A recipe for making Lemonade
What did you want to be when you grew up? A firefighter? A vet? Astronaut? Maybe a vet who did some astronauting on the weekends. Whatever it was, it likely wasn’t working in insurance. It’s an industry that doesn’t heave into view until adulthood. Even then, we tend to view insurance as unbearably bureaucratic and painfully prudent. Like a tax on our peace of mind. A necessary evil we must tolerate.
Lemonade is on a mission to change all that. When a startup comes along and claims to have reinvented a decades-old (or in the case of insurance, centuries-old) industry, we can normally expect them to have a streamlined app, swapped call centres for chat boxes and use emojis in their email subject lines, whilst under the hood, things remain the same. That’s not the case with Lemonade.
I recently spoke to the company’s Head of Communications and Content, Yael Wissner-Levy, about their mission to rebuild insurance as a social good rather than a necessary evil. She admitted that it certainly wasn’t her childhood dream to work in insurance, but it was clear she couldn’t have been more excited to be there now.
Yael: We’re looking at changing the industry. Not only in terms of technology and other 21st century additions but also changing the underlying principles of insurance and the infrastructure insurance is built upon.
It’s important to remember that insurance was designed. It may feel like an innate part of life, but a series of decisions over the last 300 years has shaped what we now understand as the principles of insurance, and Lemonade has chosen to ignore them.
Traditionally, whatever is left unclaimed at the end of a policy is income for the insurer, and potentially profit. With Lemonade, 25% of an insurance premium is taken as a flat fee, and the rest is used to pay claims, cover reinsurance, and anything left at the end of the cover is given to charities of the customers’ choosing. It’s a completely new relationship between the insurer and the insured.
Yael: There was a survey conducted that showed that around 25% of Americans felt that it was okay to defraud their insurance company. That’s not 25% of criminals, that’s 25% of everyday Americans. We’ve tried to remove that conflict, whilst also empowering customers to be impactful through their charitable giving. We have nothing to gain by denying your claim. In fact, every time you make a claim your charity may be impacted.
We’ve had this phenomenon that has been recurring ever since we started, which is people who are overpaid — for example receiving a claim for a lost item they eventually found — getting in contact to return the money. It’s what our Chief Behavioural Officer, Dan Ariely, calls reciprocity. Executives who joined us from big incumbent insurance firms were dumbfounded by what they were seeing.
RJ: Have you had a lot of people join Lemonade from traditional insurance companies?
Yael: We have. We’ve had these traditional senior executives in the industry who have had a sort of mid-life crisis and were looking for a way out. Then Lemonade suddenly appeared, and the more curious of them thought “wow, this might just work.”
The founders of Lemonade were tech veterans and knew nothing about insurance. They cite their ignorance of the industry as exactly the reason they were able to look beyond preconceived notions of how things should be done. Each person that has been added to the team since has been brought on for a very specific reason and scope. As a tech company, we believe we should be as efficient as possible if an algorithm can do it better than a human, then we prefer for the algorithm to do it. It’s meant we’ve grown very slowly as a team and everyone believes in the underlying mission of Lemonade.
Me: So you see yourselves as a tech company, not an insurance company?
Yael: We certainly think like a tech company and not like an insurance company, even though we are a fully licensed insurance company. There are things that we do, especially the agility with which we do things, that traditional insurance companies will have a hard time, if not impossible time, catching up with.
We say that we’re powered by AI and behavioural economics and driven by social good, and I think it’s the cocktail of all 3 that will mean we prevail over the incumbents.
“Powered by AI and behavioural economics and driven by social good.”
RJ: Do you have any examples of Lemonade’s agility?
Yael: Sure. We work in what we call ‘squad structures’ with mini-groups working on weekly sprints, making changes to their products simultaneously. It’s a technique we learned from startups like Spotify, a company in a completely different industry but with similar technology. We make four to eight product changes a day to our products. That’s unheard of. Traditional insurance doesn’t have the mindset, let alone the technology to do that.
Highly innovative developers aren’t excited by working in insurance, but they are excited for a chance to transform an industry. As much as customers have responded to Lemonade’s efforts to take the evil out of ‘necessary evil’, the biggest benefit may well be the talent they’ve managed to attract to help solve the problem.
Their team have certainly built an impressive product, in fact, a record-breaking one. In 2017, it set a world record for the fastest ever insurance pay-out. 3 seconds was all it took for Lemonade’s AI bot to cross-reference the claim against the holder’s policy, run 18 anti-fraud algorithms, send wiring instructions to the bank to pay it, and inform the customer of the good news. Customers have commented that it can feel more like booking a table at a restaurant than filing an insurance claim.
The consequence of Lemonade’s advanced AI is radical efficiency. Their chatbots ask the right questions at the right time, collecting more data in the process. This efficiency ultimately means cheaper insurance The company explains on their website, “our acquisition costs are already 10x lower than legacy carriers. This allows us to do away with punitive minimum premiums and allows renters to save a fortune on insurance. Simple.” Yael elaborates:
Yael: A key metric for us is policies per human, which means how many policies are we selling per human on our team. To give you context, a 100-year old legacy company in the US might have a ratio of 500:1, so for every person on their team, they sell 500 policies. We’re currently at 2,700 policies per human, and it’s exponential in the way that can grow.
Right now we’re selling renters’ and homeowners’ insurance in the US, but we want to go global. We’ve said that since day one. We’ve just launched in Germany, it’s the start of our expansion to Europe. We don’t just want to expand geographically either, we want to expand our products too. A young person in Paris probably has more in common with a renter in New York than the New Yorker has with someone in rural America. We think that’s going to be a real driver of our growth.
And growth is definitely on the agenda. In April 2019 the startup closed a $300m Series D investment round led by the SoftBank Group. The investment, which puts Lemonade at a private valuation of over $2billion, follows SoftBank’s strategy of taking big bets on startups they think are best placed to transform their industry with Artificial Intelligence. What makes this investment remarkable is that it’s the first time the fund has invested in a Public Benefit Corporation (PBC).
A Public Benefit Corporation is a new legal structure available to for-profit companies registered in the US. It means the company is legally committed to generating public benefit as well as profits. It’s separate but complementary to B Corp certification, which is a third-party certification assessing a company’s impact on governance, workers, community and the environment. Some companies, such as Patagonia, Kickstarter, and now Lemonade, have opted to use both.
Yael: We became a Public Benefit Corporation right before we launched, and a B Corp right after that. When you join Lemonade you understand that you’re joining a B Corp, you’re not joining an insurance company you’re not joining a regular tech company. You’re joining something very, very special, and that’s something we talk about all the time.
We’re seeing more and more that companies see the advantage of becoming a purpose-driven company. But there’s a point I want to make. There’s a difference between, say, a TOMS shoes and us. I love TOMS, they have a brilliant business model, but what we’re doing is trying to get customers to understand that our interests are aligned with theirs. It’s not a philanthropy move, even if there is a philanthropy element.
We want to show how business can be built. A sustainable, longer-term business driven by social good. I think that for-profit businesses have a lot to do in terms of putting storytelling and values at the core of what they do. Hopefully, we can be an example.
