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Lemonade Reports: ‘Our First 100 Days’

Here is an underwriter’s report on our first 100 days. If you’re interested in how Lemonade is functioning from an insurance perspective, read on. I hope it will be less painful, and more revealing, than rummaging through regulatory filings.

A Word to the Wise

We launched three months ago, and, as anyone with a feel for statistics will tell you, 100 days of data isn’t that meaningful in insurance. So I don’t want to create the impression that the results I’m sharing establish a predictable trend. They don’t. We’re here for the long term, and long-term results are what matter. Our story will evolve – transparently – over time.

Lemonade’s growth got off to a strong start.

Premium growth is important (see analysis in Part 2 of our Transparency Chronicles), though in this update I’m going to focus more on insurance metrics, with commentary on the quality and diversity of our customers and claims. On those fronts too, I’m happy to report: so far, so great.

Our Customers, Through an Insurance Lens

1. Our customers are new to insurance

More and more people are switching to Lemonade every day, coming from very well-known insurance companies. At the very least, this is a good early sign. But, more importantly, we’re bringing in a new breed of customers – the underserved. The majority of customers insured with Lemonade are actually new to insurance. They had never found an insurance company that they liked, trusted or interacted with, the way they wanted – until now. We love that. Insurance is something everybody needs, and we are not competing just on price, but on simplicity, speed, value and values.

2. Our customers are thoughtful

Although the basic $5/month policies are sufficient for some, a lot of our customers are asking us not only to protect them, their homes and their basic stuff but to add valuables to their policies and cover their jewelry, artwork, musical instruments, bikes or laptops.

It’s thrilling when customers buy the basic, and then add all of things they value. Some of the requests have been quite surprising! While we can’t add everything immediately, we’re accommodating as fast as we can.

See also: More Transparency Needed on Premiums  

3. Our customers are diverse

In insurance, you never want just one type of customer. Because our goal is to share risk across customers, too much concentration isn’t ideal. While we have a lot of renters, almost 50% of our premium came from homeowners – many with more than $500,000 and as much as $1.5 million of coverage.

Our customers are geographically diverse, as well. While 35% of our premium is from Manhattan, the rest is spread across the New York metropolitan area, and across the state. Lemonade is no one-trick pony.

4. Our customers represent “high quality” risks

Perhaps the most important part of underwriting is ensuring we don’t have adverse selection. This means insuring someone only because our prices are (too) low, or because we attract the riskiest policies. We use a series of factors to help predict if a risk is better or worse than average, and to price it as accurately as possible.

Two bits of good news in this regard:

  • Potential customers who come to Lemonade for insurance score above average as risks.
  • Even more important, the best risks tend to end up buying Lemonade!

Having said that, there’s a lot we can improve on the underwriting side, and we’re working hard to train our algorithms to make better decisions. The more data we gather, the better our algorithms get.

5. Our customers are helping us to make insurance into a social good

We celebrate claims when they come in. We’ve had a few (six in 2016, to be precise) – exactly the number we expected based on industry statistics. What is different is that our claims have all been small – way smaller than industry averages. It’s too early to mean much, but right now our loss ratio is much better than the rest of the industry, and I’m hoping this hints that the Lemonade Giveback will be strong this year.

The Nitty Gritty Insurance Numbers

Right now, more than 25% of people who get a price, buy. This is high by any standard, both in insurance and tech. What is extraordinary, however, is the trend. The percentage of people buying when they get a quote is increasing every single month. In December, we were up to 36% for renters, and 26% overall. In insurance, you want to buy from someone you trust. We’re ecstatic that our customers trust us to protect them, and we look forward to living up to that promise.

Our written premium (basically how much insurance we sold) in 2016 (the last 100 days of the year, really) was $179,855. Our gross loss ratio (or claims we received in 2016 divided by earned premium) was 20%; a portion of that should be recovered from another insurance company, so we expect our final loss ratio for 2016 to end up at about 12%. While our reinsurers are standing by to help pay losses, we have not needed them yet.

See also: Is Transparency the Answer in Healthcare?  

What We Need to Work On

While it all sounds great, some things did not work as we expected, and we had to adjust accordingly:

1. Get More Data

There is a ton of information out there that can help sign customers up faster and ensure the coverage is right. While we gather and implement a lot of data, we’re only scratching the surface. For some homes, we need to ask you the square footage, which is kind of lame in this day and age. We’ve made it a priority to seek and incorporate new and different data every day to make sure policies are appropriate, and our customers are protected.

2. Innovating in… Language!

When we started selling policies back in September, we wanted to make sure regulators and customers were comfortable, so we launched Lemonade with the industry-standard insurance policy contract. We know that it is poorly written, and unless you have a law degree – frankly, even if you have a law degree – it can become confusing.

