Lemonade is to Insurance what Apple is to Mobile Technology, and yet I still see long term industry executives doubt the strategy of Lemonade. This week, I had the opportunity to spend some time speaking with Daniel Schreiber, the Chief Executive Officer of Lemonade to talk about his company and of course one of my favorite topics, Innovation. My discussion with Daniel gave me a glimpse into how a relative newcomer into Insurance was able to bind 70,000 policies in just over one year. Personally, I feel there is a lot that Incumbents can learn from how Lemonade was able to penetrate this industry so successfully and I’m going to share my assessment here. I’ll also make our entire discussion available on the Insurance Innovators Unscripted Podcast on December 21st, so if you are interested in hearing our full discussion, please subscribe to the podcast here.
When Lemonade came onto the scene in September of 2016, its goal was simple, successfully enter an industry that has operated without disruptive innovation for the past 150 or more years. This opportunity enabled Lemonade to change the way policyholders experience the insurance process through leveraging at its foundation, Technology, Artificial Intelligence and Behavioral Economics.
Three core things that drove the co-founding Team to innovate this industry were:
- The sheer size of the Industry and the opportunity it presented
- Entering an industry which was unspoiled by Innovation, operating on the same business and distribution models for decades.
- How universally unreasonable the perception of our great industry was with current policyholders. AKA, being an Unloved Industry
While many other new entrants into Insurance leverages the “Paper” of well-established Incumbents, Lemonade took a different approach. By establishing themselves as a “Full Stack” carrier with its own “Paper”, they were able to drive innovation without being beholden to the limitations present in incumbents where a partnership may exists with that new entrant.
What I’ve learned is that there isn’t one driver of success for Lemonade, but a multitude of Industry challenges are being tackled, including addressing the core wants, values (such as donating excess profits to charitable causes) and needs of policyholders, and a bit of calculated luck. This includes the fact that both Shai and Daniel are Industry outsiders that helped drive a different type of technological innovation mixed with enabling the profound use of Behavioral Economics. Behavioral economics is so important to the success of Lemonade, that Dan Ariely, a well-known behavioral scientist was part of the co-founding team. This shows the commitment and establishes that companies can’t only use technology to drive customers to want to use or purchase their products. Game Theory has been used in many other Industries to shape strategy, but with Lemonade, through the use of priming and signaling, Innovation and rapid growth blossomed. Clay Christensen often discusses “Disruptive Innovation” and believes when “Disruptive Innovators” enter a new space untouched by incumbents for a sustained period, will over time always win.
Given the perceived fundamental conflict of interest in our industry, Lemonade has decided not to play into this model, but instead, upend it. Not only leveraging the construct of behavioral economics, but using technology to help change the customer experience similar to how customers have become accustomed to from organizations like Amazon and Apple. In Insurance, things such as claims adjustment may take an unwieldy amount of time, particularly if one is used to obtaining an order from Amazon Prime Now within an hour. Lemonades use of technology (AI and Machine Learning) enables this new paradigm that will allow a claim payment within 3 seconds for small claim types, with $0 in LAE (Loss Adjustment Expense). To further hit on the point of the use of behavioral science, before filing that claim, policyholders are reminded that the cause they are supporting will have less allocated dollars due to this claim, thereby reducing the embellishment of claims filed.
Utilizing behavioral economics to create a much more trusting relationship between the carrier and the policyholder, Lemonade was likewise able to change the Customer Perception of insurance.
In the end, the rapid policy growth and part of Lemonades success can be attributed to:
- Values – Giving away underwriting profits are very important for policyholders that believe in Lemonades strategy, and being insured with a company that aligns with policyholder values is a very important need for some consumers.
- Providing Value – Using Technology (Such as Open API) for entry level Insurance enables the ability to lower policy premiums by 70 – 80%. Technology is being used to change how traditional Insurance is purchased, no broker, no call center, just AI and Machine learning on small claims. Taking out the bureaucracy and cost from buying insurance, changing the traditional way Insurance is sold, and enabling the ability to purchase in less than 1 minute created the capability to sell low minimum premium policies which is as easy to purchase as a candy bar in the checkout line at your local Wegmans.
- Technology – People are truly delighted by a cool user experience, which engages consumers on a topic like Insurance in a way that the industry is not accustomed to. This coupled with Behavioral Sciences drives a a different perception of Insurance.
We are truly experiencing exciting times of change and innovation in our industry, and I truly believe that traditional carriers can learn a lot from new entrants like Lemonade. Lemonade has been able to slowly change customer perception of Insurance, so whether we care to admit it or not, the future of insurance is being influenced by Lemonade. To hear my full discussion with Daniel Schreiber, and other Insurance Executives, Innovators, Thought Leaders and Influencers, subscribe to my podcast here.
#Educate #Inspire #Innovate.