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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 New Push: Zero Everything

Following Lemonade’s first anniversary, I’m thrilled to announce a new product that could change the way people use their insurance. We call it Zero Everything.

With Zero Everything, Lemonade customers will no longer need to pay deductibles and have their rate increased when filing claims. That’s right: No deductibles. No increase in pricing. Nothing.

If you ever had to file an insurance claim, you probably thought well and hard before doing so. You’re in good company. Many people experience anxiety before filing a claim, and in many cases just give up altogether. Filing claims should be a pleasant and reassuring experience. After all, claims are the reason why we all get insurance in the first place.

Reading some of the negative feedback that insurance companies receive highlights just how serious this phenomenon is. Ask agents, and they will tell you that customers are reluctant to file claims, mostly because of two reasons:

The claim is below the deductible. For example, your policy’s deductible is set to $500, and your $450 headphones just got snatched. Tough luck. You’re not going to get a dime out of your insurance. Because the deductible is an amount that’s deducted from the value of the claim, there’s no sense claiming anything below it. In fact, claims that are lower than the deductible will be immediately declined.

Fear of having rates increased. There’s a famous saying — “past claims are the best predictor of future ones.” This leads insurers to increase the rates for customers who file claims. They see it as a measure to make up for future potential losses from these customers.

See also: Lemonade: World’s First Live Policy  

Zero Everything provides the perfect peace of mind – never worry about paying deductibles or increased policy prices again (as long as there’s no abuse, of course).

.@lemonade_inc Zero Everything is the closest thing to having an UNDO button for real life! #GoLemonade

But there’s more. Regardless of the value of your claim, with Zero Everything, you’ll get the full amount needed to replace your items with new ones! Someone stole your $500 bike? We’ll pay you $500 to get a new one!

Zero Deductible, Zero Rate Hikes, Zero Worries — Here’s how it works

How it works

When signing up for a new Lemonade policy, look for the Zero Everything section under the settings tab in our quote page. If you already have a renters policy with us, just use our app to edit your Live Policy, go to the settings tab and look for the Zero Everything box. Condo policyholders, Live Policy is coming soon, so just open the app and tap on Ask Us Anything, and we’ll sort you out.

Why zero deductibles do not exist in home insurance today

In the U.S., home insurance companies spend more than $10 billion each year on the bureaucracy of claim handling alone. All of the endless paperwork, faxes and phone calls you hate? Someone has to pay for them.

In fact, small claims often cost incumbents more to process than the size of the claim itself. So, they brand small claims “nuisance claims” and use the deductible as a deterrent, to discourage you from ever filing them.

It’s important to note that there are no bad intentions behind this mechanism; it’s just an unfortunate consequence of the way insurance works.

How AI changes everything

But that’s where AI Jim, our claims bot, changes the game. AI Jim loves small claims; they’re his favorite. He settles them on the spot, with zero hassle and at zero handling costs. That’s because there’s no such thing as a nuisance claim for AI Jim. In fact, on a slow day, AI Jim can review, approve and pay 1,000x more claims than an entire team at one of the traditional insurers.

This kind of fundamental change is made possible by the replacement of manual labor with AI and bots!

So, if deductibles and rate increases get you nervous, I suggest you head on over to one of our apps or website (lemonade.com) and get yourself a Zero Everything coverage in a few seconds.

See also: Lemonade’s Crazy Market Share  

Zero Everything is rolling out in California, Texas and Illinois, where it will first be available for renters and condo policyholders. Follow us for updates on coming availability in NY and NJ and support for homeowners policies.

Lemonade: World’s First Live Policy

We’ve just announced a first-of-its-kind insurance policy. One that puts the power formerly reserved to brokers and agents in the hands of all Lemonade customers!

When we entered the insurance industry, we knew one of the biggest problems with traditional insurers was the endless amounts of red tape and long wait times. That’s why we committed to “instant everything” since day one.

