Insurance is not exactly the most exciting topic to talk about. This is partly because of the arduous rigmarole that we are put through when applying for insurance and submitting claims. Misaligned objectives, frustrating processes and unclear pricing are three major pain points for customers of the insurance industry. The business model of Lemonade shows how this can be done differently.
Paying premiums and submitting claims.
We all understand the concept of paying premiums and submitting claims. Insurance providers pool all the premiums paid into a stockpile which is used to pay out all the claims from consumers and businesses. The remainder of the money, referred to as premium income, is then free to be used at the company’s discretion. Traditional insurance companies generally re-invest this money or treat it as income. So, there is an ulterior motive for insurance companies to pay as little money to claims as possible.
For this reason, there are strict rules and regulations in place to stop insurance companies from refusing to pay out claims in order to maximize profit. Question still is, how can consumer interest ever really be at the heart of a business model that profits from denying them financial assistance
Coincidentally, the power of the free market is another safety measure that protects clients. Since the market is highly competitive companies are forced to be reasonable towards their customers. If an insurance company is too greedy and doesn’t pay out claims, then customers would simply switch to another provider. But what we generally see is that the objectives of the insurance providers and their customers are not aligned. A gap in the market that Lemonade saw as their cue to enter the market.
Insurance 2.0.
“Forget everything you know about insurance”, is the slogan visitors of Lemonade’s website are greeted with. USA based tech company Lemonade, founded in 2015, entered the market to change the game. Their big vision is to take insurance from a “necessary evil and change it into a social good”. Therefore, they have been building a service that fits seamlessly into the 21st century. Not only in terms of technology, but also in terms of putting people over profit, because Lemonade solves customer needs but also takes into account society as a whole.
First of all, they threw all the traditional paperwork out of the window. Do you want to submit a claim? Just open up your device and submit it straight away. All of their services, currently consisting of contents and liability insurance, are available from any laptop or smart phone. A simple and easy to follow process takes you through to your very own insurance policy. Every part of your relationship with Lemonade is managed through their online portal.
Second, Lemonade managed to speed up the claim process from weeks to mere seconds because of their artificial intelligence. About 30% of the claims can be paid “immediately” once they are checked by their anti-fraud algorithms. More difficult claims are handled by a team of real and service-minded people.
The real game changer, however, is the fact that Lemonade treats premiums as the customer’s money and not as their own. Customers still pay a premium per month, but the big difference is that Lemonade donates all unclaimed premium income to customer-selected charities at the end of each year. By taking just enough to cover overhead and salaries, their core business is not making profit, it is making a difference for all the stakeholders they serve. Last year they donated over 500,000 USD to different charities. This simple concept has created an enormous amount of trust between customers and insurance providers.
Lemonade is building a strong transparent relationship with their customers while also contributing to lasting positive social change. As a certifiedB-corp, Lemonade is showing the insurance industry that genuinely taking care of all the stakeholders affected by your business is simply how you are going to remain relevant in the future.