Artificial Intelligence Or Artificial UX?

Founded in April 2015 by Daniel Schreiber and Shai Wininger and headquartered in New York City, Lemonade has grown into a “full-stack insurance carrier”, built to provide the most delightful and most transparent insurance experience

  • Lemonade’s business model integrates corporate social responsibility as it donates a share of leftover premiums to customer-approved causes such as Black Lives Matter, American Red Cross and Direct Relief

INSURANCE-FOR-GOOD

Lemonade does away with the traditional profit-driven business model and leverages technology to combine insurance with charity. The company operates in the following steps:

  1. For a client opting to insure an apartment or a home with Lemonade, the premiums paid are pooled with other renters or homeowners
  2. Lemonade then takes a flat fee which is about 25% out of the pool. This fee covers operating costs and reinsurance
  3. When a claim is made from the group, money is disbursed from the pool
  4. At the end of the year, leftover premiums are donated to the charities personally chosen by the customers. This is referred to as Lemonade’s “Giveback” policy

RE-INSURED INSURANCE

Lemonade operates in the United States and Europe, offering insurance options that cover renters, homeowners, life insurance, pet owners and cars. It is re-insured by some of the biggest insurers in the world, including Munich Re, Swiss Re and Hannover Re. Lemonade’s main selling point is convenience and efficiency, powered by artificial intelligence.

  • Maya is Lemonade’s artificial intelligence bot
  • With Maya, anyone can get insured in just 90 seconds and get paid in less than 3 minutes
  • Customers can get assistance from Maya either in English or German. They can purchase insurance, resolve customer service inquiries or even file claims with the help of this AI bot
  • In the second quarter of 2020, over 30% of all customer inquiries at Lemonade were handled by AI

    “Today, 30% of our claims are paid with no human involved (in 2018, our bot AI Jim paid $1 million in claims with no human involvement). We have 18 anti-fraud algorithms that we run with every claim, and we have a team of highly talented insurance executives monitoring the claims handling and payment.” Yael Wissner-Levy, VP of Communications, Lemonade
  • Customers can choose a plan that works from them, with premiums starting at $5 a month

CUSTOMERS’ DELIGHT

Lemonade has a 4.9 out of 5 rating on the Apple App Store, higher than other respected brands in the tech sector, including Spotify, Uber, Netflix and Amazon.

  • Out of 300 insurance companies ranked by consumers on Clearsurance, Lemonade sits at the very top, both as the best homeowners insurance company and best renters insurance company. USAA comes in second with a 4.72 and 4.76 rating for its homeowners and renters insurance respectively, compared to Lemonade’s 4.86 rating for both homeowners and renters insurance
  • The US News and World Report ranked Lemonade, the best renters insurance company of 2020

    “We’ve worked hard to understand what consumers want and built, pretty much from scratch, a new business model […] and packaged using a […] incredibly sophisticated technology stand.” Daniel Schreiber,co-founder and CEO of Lemonade

THE MARKET

The global insurance industry is set to grow by a CAGR of 3.5% between 2021 and 2025, fuelled by a move towards tech-enabled insurance products.

According to The Edge Markets, the global insurance industry will be valued at $7.5 trillion by 2025

  • Representing a CAGR of 3.5% over the 2021-2025 period and will be attributed to the massive shift towards tech-enabled insurance products and a growth in customer insurance purchases from digital channels and third-party platforms

    “Traditional insurers could lose an additional $140 billion to insurers offering a digital distribution experience. Those who rapidly shift to technology-led offerings are likely to take the lead. Those who fail to do so risk losing out to new entrants and digital-first competitors.” Compar Acciones

According to the Insurance Information Institute, in 2020, the United States insurance industry contributed to 3.1% of the country’s total GDP

According to PWC, technology will continue to influence the global insurance industry

  • Acquisition or development of technological expertise will become a fundamental goal for future mergers and acquisitions in the insurance sector

According to McKinsey, tech will continue to reshape operations within the insurance industry, eventually taking over traditional operations

  • Between 2012 and 2017, the average share of operating costs invested in IT grew by 4% in casualty and property insurance and 3% in life insurance

EXPERIENCED MANAGEMENT

Daniel Schreiber is the co-founder and Chief Executive Officer of Lemonade. He also serves as the board of directors' Chairman and holds a Bachelor of Law from King’s College London. Shai Winniger is Chief Operations Officer and previously co-founded Fiverr.