From the world’s first 90-second sign-up to our world-record-setting claims process, we’ve hit some pretty exciting milestones, but they were just a preview of what we’ve got cooking.

See also: A Risk-Free Life Insurance Policy? (No)  

The Old Paper Policy

Up until now, if a customer wanted to change the deductible or coverage amounts or add a valuable that was just bought, the customer had to contact the insurer’s customer support and explain the issue. Then, customers would need to pay for some changes, and probably get a new policy sent to them in the mail (snail mail, of course). That’s where the red tape and long wait times come in, and where the industry, new or old, startup or multibillion-dollar corporation, is right now. But our customers can now make those changes on their own.

As far as we know, no other insurance company allows its customers to modify their coverages or even cancel their policy on their own.

The new release is a great example of the reason behind our decision to take the longer, harder path in becoming a full stack insurance carrier, rather than a reseller. It also explains why we bet on building our own technology instead of taking the easy path of buying old-school IT systems (the ones that run most insurance companies in America today, and the startups that resell their insurance).

Introducing Lemonade’s Live Policy

Even if you buy renters insurance directly from the likes of GEICO or Progressive, the only part that’s direct is taking your money and sending you a policy. Everything else requires customers to contact customer service — which we all know can be… painful.

That sucks. So, in the last couple of months we’ve been working hard on the second phase of our policy, turning it into a “live” document that can easily be modified without involving an agent!

With Live Policy, Lemonade customers (existing and new) can make changes to their coverages and more, whenever and wherever they are! It’s actually easier to change your Lemonade coverages than it is to pay for your latte. Just open our app, go to your policy and start playing with stuff!

Here’s a list of things you can now do with your existing policy:

  • Change deductible
  • Change personal property limits
  • Change liability limits
  • Change loss-of-use limits
  • Change limits for medical payments to others
  • Add/remove your significant other
  • Add/remove spouse
  • Add/remove landlord
  • Add/remove property manager

Why are we the only ones doing this?

Moments like these are the reason why we chose the hard way – becoming a real insurance company. It would have been a walk in the park to slap on some pretty UX over a centuries-old insurance carrier.

But we started from square one and built an insurance company from the ground up to address the very issues that turn people away from insurance. Doing so takes more than changing the way we market insurance, or even changing the very business model of insurance. It requires a dynamic focus on the issues our customers – and every insurance customer – face every day. It requires a commitment to tackling pain points, even (and especially) when it means questioning precedent.

See also: The Most Effective Insurance Policy  

This exciting new update is a part of a series of new features we’ll be releasing in coming months that will make insurance even more enjoyable, affordable and instant.

This post was originally posted on the Lemonade Blog

Lemonade: From Local to Everywhere

In a meticulously planned operation, we filed for a license in 47 states simultaneously. We’ll be revealing the first states in which Lemonade will become available in a couple of months. One thing’s for certain, 2017 is going to be an interesting ride! Stay up to date with news about our progress here

Now that I got this off my chest, I can add some color to why we’re doing this.

Many tech startups go through the famous Local vs. Global debate as they start to plan a market penetration strategy. This dilemma was born with the arrival of modern internet commerce and became even more prevalent with the emergence of SaaS companies that provide global coverage right out of the box.

When you’re selling a digital product, going global may seem like small overhead. Reality is a bit different, though, and, more often than not, small startups that take a bigger bite than they can swallow get into trouble.

When feasible, startups should consider aiming their launch beams at a single city or even a town with population that represents their typical customer.

Here’s why:

1. Know thy users, and design for them

It always amazes me how often startups overlook usability testing during the initial design phase. Having videos of random people playing with your (barely working) mockup is priceless. We learned more in a couple of days of testing than we did in months working in our office.

The cool thing is that you only need about five testers to get value out of a session like that, so there’s really no excuse to not doing it. The smaller the area you launch in, the better the chance of getting valuable data in a user testing session.

