is no longer an appropriate benchmark. Of course small business owners are open to purchasing online, because traditional insurance has not yet given them the experience they desire. According to a PIA study from last year, small commercial businesses would much prefer the personal attention from agents (and by extension the carriers they work with) as long as they do a better job of adapting to technologies and the Internet. From the customer’s perspective, an experience with an insurance carrier isn’t compared only with other carriers – but to other companies they do business with regardless of industry. Whether it’s Amazon, Apple, Google, etc., your customer experience will be rated against the companies leading in the modern, digital world.

This explains many of the start-ups entering the space now and why they have the potential to gain the upper hand.

To achieve better communication, carriers need to think more broadly about their usage of data and predictive analytics. You have to gain an incredibly detailed view of your customers, their behaviors and their responses to your communication and product offerings. We always recommend an incremental rollout of analytics to get your feet wet before diving in. At the same time, it’s critically important to be ready to build off that early momentum and develop an overall predictive analytics strategy that seamlessly merges with business goals. Recognize that this evolution to becoming more data-driven is as much about organizational change as it is about technology.

When carriers understand how predictive analytics benefits them, they can confidently make data-driven decisions that improve every aspect of their business – including the customer experience. For example, using underwriting analytics to achieve real-time insights into pricing policies doesn’t just help a carrier’s bottom line – it also greatly streamlines and expedites the communication chain between consumers, agents and carriers.

At the recent Dig In insurance conference, a panel of InsurTech CEOs discussed how start-ups dissect insurance data – in ways that differ from traditional insurers and agents. A member of the audience asked, “Why are start-ups so combative in their approach?” It was an intriguing question that highlights the digital divide in terms of how the industry thinks about evolving versus how technology and Internet entrepreneurs think about playing in industries ripe for disruption. What feels “combative” to the incumbent is often seen as “customer-centric” to the new entrant.

It’s important that carriers understand that there is a way to co-exist, but counting on new entrants to accept the status quo is a bad bet. Think of start-ups as an advocate for a better customer experience, and see those that fit your business as innovation partners. Adopt the mantra that the customer always wins, and you’ll remain relevant in the customer value chain.

A Word With Shefi: Applebaum at ISG

This is part of a series of interviews by Shefi Ben Hutta with insurance practitioners who bring an interesting perspective to their work and to the industry as a whole. Here, she speaks with Stephen Applebaum, managing partner, Insurance Solutions Group, and senior adviser at StoneRidge Advisors, who describes the implications of the “torrents of data that will flow from connected cars, homes, buildings and people.”

To see more of the “A Word With Shefi” series, visit her thought leader profile. To subscribe to her free newsletter, Insurance Entertainment, click here.

Describe what you do in 50 words or less:

I provide consulting and advisory services to participants across the North American auto and property insurance ecosystem, which leverage my experience, industry contacts and understanding of innovation and emerging technologies to drive meaningful, measurable improvement in revenue, market share, process, profitability and user and customer experience.

What led you to your career in insurance?

Serendipity, actually. An early management consulting engagement with a technology-based startup providing insurance claims solutions to P&C carriers led to a full-time operational and management role and ultimately a very exciting and rewarding 30-year career spanning several different companies that continues today.

What emerging technology will change how insurance is sold?

Prescriptive analytics applied to the torrents of data that will flow from connected cars, homes, buildings and people – enabled by mobile devices and embedded sensors – will transform virtually every aspect of how insurance products are developed, priced, packaged and sold, and how risk is managed in general.

A carrier you highly value for its innovative culture?

Among the many top-tier carriers that have invested in and developed innovative cultures, USAA stands out because of its highly focused and fierce dedication to pursuing constant improvement and technological innovation in the pursuit of providing superior service excellence to its “members” in insurance as well as the full range of its financial services.

You recently published an article on “Disruption in the Automotive Ecosystem.” What tip do you have for companies looking beyond their core value to offer innovative solutions in the auto ecosystem?

