Tag Archives: schreiber

The World Is Flat; Insurance Is Round

Why Lemonade is Going Global

It’s a curious thing: Most insurance companies stop at the water’s edge. Europe’s largest insurance companies operate in dozens of countries, but most don’t offer insurance to consumers in the U.S. Same is true for those operating out of Asia Pacific and Africa.

And it cuts both ways: American consumers buy insurance from American firms, most of which don’t have any operations to speak of outside of the Land of the Free. It’s odd. The Atlantic and Pacific oceans are vast, but they can be crossed. And bits and bytes can cross them in milliseconds.

As a tech company doing insurance, we see no reason that a body of water should be an obstacle to reaching new markets and expanding beyond the 50 states. In fact, within the U.S., we’re finding that being digital has allowed us to cross the country without enlarging our physical footprint.

Consider this: California is our largest market at the moment, but our nearest employee to the Golden State is 3,000 miles away in the Empire State.

Our announcement of a $120 million Series C funding round led by SoftBank sets the stage for our global expansion.

See also: Lemonade’s Latest Chronicle  

See, to bring AI-powered insurance to Mumbai, London, Rio de Janeiro or Sydney, there’s no need to invest in thousands of people in towering skyscrapers. Like Airbnb or Spotify, our services require little more than a mobile phone and a credit card. In our largest markets, we have zero employees.

Sure, we’ll need to invest time with regulatory bodies and learn to adapt to local culture, customs and languages. But our mission is a global one, and our means to go global lie in our being a digital pure-play.

When Tom Friedman wrote about the waves of globalization and the “flattening” benefits of it in the 21st century, he declared that the world went from being small to tiny. He dubbed the change Globalization 3.0, following the previous rounds of globalization, in the 15th century and later when multinational companies emerged.

At the turn of this century, Globalization 3.0 moved the needle in such an enormous way that it’s not only a difference in size, it’s a difference in kind.

Fast forward almost two decades, and insurance powered by bots and data-driven algorithms means we can reach endless people in all corners of the globe and provide them with a similar yet customized experience, without the heavy bureaucracy and costs that discourage the traditional insurance carriers of venturing across the ocean.

Digitally enabled folks have a common denominator: They tap to get a ride, order a meal, get groceries delivered, find a soulmate… and they’d readily do the same to get insurance. We may be divided by international borders, but our connectivity is so intertwined that it has become the natural fabric that weaves us together.

It’s not only the technology that makes international prospects so enticing. We believe our mission of trust and transparency is universal, too.

Through his behavioral economics research, our Chief Behavioral Officer Dan Ariely reminds us that the way the insurance system is designed brings out the worst in us humans. Whether you’re in New York or Paris or Tokyo, that inherent conflict between insurance company and its customers brings out bad behavior from all sides. Bad behavior is rooted in the same human nature all over the world.

See also: Lemonade Really Does Have a Big Heart  

So we’re not stopping at the water’s edge. We believe that being built on AI and behavioral economics means that, at a profound level, we’re building something with universal appeal. The world is flat; it’s time insurance was, too.

Lemonade’s Latest Chronicle

It’s been a hectic four months since our last Transparency Chronicle, during which we launched major products and geographies and took a stand on gun violence.

With Thanksgiving just ‘round the corner, I want to reflect on how these milestones have been received, and share five things that we, Team Lemonade, are thankful for.

1. The Exponential Power of Technology

Our Live Policy rolled out in August, allowing members to change or update their policy coverage instantly, and with zero hassle.

Its impact? Well, nearly a quarter of Lemonaders have already used it to update their policy! That’s many thousands of people who bypassed the insurance maze simply by tapping on their app.

The Lemonade Live Policy highlights one thing we’re thankful for: the power of technology to lower costs while raising the bar. It’s amazing what you can do when you replace brokers with bots…

2. Controlling Our Destiny

Zero Everything launched in September, and we think it’s a game-changer.

When your $1,000 laptop is stolen, you expect your insurance to cough up $1,000. But that’s not what happens. First, they knock off $500 for the deductible, then they hike your rates, and then the paperwork begins. It drives people crazy.

