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Nov 17, 2017 | 5 min read


He reinvented the business model of insurance incumbents

We met Shai Wininger, co founder of Lemonade, an "insurtech" startup that reinvented the business model of insurance incumbents.

Patrícia Silva

Project Analyst

The cofounder of the company, Shai Wininger, claims that creating a loveable brand, trusted by customers, is the first criteria to achieve before approaching any other aspects of the business.

What are the main differences between Lemonade and a traditional insurance company?

Lemonade is a full-stack insurance company powered by AI and behavioral economics, and driven by social good. Unlike traditional insurance companies, Lemonade uses bots instead of brokers and algorithms instead of paperwork. But our main difference is our business model.

Lemonade was founded on the idea that the current state of the insurance industry was frustrating, outdated, and brought out the worst in people. Why do people hate insurance? Because we’re paying them all the time, and when something bad happens and we want to file a claim – the problems start. The insurer doesn’t want to pay. Why? Because the business model of traditional insurance is based on a conflict of interest. Every dollar the insurance company pays you, the customer, is a dollar less for their profit. So the more they pay claims, the less money they make at the end of the year. In fact, they lose money when they pay claims.

One of the things we understood early on is that we want to create a new brand that is loveable and trusted by customers. We have to gain that fundamental thing – trust- before we even get to user experience, a cool brand, nice messaging and things like that.

So we reinvented the business model, taking a flat fee from each policy and the rest goes to handling claims (including reinsurance and other expenses). If there’s money left over, we donate to charities our customers choose. So, as opposed to traditional insurers, our underwriting profits go to nonprofits.

This way, we’ve removed the conflict, since we get our cut (flat fee) and have no incentive deny your claim. In fact, if you file a claim our incentive is to pay you as fast as possible because I want you to be happy, and ‘undo’ whatever bad thing just happened to you. Through this business model and using AI, we are in a position to pay claims the fastest on the planet. Around 30% of our claims are paid within 3 seconds. You go in the app, tell us what happened, answer a bunch of questions with our claims bot and if approved, we send your money to your bank account. That’s how simple it is.


How do you stay ahead of competition?

First, I think you have to build your own technology. That’s something we’ve done from day one. Unlike any other insurance company, we’re a full stack insurance company – we’re not a broker or an agent. We use our own underwriting, work directly with the regulators, carry the risk, and sell the insurance.

Our own technology backend handles everything. From the chatbot that gets you insured, to the claim management and policy management. Everything was developed in house. That allows us to move really fast and innovate more than any other company in this space.

To give a quick example: our team makes production changes in our apps about 5 times per day. A typical insurance company doesn’t iterate nearly as fast.I think that speed, transparency, a really loveable brand, creating things that are aligned with your customers, producing amazing experiences, investing in design and in how people feel as they use the product, are all differentiators from incumbents.


Recently, you launched Zero Everything, an insurance with no deductibles. Can one expect more innovative products?

Yes. If you look at the first year of Lemonade, we did a lot of technology innovation, such as the Live Policy, which allows people to update and change stuff on their own with a few taps on their phone and without needing a broker.You can just go on the app, change coverage, add stuff, insure your wedding ring, add your bike. That’s a technology type of innovation.

The second level of innovation we are going to see increasingly coming out of Lemonade is the deeper type of insurance product innovation where we introduce new types of insurance products to the market, create new features on top of existing products in the market. You can expect to see much more coming soon.


What type of insurance has a higher demand?

I would say renters insurance is obviously and naturally something we sell more because of the lower cost. You can reach a large audience that needs renters insurance easier than you can with owners, for example. In fact, most of our customers are first time insurance buyers, meaning Lemonade is their first insurance policy. That’s a whole new market that Lemonade is uncovering. Of course, homeowners policies are exponentially higher in value, but it depends if you look at revenue or numbers. From a numbers perspective it’s renters, that’s the most popular product we have.


Could you share some of your results so far?

We are just about to release our next Transparency Chronicle about how we are doing and the numbers and stats. I can tell you that we beat the original plan that we have for the entire year 5 times already. And this month we sold more policies than we plan to sell for the entire year.

Right now, we are only focused on US. We started with New York and then we headed to Illinois, California, Texas, New Jersey, Nevada and Rhode Island. We are growing exponentially and it’s going great.


How do you envision the next years ahead for the insurance industry?

I think we are going to see one or two market leaders growing from insurtech to the general industry. I think we are going to see much more products, that did not exist before, appear in the market from insurtech companies. That’s because using technology opens up new opportunities, such as having a direct conversation with the customer for example.

I think we’re going to see more AI and machine learning getting into the actual user experience; not only from back-end – doing research and understanding pricing – but also from actually servicing customers and improving efficiency of insurance companies. We see ourselves as a leader in that space and we’re going to see a lot of that coming out soon.

I guess AI, new products and a couple of companies will be dominating the insurance tech market.


And what about giant incumbents?

I don’t see them as direct competition to innovation, but I do see them as a direct competition since eventually we are targeting the same customers. I think that for traditional insurance companies to innovate and move fast and reinvent themselves from a brand perspective – not possible. They are in a kind of a deadlock since they rely on agents and brokers to sell the product today. If they start investing in things that take them out of the picture they’re going to lose their business today and I don’t see any one of the largest insurance companies risking their stock in their company just to bet on something that still hasn’t been proven on a global scale.

I see them less of a player on the innovation side. We’re going to see them mostly on the investment side and on the acquisition side, and I think there’s going be a lot of consolidation in the next couple years.


Why are they in such a position in your opinion?

The issue here it’s not about the technology, it’s not about copying stuff. It’s about innovating, creating the brand, telling the right story, appealing to an audience you target really well. I think insurance companies are very big so they have to appeal to everybody. While, since we’re still small, we can afford going after millennials and Gen Z and focusing on that audience and really mastering messaging, design and user experience for those people. I don’t think any of the big insurance companies around today can claim that market. I don’t think they are in position to do that.


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