We spent hours in WeWork and Starbucks with our early stage, smoke-and-mirrors version of the Lemonade app. We would show it to people, ask for their feedback, ask them some questions and record the entire session. We would then sit in the office and analyze the videos to figure out what worked and what didn’t.

Our early Starbucks user testing sessions allowed us to launch a relatively mature product into the market and achieve faster adoption by our New York customers.

See also: Let’s Make Lemons Out of Lemonade  

2. Budget

Product launches require spending some money. To improve the chances of success, it is recommended to fuel the organic interest generated by social noise and PR efforts with some paid channels. Got a story in TechCrunch? Bloomberg? It will probably die down quicker than you think.

A nice trick is to use content recommendation tools like Outbrain and Taboola to promote content to users who may be interested in it. Google Ads are another obvious choice. Choosing the right outlets is one thing, but there’s a huge difference in costs between a global campaign and a local one.

This becomes much more dramatic when your company requires additional resources to operate in each region like Groupon and Uber. Lemonade recently closed its third round of financing ($60 million in one year of operation) from top VCs such as Google Ventures, General Catalyst, Thrive, Sequoia, Aleph and XL Innovate. We’re going to use this money to drive our expansion throughout the country and activate specific markets the way we did in New York.

3. Surgical use of media coverage

Getting great media coverage takes a lot of attention and time. Whether you can afford an agency or not, you’ll have to choose your battles well. Launching in a specific city allows you to focus on the outlets that are most relevant and will simplify your pitch to journalists.

If you’re creating something exclusive for a certain region, reporters who cover that region usually have a hunger for tech stuff that is happening, or launching in their hometown before everywhere else. BTW, there’s a case for launching in unexpected places like Portland or Philadelphia, which usually don’t get much attention from the tech and consumer industry for new products. There’s a good chance that media reach (which expands far beyond just the place you’re starting from) will be much stronger.

We chose New York for Lemonade’s home. We see NY’ers as an ideal representation of our target demographic and personality. So we invested our efforts in a select few outlets that are read by our first wave of early adopters of the city’s financial workers and young professionals — NY Post, Bloomberg and Wall Street Journal.

4 . Brand and messaging

Building a great brand involves a lot of consumer psychology. You spend weeks trying to figure out the best tagline, the perfect ad and the right illustrator to do your art. If you get this right, you have a real chance at grabbing your customers’ attention.

The first few months of brand activation are critical. Limiting yourself to a select region or demographic allows you to be laser-focused on framing and positioning.

Lemonade Local

Building an insurance company from scratch, in New York, one of the toughest regulatory environments in the country, is a huge undertaking. The sheer complexity and investment required to get to the starting point includes raising a lot of capital and hiring the right people to be able to get licensed by the state’s Department of Financial Services.

This is the life of a company that operates in a highly regulated industry, and it’s unlike anything I’ve ever seen in the tech space. For Daniel and me, the decision to start in one state was simple. There’s no other way. Insurance carriers have to choose a state. Just one. And then maybe, if you play nice, regulators will let you go for more.

We wanted to launch Lemonade in one state — NY, and even more so when we realized we had no choice 🙂

See also: Lemonade: A Whole New Paradigm  

In the last three months since our New York launch, we’ve had overwhelming demand coming in from all over the country to open up for business in more states. This was very encouraging because it showed us hints of initial demand and product market fit to people and age groups that we never thought would be our early adopters.

But what surprised us most was the excitement coming from unexpected places, such as government offices and regulators. Having a favorable regulatory environment is a great opportunity to bring an honest, affordable, transparent and fun insurance experience to everyone in the U.S.!

Be the first to know how we’re making progress with our nationwide expansion.

Here’s the list of states where we will gradually launch in the coming year or so:

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, West Virginia, Wisconsin

* States in bold represent the ones most requests to launch came from

This article originally appeared here, and you can find more about Lemonade here.