Who knew your liability coverage actually changes depending on whether you are also an insured under a policy written by the Nuclear Insurance Association of Canada (Section II.F.5.a.(3)). I assume most of our policyholders do not. We’re going to improve the policy so you can actually read it and understand what is covered and what is not. It will take time, but we will do it – I promise.

3. Improving Our Coverages

Our policy is great for most people, but isn’t as customizable as we want it to be. For example, at launch we could not add fine art – now we can. Need your landlord listed on the policy? We added that a few weeks ago. Identity theft coverage? Still no, but that will be here in a week or two. Kidnap and ransom coverage – that one is a little further off. Kudos to our customers, whose patience is crucial as we continue to build a policy that covers everything you want to protect. If we can’t protect it yet, we will tell you… and know we are adding options every day.

A lot of the incentive behind the Lemonade Transparency Chronicles was about trust. As Daniel wrote in his post, trust can’t be demanded, it has to be earned. We have the good fortune of having a strong, rapidly growing base of customers who trust us, and whom we trust too. Together, we are building a company for the long haul, and the early metrics make me feel like we are on the right path.

Stay tuned for Professor Dan Ariely’s report next week, revealing Lemonade’s social impact in its first 100 days of business.

This post originally appeared on the Lemonade blog.

4 Reasons for Millennials to Choose Careers in Insurance

It’s the beginning of May. That means over the next month a huge group of college students hit graduation day and begin a new journey in their lives.

I have many friends who are graduating, and I can already start to sense some panic about what lies ahead for them after graduation. For many of my friends who do not have a clue what field they want to pursue, I often suggest careers in insurance. Aside from working in the industry and selfishly wanting to recruit some friends to join me in the field, I give my friends four other big reasons why they should join the insurance industry:

1. Opportunities

Simply said, the talent in the insurance industry is graying. It is estimated that nearly 60% of the insurance industry’s current employees are older than the age of 45 and that by the year 2020 there will be more than 400,000 job opportunities. Those are some substantial numbers, and these numbers are on many insurance employers’ mind. The industry is hungry for young, driven talent to fill the pipelines before current staff disappears. As a young professional, I see the endless opportunities in terms of future leadership roles in the industry. I suggest getting in early and soaking up as much knowledge as you can from many of these soon retiring professionals.

2. Job Security

The insurance industry provides a considerable amount of job security, in my eyes. I don’t see insurance going away any time soon. I would argue quite the opposite. No doubt the industry will have to evolve as risk changes (e.g. self-driving cars), but risk assessors and risk advisers are here to stay.

3. Job Variety and Flexibility

Insurance is everywhere. You won’t be limited to a particular list of major cities when looking for a career in insurance, and the industry offers an array of professions to pursue, from actuaries analyzing the numbers to the creatives who are fighting today’s marketing wars. (Side note: I’m a big fan of Flo from Progressive and Mayhem from Allstate). Whatever your passion is, you can pursue it in the insurance field. Many sales and underwriting professionals in the industry pursue their interest specializing in advising for not-for-profit organizations, tech companies, medical professionals, breweries, etc. Being able to relate and understand how a business works is the essential feature of what makes an insurance professional great.

If you aren’t up for an intellectual challenge, I highly advise not pursuing a career in insurance. There is a vast amount of information to learn just to get started, and laws and regulations are changing every day. I learn something every day.

But if learning motivates you, come join the fun.

4. Altruism

I don’t believe there is anything more satisfying in the industry than the stories I hear about how insurance saved people’s livelihoods. Some accidents are just unpredictable, and whenever insurance companies step up and provide the financial support to rebuild someone’s home or business it really reenergizes my dedication to the industry. The insurance companies that have stuck around for many years are those that are out to make a difference in their customer’s lives whenever those customers call needing help.

Training Millennials: Just Add Toppings

So, you took my advice and recently hired some 20-something, baby-faced college graduate based on his ambition and determination, hoping he’ll turn into one of your key, high potential youths. But you quickly realized he lacks the real-world knowledge many of your other hires bring with them.

Let’s face it, many Millennials lack relevant experience and are missing some of those professional skills that are taught over the course of a career. But don’t worry; every great professional was once an amateur.

Think of the group as a bowl of vanilla ice cream. There’s a good base, but it’s the supervisor’s responsibility to add the “toppings.”

Here are four ideas on how to engage your Millennials to learn and help speed up that professional development process:

1.     Chocolate Syrup – “Automobile University” (Podcasts)

Unless your employees are working from home, most will face a significant amount of windshield time. Some lucky employees only spend 30-45 minutes commuting to and from work. If they work in sales, they may spend a substantial amount of time in a car. Employers should suggest that ambitious employees use this down time to learn more on the industry. I suggest podcasts.