I suggest that auto insurance carriers focus on leapfrogging current incremental innovation around connected vehicle and data technologies and begin designing and developing the auto insurance products and services of the future. These will likely be very different than anything offered today and will be enabled by enormous amounts of data flowing from not just connected cars but the broader Internet of Things. They may include personalized, utilization-based micro auto insurance coverages, ride-and-car sharing insurance solutions for owners, drivers and passengers, risk management services from behavioral driving modification assistance to location-based and contextual alerts for commercial favorites as well as navigational, traffic, roadside assistance and weather conditions.

You’ve had more than 25 years of consulting experience in the P&C space. What piece of advice have you found to always be relevant regardless of the subject matter?

I regularly ask myself, “What am I doing, and why am I doing it, and is this the best possible use of my time and talents?” It sounds so simplistic, but if you do it honestly you will find it very valuable.

You are a frequent chairman in industry conferences. In fact, you are the chairman of a coming event on IoT in Miami in December. Who should be attending and why?

Anyone who plans to work, invest and succeed anywhere in the insurance ecosystem over the next decade and beyond should attend. This includes insurance C-level executives, heads of innovation, strategy, claims and innovation, underwriting, business development, product development, strategy, design and innovation, heads of IT, technology and digital, IoT technology companies and startups and regulators.

When you are not consulting on insurance or hosting insurance events, you are most likely…?

Reading, watching and listening to anything and everything that relates to my work – which is, in fact, also my hobby.

Rethinking Underwriting for Commercial Lines

It is time to step up automation in commercial lines, and you can do just that with a powerfully rich combination of enhanced technology capabilities in the key areas of underwriting and policy administration – a combination that lowers cost, simplifies doing business, makes it easier to enter new markets and significantly improves underwriting outcomes.

Modern policy administration systems for commercial lines have matured and expanded. Many now offer automation assistance to a few aspects of the underwriting process, and a handful even address select parts of the quoting transaction process. But the news is that exciting, next-generation underwriting technologies and solutions are delivering automation directly to the desk of the underwriter and assisting in the management of the entire underwriting process.

These capabilities are enabling more insightful and timely service to the agent: a significantly streamlined process and workflow; rapid, if not immediate, turnaround of quotations; precision pricing; better risk selection – all in a user-friendly, collaborative environment. While all commercial lines insurers are able to benefit from some level of increased underwriting automation, this enriched level of underwriting finesse is particularly important to insurers that are writing mid- to large market risks and even highly specialized and complex risks, especially those that require negotiation and collaboration with the agent or broker. Insurers that are not paying close attention to what is being implemented by some of the market leaders are likely to be burdened with higher underwriting expense and saddled with less effective underwriting outcomes. If this automation plays out as projected, it might become a continual struggle to match the level of service that leaders are providing to agents and brokers – a struggle that could leave some insurance companies in the dust.

So why haven’t all commercial insurers installed these next-generation underwriting technologies and solutions – the very approaches that would put them in a leadership position or at least enable them to keep up with the mainstreamers of tomorrow? The answer boils down to a disconnect in linking desired business capabilities to the available technology capabilities and, perhaps of more importance, two major misconceptions. First, there is a misunderstanding relative to what a modern policy administration system can do for commercial lines underwriting. Some mistakenly believe that a modern policy administration system can and will provide next-generation underwriting automation for the underwriter. Second, there are misperceptions about the complexity involved in managing any overlaps or duplications that exist between the policy systems and underwriting solutions. The reality is that advanced underwriting solutions and technologies coupled with a modern policy administration system create a powerful combination that delivers a tangible competitive advantage.

It is indeed possible to transform the commercial lines underwriting process. This is a maturing area for solutions with new entries in the marketplace. These solutions now offer a rich and complete set of capabilities specifically designed for commercial lines underwriting – solutions that align well with the changing needs of the business and also capitalize on developing opportunities. These solutions really step it up for commercial lines insurers by applying the right level of automation to properly balance the science and the art of underwriting, to deliver real competitive advantage today and place desirable business that stands the test of time on the books.

Insurers seeking new capabilities need to look closely at these new offerings. Yes, the overlaps with what a modern policy administration system does are real, but this can be managed without great difficulty. Any perception of extreme complexity is typically misguided. The value an insurer can achieve from the powerful combination of a modern policy system and a complete suite of advanced underwriting solutions will far outweigh any effort involved.

