Lemonade continues its monster growth, and it feels like this is a story that has only just begun. What industry needs disruption more right now than insurance?
What could be more refreshing than fresh squeezed Lemonade?
Certainly not insurance. At least not from a traditional perspective. Boring. Square. Subversive. These are but a few adjectives that come to mind to describe an industry that squeezes premiums in return for some peace-of-mind against the inevitable.
Enter Lemonade. A Bot-based, P2P Insurance company that launched last month in the state of New York:
Reinventing the Insurance Model
As many analysts have rightly pointed out, insurance wasn’t always a gargantuan, actuarial, spreadsheet-based industry, it was very personalized and collective at its inception. Only since the upswing of the Industrial Revolution have we seen it become heavily corporatized, tilting incentive schemes away from ‘shared risks’ towards ‘you have to prove it to get paid.’ Members of a community or workers in a company used to pool money in a cooperative manner, creating a sense of mutuality in the face of disaster where all contributors would bear a small share of the burden. Nowadays, it comes down to the policy fine print, several calls back and forth with an Agent, and a subjective interpretation of what happened, all to determine whether or not you are covered for a given claim.
Insurance companies are incentivized not to pay premiums. And that’s where Lemonade is fundamentally different:
This is pure Business Model Innovation. They shift the business model and rework the entire incentive schemes, creating a dynamic whereby if you file a false claim you cheat your ‘neighbor,’ not Lemonade:
To clarify. They are flipping the entire business model on its head.
Lemonade takes 20% of the premium as profit, works with reinsurers to cover big claims, and the rest of the money is pooled in groups and passed on to worthy causes if it is not paid out as claims:
- Individual takes out an insurance claim – in a few minutes – via the Lemonade Bot
- Lemonade takes 20% as a fee, the remaining 80% is put into a Pool based on the Cause the individual chooses
- ‘Cause Pools’ aggregate the remaining 80% from all individuals into one common ‘shared risk’ account
- Claims – which take only minutes to successfully file – are redeemed and paid out from the Cause Pool, not Lemonade
- Reinsurers cover bigger risks that cannot be covered by Cause Pools]
This is textbook Business Model Innovation and an exciting example of the #NewEraBiz. Time will tell how profitable this approach can be, but it hits right at the core issues surrounding the insurance business model.
Millennials Hate Insurance
Does it matter if you are an insurer and Millennials – those 18 – 34 year olds who are now officially the biggest demographic in the world – hate your product?
The short answer is yes. The long answer is why.
Millennials show particular disdain towards any insurance that is not compulsory – like renter’s insurance. Millennials are also loath to pick up a phone to have to deal with someone who is being paid minimum wage to deal with a problem or sign a claim. To fix the ‘hate your product’ part, companies will have to create new, more relevant products, and to fix the ‘this claims business is a buzzkill’ part companies will have to completely reinvent the user experience.
Lemonade is all over this. And so are hundreds of other companies in the #InsTech (Insurance Tech) ecosystem worldwide. Billions are being invested into companies, who are reinventing both the types of products available – ie. insurance for the sharing economy (SafeShare) – and the entire user experience – ie. manage all your policies from one app (Knip).
You can bet that Lemonade has Millennials on its list as one group of ‘underserved customers:’
Squeezing Lemons. Adding Sugar. Crushing Ice.
This is how simple Insurance should be. It will take some time, but Lemonade seems to be squeezing a little acid in the eye of traditional insurers and saying ‘there is a better way.’ Millennials hate insurance in its current form and the Macro suggests a shift in the business model is required. Let’s see what happens next when fast followers start to put up their own lemonade stands.