It’s not malicious, mind you. Big insurers hate ‘nuisance claims’ (their term for your filched laptop) for good reason: it can cost them more in paperwork than the amount you’re claiming! Given how their bureaucracy functions, deductibles and rate hikes are perfectly ‘rational.’

That’s where A.I. Jim, our claims bot, changes the game. A.I. Jim loves small claims. He can settle them on the spot, with zero hassle and at no extra cost. So if you opt for Zero Everything, you get 1 dollar for every 1 dollar lost: full replacement value, zero deductible, and no rate hikes.

Customers seem to really appreciate Zero Everything:

Interestingly, the adoption of Zero Everything in Texas was twice as high as in California, which was 50% higher than Illinois! Curious.

Zero Everything highlights the second thing we’re thankful for: controlling our own destiny. We have ambitious plans for changing the underlying insurance product, and we couldn’t do that if we were just a broker. Innovations like Zero Everything require breakthrough tech, sure, but they’d be impossible without also controlling our own underwriting, claims, and regulatory relations. To truly remake insurance you need to be a full stack insurance company, and a technology company. Neither one, on its own, will cut it.

See also: Lemonade Really Does Have a Big Heart  

Building everything from scratch was the ‘long short way,’ but we’re thankful we took it!

3. Our Tech Community

The Lemonade API launched in October on Product Hunt, and opened Lemonade to the world. There’s this magical alignment of interests that happens when you open up to the community: new revenue potential for the host platform, and a quicker and cheaper way to launch new products to market. Plus, it just makes sense when you’re a tech company.

The reception? Over 400 businesses applied for early access to our API in the first 24 hours! Here’s a breakdown of who registered:

APIs create a common language among tech-enabled companies across diverse industries. It means our bots can replicate endlessly and appear concurrently through a gazillion websites and apps. We think that’s something to be thankful for!

4. Values-Based Mission

In October we took a stand on guns, and it was truly meaningful for us. We decided to limit the coverage on guns, and announced we would work to exclude coverage for assault weapons, and condition coverage on owners storing and using their firearm responsibly.

Before publishing the post, Shai and I discussed the topic at length, and solicited feedback from our team and investors (a group with diverse political affiliations and views on gun rights). No one knew whether taking a stand would be a smart business move – but everyone thought it was the right thing to do. So we did it.

Lemonade is a B-Corp, and trying to do the ‘right thing’ is an important part of our culture. We sincerely believe insurance can regain its stature as a force for social good. We also believe in being bold and transparent – even at the risk of backlash.

To our thinking, we don’t deserve to be a standout company if we’re not willing to stand out.

More than 85,000 people have read the post so far, and my LinkedIn page and Lemonade’s Facebook page became lightning rods for some of the more extreme comments:

Many surmised I don’t know the first thing about guns (for better, or worse, I do). Others decided I’m a communist, or a pacifist, or a jerk, or that I don’t understand the need for US citizens to protect themselves by force from their tyrannical government (I’ll cop to that one).

But for every one negative comment, the post received 5 likes; and many, many members of our community took a stand with us. Here are some emails we received:

Interestingly, Facebook and LinkedIn comments skewed negative, while Twitter and replies to our email were overwhelmingly positive. Reddit attracted the most dynamic debate, and was our biggest source of traffic that day.

An intriguing metric from the first 24 hours after posting: there was an almost 8% increase in male traffic, but a 4% drop in purchases by men, while the numbers for women were the mirror image of that:

And the business impact? We had 20 customers cancel their policy in protest (less than 0.05%), and we didn’t see a slow in sales. We’re really thankful for that!

Which brings me to #5…

5. Our Lemonade Community

In November, we launched in Nevada, bringing the number of states we’re live in to seven (we’re now licensed in 22, so more coming soon!).

In fact, we’ve sold 70,000 policies so far this year. A quarter of them in the past 30 days alone:

But this isn’t just a numbers game: our members are an incredible bunch of people. They’re young (75% under 35), new to insurance (90%), and trustworthy. We went out to meet some of them, and came back convinced that we’re attracting the next generation of amazing customers. See for yourself:

People feel and express gratitude in multiple ways, looking at the past, present, and future. Looking back at the past few months, we’re thankful to the tens of thousands who comprise our community. You’re the most supportive customers we could ask for, the best brand ambassadors, and the people who make it all worthwhile. We’re thankful for the present: our team, hustling to release new features, pay claims, and provide our members with the stellar customer experience.