I have been conducting research on, tracking, and reporting on both underwriting and policy administration capabilities in commercial lines for more than 13 years. These are exciting times for the industry. Real opportunities for stepping up to the challenges of the increasingly complex world of commercial insurance are here. The smart insurers will capitalize and become intelligently nimble – realizing their reward in profitability and market share. The rest will follow, struggling to catch up and stay in the game.

Why Low Loss Ratios Can Be the Wrong Goal

Many agency owners take great pride in generating low loss ratios year after year. These agencies are often very, very profitable — they are the perfect cash cows, in business school parlance. But, in my experience, their growth is painfully slow. Often, their agencies are not managed closely, beyond the focus on loss ratios. And the agencies are often small. 

These agency owners are not happy with the many carriers who have deemphasized loss ratios. They cannot fathom why any carrier would not LOVE their good loss ratios. The result has become stressed, or even fractured, agency/company relationships.

These agency owners do not understand that loss ratios that are too low (and each company will define “too low” differently) are not in some companies’ best interests. How can too high a profit margin be bad?

  1. When loss ratios are too good, it may mean rates are too high, resulting in too little growth. Companies, particularly stock companies, need to show growth, especially after the softest market in industry history.
  2. If growth is too slow, companies may be losing market share. Company management often has considerable pressure to attain specific market share.
  3. Loss ratios that are too low may also mean that profit is not being maximized.

Maximizing profit is not the same thing as achieving a high profit margin. The former is in dollars, and the latter is in percentages. This is a crucial difference between running a company and running an agency, and agency owners are well-served to understand it. If a company wants to maximize profit, it might want to increase revenue by lowering rates even though that would mean higher loss ratios. For example, if a company has a 35% loss ratio and $100 million in premiums, its gross profit (excluding expenses) might be $65 million. However, if it decreased its rates and subsequently increased premiums to $125 million at a 45% loss ratio, it would generate $68.8 million in gross profit. That is a $3.8 million improvement.

Many agency owners would like to increase their books 25% and go from a 35% loss ratio to a 45% loss ratio, too, but those that focus on low loss ratios probably will not get their share of that 25% growth, yet their loss ratios will still increase.

Frustration at agencies greatly increases when companies price to a 55% , or higher, loss ratio. The company still makes plenty of profit at a 55% loss ratio (if it does not, then the company has serious expense issues that go far beyond the points of this article). However, agency owners make most of their money in contingent bonuses from carriers for growth, retention, low losses and so on, and profit sharing by carriers declines precipitously at 55%. The agency owners' lifestyle is curtailed. The value of their agencies is impaired. Their business model is in shambles.

If a company is truly pricing to a loss ratio in the mid-50s or even higher, agency owners might consider doing business with different carriers whose philosophies more closely match theirs. Easier said than done, obviously, so maybe a better solution is updating their business model. Growth is more important today to many carriers. Sitting on a cash cow annuity for a decade or more is not as feasible as it once was, and wishing otherwise will not help.

Many companies desire fast growth because:

  1. Some executive bonuses are tied to fast growth.
  2. The company is being set up to sell.
  3. The company has reserving issues and needs the extra premium to dilute the effect of a reserve increase. Growth is only a temporary solution, but companies have used it forever. The fast growth, which makes executives look heroic, is almost always created by low, unsustainable rates that eventually result in higher loss ratios. Nonetheless, growth is initially far more important than profit. (The smartest executives are gone by the time the problems arise, leaving their successors to sort out the mess.)

Agents doing business with companies that emphasize growth may want to evaluate whether there is risk to the agency and its clients. If so, creating a plan to offset these risks can create excellent opportunities.

Agents can fight reality, and fighting will feel good for masochists, but few will be able to avoid doing business with at least a few growth-focused carriers. Don’t keep telling carriers how short-sighted they are. Capitalize instead by understanding their perspective and using your resources to deal with the carriers you choose.

NOTE: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules and regulations.