A podcast is a form of audio broadcasting on the Internet, similar to informative radio talk shows. People can simply download a podcast or series of podcasts onto their phone or iPod and plug it into their stereo using an aux cord for their daily travel (don’t worry, your Millennials will know how to do it). Your auditory learners can efficiently gain some industry insight when they’re simply doing what they’re going to have to do: drive to work.

These podcast can help your Millennials get some industry insight on current issues from experts for free. If you need a list of podcast series to suggest to your team, Duke Revard wrote a good article: 7 Stitcher Podcast Any Insurance Agent Will Benefit From. As a manager or mentor, you can have follow-up meetings with your subordinates and allow time to answer lingering questions or clarify how something they learned may apply in their positions or your organization.

2.     Whipped Cream – Article of the Day

Reading helps you move up the learning curve but can be time- consuming, and it’s hard to filter through all the articles. As a manager, you can simplify this process for your young employees who are looking for some extra help getting up to speed.

Get in a routine where you send your team a daily email with “The Article of the Day,” which is simply a short read you found relevant and beneficial. Subscribe to some industry news websites such as Property Casualty 360 or Insurance Thought Leadership for places to start sifting through an abundant amount of topics.

3.     Sprinkles – Junior Management Cabinet

Name it what you want, but the idea is simple. This would be an investment in a group of your younger employees who show high potential for future leadership spots in your organizational. This group would serve many purposes.

First, it could reduce your dysfunctional turnover. Key employees would understand their importance and that they have a place in the future of the organization. Nothing makes me want to work harder and be more dedicated than knowing that I am valued. “You invest in me, I’ll invest in you.”

Second, this could be used as a tool to train young employees who show the most promise. Organizations could have their “junior management cabinet” meet once a month to discuss a new management problem, then design a solution and present it to a group of managers. Other ideas for the cabinet include participating in top executive mentoring programs, being sent to informative conferences, shadowing board meetings and having more extensive performance appraisals with not only their manager but a development team.

4.     Cherry – Stress the Importance of Professional Development

This is a simple thought but often overlooked. Many supervisors or managers are disappointed in the progression of their employees yet do not stress the importance of development. One way to solve this is by adding “professional development” as a critical criterion on performance reviews. Help Millennials design new ways to progress in their knowledge along with evaluating them on how well they’re currently performing.

Another idea is to apply the 80/20 rule: 80% of your time at the office is spent on completing core tasks while the other 20% is spent simulating. Google using this tactic for employees to innovate and design new ideas or concepts. The insurance industry can use the same concept on professional development. During simulation, employees should be encouraged to learn more about parts of the industry that they find fascinating. They could attend workshops, have lunch with an expert from your organization, peruse articles on their favorite website or even be encouraged to write their own thoughts on a topic.

Maybe you don’t have 20% of a day to free your employees from, so maybe change it to 30 minutes a day or two flexible hours a week. Who knows what will come of it?

Food for Thought:

“Recently,” a manager says, “I was asked if I was going to fire an employee who made a mistake that cost the company $600,000. ‘No,’ I replied, ‘I just spent $600,000 training him. Why would I want somebody to hire his experience?'”

 

recruiting millennials

The First Step in Recruiting Millennials

Now that your efforts have made some Millennials flock toward working in the insurance industry, you need to start recruiting them for your open positions. (If they aren’t yet flocking, read my past article to get some ideas on how to get them to do so: Thoughts From an Insurance Millennial.)

But if you are waiting to recruit Millennials until you have a job opening, this may be too late.

Let’s face it, unless you’re a well-known, direct personal lines carrier with a lizard mascot or a catchy jingle to make your agents magically appear when your clients need them, most young people won’t know who you are. This is one reason to reinforce continuous, conversational efforts in recruiting high-potential Millennials.

Your first contact with your possible candidate can’t be advertising to apply for your full-time position. It is essential to build relationships with these potential employees before they hit the full-time job market. You can do this through a variety of ways:

1.      Temporary Employment (Internships, Part-Time Jobs, Summer Employment)

This isn’t a revolutionary idea by any means. Employers have been using young people for temporary work for decades. But internships can be a great way to build relationships with high school and college students looking to reinforce their learning with real-world responsibilities. This is a great way for employers to teach these students about their business practices and products and services. It is low risk and a way to evaluate the skills of an applicant before the company is tied to a full-time position. If handled right, interns can blossom into top candidates for future job openings. But this is also a chance for employers to ruin their brand with the youth population. I’ll expand on the do’s and do not’s of internships in a future article.