See also: Lemonade: Interview With CEO  

And we look to the future with gratitude: we love technology, we love social impact, and we love what we do. We’re thankful for all these.

Thank you, Lemonaders, and Happy Thanksgiving!

Lemonade: Interview With CEO

Lemonade is currently the most talked-about disruptor. That’s why we’re pleased that, for the first time in Europe, Lemonade will present at DIA Munich what the pioneering concept is all about in a keynote presentation. As a special DIA Munich appetizer, we spoke to Lemonade CEO and co-founder Daniel Schreiber recently, exactly one year after the company launched.

DIA: Daniel, congratulations on Lemonade’s first anniversary. It must have been a roller coaster ride. Thanks for being willing to share some of the experiences and learnings. Did the first year meet your expectations?

Daniel: “Yes, it has been quite a ride. But it is great to see that we’re striking the right chord. We already sold ten thousands of policies. Our portfolio doubles every 10 weeks.”

DIA: If you had to name just one thing, what would you say is the key success factor so far?

Daniel: “Our renters insurance is 80% cheaper than what competitors offer and takes less than 90 seconds to purchase.”

DIA: 80% cheaper is almost unbelievable …

Daniel: “Many industry insiders think so, too. [They think that] at least 40% of what insurance carriers receive in premiums is paid out in claims. So if Lemonade is 80% cheaper it must lose money on every policy. That is not true. Renters insurance covers personal property, not real estate. The expected loss is therefore significantly lower and so should the corresponding premium be. Unfortunately, the enormous overheads incumbents have make low-premium products impossible. Their minimum premium reflects their high costs rather than your low claims.”

See also: Lemonade’s New Push: Zero Everything  

DIA: We can imagine that such a price difference attracts a specific segment …

Daniel: “Yes, indeed. We offer a good price, especially at entry levels. No less than 87% of our customers are first-time buyers. Lemonade is the preferred insurance brand among first-time insurance buyers. In the state of New York, where we first launched Lemonade, we now have a market share of 27% among first-time buyers.”

DIA: Was this the target segment you planned to focus on initially?

Daniel: “Not really, at least not to this extent. This was definitely not planned or expected. It appears our proposition is attracting people who did not think of such an insurance before; because it was too expensive, too much hassle, or because they had little trust in the added value. So it turns out we actually opened up an underserved, untapped market. This was really a surprise for us, as well. It just shows that with really new propositions there is only so much that you can plan.”

DIA: This suggests the Lemonade concept is about solving frictions that customers experience when dealing with a traditional insurance incumbent. Aren’t you selling yourself short here?

Daniel: “True. It is not just about solving frictions; being faster, better or cheaper. That wouldn’t be sufficient in the long run. When we started conceiving Lemonade, we immediately realized there is no way you can beat insurers at their own game. We needed to think beyond that. We decided to foster trust, not suspicion. Our business model is built on two very distinctive pillars: behavioral economics and artificial intelligence.”

DIA: The pillar that is often highlighted is behavioral economics, one of the reasons we like Lemonade so much. Insurers could benefit much more from psychology and social sciences.

Daniel: “The vast knowledge and experience of our Chief Behavioral Officer Dan Ariely (professor of psychology and behavioral economics at Duke University) is instrumental in this. We apply behavioral economics to neutralize the adversarial relationship, the conflict of interest, between customers and their insurance provider. We take 20%, and the rest (80%) goes to paying claims, and this includes our reinsurance. If less than the 80% is used to pay out claims, for instance 75%, the 5% unclaimed money is donated to charities chosen by customers. The maximum amount that can be given back is 40%. Lemonade gains nothing by refusing a claim. This way we are reinventing insurance from a necessary evil to a social good.”

DIA: Can you explain how behavioral economics reflects in Lemonade’s daily customer experience?

Daniel: “Not just our business model but also the whole product flow is informed by behavioral economics. For example, we ask people to sign on the top of the form, not at the bottom. Behavioral research shows that asking people to pledge honesty first results in forms that are actually more accurate.”