Daniel Schreiber

  • Co-founder and CEO of Lemonade
  • Has previously served as President and board of directors member at Powermat Technologies Ltd., Senior Vice President of Marketing at SanDisk and Vice President of Marketing at M-Systems. Has also co-founded and served as CEO of Alchemedia
  • Holds a Bachelors’ degree in Law from Kings College London

Shai Wininger

  • Co-founder, President and Chief Operations Officer
  • Was previously the founder of Fiverr, also serving as the Chief Technology Officer at the company. Served in senior management capacities for various companies, including Mobideo Aerospace, Handsmart Software and Trimus
  • Was a resident faculty member of Computer Graphics at The Neri Bloomfield Academy of Design and Education

Tim Bixby

  • Chief Financial Officer at Lemonade
  • Has previously served as Chief Financial Officer at Shutterstock and Chief Financial Officer, President and board member of LivePerson
  • Holds a Master’s degree in Business Administration from Harvard Business School and a Bachelor of Arts degree in Mathematics from Dartmouth College

STAY CAUTIOUS

In May 2021, Carson Block, the founder of Muddy Waters Research, an investment firm, discovered a security flaw that exposed Lemonade’s customers’ account data.

  • In an open letter addressed to Daniel Schreiber, Block detailed the bug on Lemonade’s system, how it worked and what it enabled unauthorised persons to access
  • The bug allowed anyone to access personally identifiable data on Lemonade customers
  • A simple search result from any search engine allowed one to log into a Lemonade customer’s account and change their details without providing any user login information whatsoever

In response to the issue, Shai Wininger, Lemonade’s president said that the bug was “not a vulnerability, it’s by design,” in what Block referred to as “unforgivably negligent.”

TAKE A BREATH

So… This is a lot of information. Let’s summarise:

  1. Founded in April 2015 by Daniel Schreiber and Shai Wininger and headquartered in New York City, Lemonade has grown into a “full-stack insurance carrier”, built to provide the most delightful and most transparent insurance experience
  2. Lemonade does away with the traditional profit-driven model and leverages technology to combine insurance with charity
  3. It operates in the United States and Europe, offering insurance options that cover renters, homeowners, life insurance, pet owners and cars
  4. It is re-insured by some of the biggest insurers in the world, including Munich Re, Swiss Re and Hannover Re
  5. Lemonade’s main selling point is convenience and efficiency, powered by artificial intelligence
  6. In May 2021, Carson Block, the founder of Muddy Waters Research, an investment research firm, discovered a security flaw that exposed Lemonade’s customers’ account data

FINANCIAL CHECK

  • For the first quarter of 2021, Lemonade reported sales of $ 23.5m, a decrease from $ 26.2m a year earlier
  • Its loss ratio jumped to 121% following the Texas freeze
  • In previous quarters, it loss ratio hoovered in the 67 to 73% range
  • In Force Premium reached $ 252m, growing 89% year-on-year while the premium per customer reached $ 229 (growing 25% year-on-year)
  • The company now counts over 1,096,600 customers, growing 50% year-on-year
  • Total operating expenses reached $ 71.6m, up from $ 62.4m a year earlier
  • Operating loss stood at $ 48.1m, up from $ 36.2m a year earlier

BENCHMARK'S TAKE

The Good

  • Lemonade’s enhanced user experience enables it to grow at a fast rate in the United States and Europe
  • In an industry characterised by consumer indifference, Lemonade boasts industry-leading ratings and Net Promoter Score
  • Lemonade’s machine learnings system are now processing more data from a more diverse customer pool, helping the company on its path toward profitability

The Bad

  • Lemonade’s loss ratio reached a low of 67% during the second quarter of 2020 yet rebounded to 73% in the following quarters
  • It was unable to cope with the Texas freeze and saw its loss ratio jump to over 121%
  • Lemonade is richly valued and trades a price to sales of 50, detached from competitors with price to sales ratios of 0.5 to 1.7
  • Lemonade’s innovation might lie more in the refreshed customer experience than in the so-called advance machine learning models they are using. In the long run, could they turn the insurance industry into a less expensive and more pleasant one?
  • We doubt they will manage to generate considerable cost improvements that will enable them to cut prices
  • However, they might make the experience more pleasant. But, in a price-driven industry, will this matter?

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.