2.      ‘Externships’ (Job Shadowing, Career Days, Seminars)

If you don’t have the work, budget or resources to employ people in temporary positions, you can host job shadowing opportunities or travel places for “career days” and seminars. These opportunities are usually called “externships” because they look at careers and the industry from an external and broad view. Interested students could be paired with professionals in your company to ask questions, observe daily workflow and build a relationship for the day. Trusted, intelligent employees could speak at seminars or career days to give insight to an audience. Externships are another great way to market your company to interested students and begin connecting with potential employees. Many college career centers could help you link up with students interested in learning more about the industry or instructors who teach classes related to the business.

3.      Challenges and Projects

As discussed in my past article, challenges and projects could help spark some curiosity in students pursuing careers in the industry. You can continue advanced challenges and projects for young Millennials to evaluate skills and maintain a relationship. Partner with professors teaching risk management and insurance classes to develop real-world projects. Many professors would be more than willing to help with this. Get creative, and make it a valuable learning exercise.

4.      Strategic Social Media Usage

Interacting with students via social media is no longer a competitive advantage; it’s a must for companies and an effective way to continuously connect with Millennials. Companies can have accounts on Facebook, Twitter, YouTube, LinkedIn, etc. that have material relevant to young, interested users. Many businesses have created separate accounts just for Millennials. The key is to provide material this generation wants to read. Millennials don’t need more bland product marketing shoved down their throats. We’ve gotten pretty good at being able to skim over ads. Potential posts could include:

But with great power comes great responsibility. Make sure all accounts are up to date, complete and responsive. Put a face to the account, and make it easy to navigate. But don’t overdo the activity with insignificant post, tweets, videos and blog articles.

It is time to stop being reactive to job openings and start being proactive. Human Resources should have a handful of potential candidates for the start of each career ladder in the organization. Fill the talent pipeline by building the relationships early with this generation.

“The single biggest problem in communication is the illusion that it has already taken place.” – George Bernard Shaw

Thoughts From an Insurance Millennial

The risk management and insurance industry has become very concerned about how to attract young people and encourage them to pursue careers there. The industry has taken steps, including with programs such as MyPath  and InVEST, which educate students and young professionals about the industry and career paths that could fit their interests.

Looking at the issue from the standpoint of a Millennial working in the industry (I’m 21 years old), I’d like to suggest three other ways to spark curiosity in the “Next Generation”:

1. Auto Insurance 101 Classes

Most of the youth population hasn’t considered pursuing a career in insurance or is completely turned off by the prospect. Who could blame them? For many, their only exposure to the industry stems from paying high premiums for car insurance. When I started driving, I paid around $1,200 annually for insurance on a car I bought for $8,000. I didn’t understand why I couldn’t just save the money and, if something happened to my car, use it to buy a new one. I didn’t realize the exposure I had because I might damage someone else’s car or hurt another person.

An insurer could use this lack of understanding to design an auto insurance 101 course that would have two benefits. The course could explain coverage and create intelligent customers for the future. The course could also be designed to spark curiosity in some to learn more about how insurance works and about all the good it can do. Some will begin to ask their parents questions or even pursue studies in risk management and insurance in college.

Try adding incentives for taking the classes, such as reducing premiums or providing lower deductibles for the same price. Building intelligent consumers should reduce their risk as drivers, so the incentives might even pay for themselves.

2. Sponsoring Sports Teams, Clubs, etc.

Sponsoring sports teams, clubs and other youthful groups in a community or at a high school or college could be strategic in attracting the “Next Generation.” In addition to generating name recognition and positive PR, a company could expose some youthful minds to the industry. For example:

Someone sponsoring a local high school soccer team could create a competition to answer the question: How much are David Beckham’s legs insured for? The winner gets a signed jersey from a local Major League Soccer player.

Someone sponsoring a local college’s political clubs could create a competition around the question: How much would it cost to insure the White House? The winning club gets a paid trip to the state’s capital and a luncheon with some state officials.

3. Partnering with Teachers to Make “Classroom Insurance Policies”

This can be a fun twist on teaching a classroom about insurance. After working with the InVEST program to gain relevant teaching material, reinforce the concepts through a simulation that students can relate to. Create basic “classroom insurance policies” and give students an amount of “money” they can spend to buy different policies and endorsements. This would take some time initially to build the program but would be an enjoyable way for students to learn and get some exposure to reading a policy, applying endorsements/exclusions, etc.

An example: Forgetful Student Policy

A policy could include protection against forgetting that an assignment was due and would allow the assignment to be made up that night for half the credit (actual cash value). An endorsement could be bought to upgrade the policy so that the assignment could be made up for full value (replacement cost). Exclusions could include large projects or papers.

Creating interest and reinventing the image of the business must be an industry-wide, collaborative effort. Understanding that learning can be exciting for these young students and professionals should greatly increase the success of efforts to attract the “Next Generation.”