DIA: How does this affect the combined ratio?

Daniel: “Multiple ways. For example, we also apply behavioral economics to reduce fraud. In the onboarding process, customers are asked which charity they want the money that is not used for claims to go to, let’s say the Red Cross. Now, when at some point in time a customer files a claim, we first remind the customer of the charity he or she selected before diving into the claim. We do that on purpose. To many people, insurance fraud is considered a victimless crime; you’re not really hurting someone, at least that is the perception. Research shows that 24% say it’s okay to pad an insurance claim. We’re changing that by immediately creating the presence of a victim. Making it crystal clear that a claim harms a charity someone cares about inhibits misuse.”

DIA: Do you already have proof points that using behavioral economics this way works at a larger scale?

Daniel: “Obviously we’re a young company, so the amount of claims that we receive are still limited. But we already have early indications that this really works. In the last two months, we actually had six customers who claimed and got paid, but later on returned the money. Someone, for instance, thought his laptop was stolen, claimed and got paid. A few weeks later, it turned out he had left the laptop with his mother-in-law. He then decided to return the money, probably because he didn’t want to harm the charity he selected. I would really love to know how many customers of traditional insurers are returning their money.”

DIA: Insurers need to manage the feelings side of financial services much better than they do today. Quite a few tend to forget that when they are going digital. Others are building hybrid solutions of, for instance, chatbots and human experts. How do you secure the human side in a pure play such as Lemonade?

Daniel: “Behavioral economics is one pillar of our business model; artificial intelligence is the other. Thanks to AI, we don’t have to rely on brokers and paperwork. Underwriting and claims handling are taken care of by AI, as well. This makes it even more important to secure that we are recognized as living, breathing people who really care. My co-founder Shai Wininger has a rare talent to marry technology with customer understanding. Our bot has a name. It talks in an approachable manner. It doesn’t say, ‘I don’t understand.’ We know its limits and anticipate the direction in which the conversation is going. Next-level questions are seamlessly moved to our, human, support staff.”

See also: Lemonade: World’s First Live Policy  

DIA: We quite often see that traditional insurance carriers have a strong immune system when it comes to embracing insurtechs. Apparently, different cultures are difficult to match. Sometimes we even see organ rejection. We noticed that the Lemonade team not only incudes tech veterans like yourself but also former executives from AIG and ACE. How do you make that work?

Daniel: “When we started thinking about a new concept in insurance, we just had a rudimental understanding of insurance. We had the advantage of being ignorant. We had no preconceived notion. This helped us to question the basic principles of the industry, such as the conflict of interest.

“Coming from the outside helped us to rethink, reconceptualize in a fundamental way, from scratch, what Lemonade should be about.

“Now, it is only so far you can take that. As soon as you move to execution, you really need to have deeply entrenched insurance knowledge on board. Think of the regulatory maze we have to go through. Then it comes to finding the right people, which was not that easy. We soon realized that we were looking for ‘insiders’ who were ‘outsiders’ at the same time. In our recruitment ad, we actually said it was a requirement to be in the throes of a midlife crisis; not feeling happy in the corner office anymore. They had to buy into our vision.”

DIA: We noticed that your fast growth in an market segment that is so difficult to reach by incumbents has led companies such as GEICO and Liberty Mutual to use “lemonade” in their marketing and promotion activities …

Daniel: “Ha ha, yes, we’ve noticed that as well, of course. GEICO even introduced a ‘lemonade’ TV commercial at the same time as we launched the company. Liberty Mutual, in fact, introduced a new brand, Lulo, and paraphrased everything, from logo to pricing.

“We take it as a compliment that such renowned brands are looking at us, and try to learn and use our ideas. But the examples also show that it is not that easy. Lemonade is more than a logo. You really need to understand the two pillars of our model: behavioral economics and artificial intelligence and how that reflects in the way we operate. And you need to understand that we are really a different kind of company. Obviously, we have duties to our customers, employees and investors. But we’re also a B-Corp, which makes us legally committed to social impact. Our customer base is therefore more like a community of people around a cause – which in turn results in more trust and less fraud. It is about aligning customers and insurer, and giving up underwriting profits. We’re rebranding the insurance sector.”

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.