This article originally published on InsNerds.com
“By now, I wonder how, Some people never know”
Don’t Believe The Hype – Public Enemy
I am a sucker for new stuff. I bet many of you are as well. If news of the release date of the iPhone 7 caused you to immediately organize your camping gear for a week long sidewalk holiday at your local Apple store, then you know what I am talking about. Beyond our excitement for the next iPhone or Tesla, apparently we also get all giddy for new insurance as well.
Recently a new insurer named Lemonade has popped up on the scene and has caused quite a ripple. Here are some recent news headlines:
- Some cool insurance products are finally on the horizon – Market Watch
- Lemonade is revolutionizing risk management – Asean
- Startup P2P Insurer Lemonade Reveals How First 48 Hours of Business Went – Insurance Journal
- Insurance startup Lemonade pays claims quickly, doesn’t profit from denials – Repairer Driven News
- Insurance Startups Push Peer-To-Peer, Online Policy Tech – Law360
- Peer-to-Peer Insurance Adds a Human Touch Through Mobile Technology – Insights
- How Lemonade’s founders raised a massive seed round just by talking – Business Insider
Wow! Give that publicist a raise. That is some quality publicity.
But it was when I saw this headline here on InsNerds: “The Sheer Genius of Lemonade – A Whole New Paradigm for Personal Lines Insurance”, I knew I had to speak out. Next thing I know, my good friend Tony convinces me to write this rebuttal.
So, to start, this article is NOT a criticism of Lemonade or what they are trying to bring to the consumer. Insurance is in desperate need of heart and soul. No, what this article will do is splash some cold water on the hype inferno that appears to have taken over the sane minds of our industry. So allow me to go point by point with my criticisms:
Is Lemonade really Peer-to-Peer Insurance?
Peer-to-Peer Insurance – Whether it’s called Peer-to-Peer or fashionably referred to as P2P, Lemonade ain’t either of those things. Lemonade is a standard insurance company. You pay premiums, and they pay claims from the general pool of funds. There are no peer groups insuring one another. There is no distribution model of peer invitations or referrals. There is none of that. The only “peer” element of the business model is that you will, as a customer, be grouped with others like you for the sole purposes of dispersing any underwriting profits to a charity of the group’s choosing. Now, there is a reason for this that I will attempt to get into later on, but, seriously, was anything I just described even remotely connotative of Peer-to-Peer? Want to know what Peer-to-Peer looks like, see Friendsurance or Guervara.
Is Lemonade really InsurTech?
Sure, Lemonade is an online only firm. And yes, you can buy their insurance products through an app on your phone in which a bot named Maya will help you with your coverage selections, but it’s still just an insurance company with a fancy website. I can buy insurance from other insurance companies where I can choose from dealing with their website, walking into an agent’s office or calling them over the phone. They’ve eliminated 2 options from me, and given me a sole option that is little different from what I could have had before. And before you start screaming, “but I don’t want to call anyone or drive to any office” just keep in mind that having options makes the experience better. Insurance is complicated enough that occasionally I would like to call someone or walk into an office and scream my head off. I deserve that option!
What about the bot and the machine language, isn’t that technology? It is technology in the sense that there are computer scientists engineering a robot to replace a human. But if the experience is crummier than just dealing with a human, then it is a wasted effort. But, in an attempt to play fair, I will reverse my position on this one, if it can be shown that the robot can handle the firestorm that comes when the company is hit with their first major natural catastrophe.
But isn’t it awesome that Lemonade’s underwriting profits go to charity?
One of the big marketing ideas coming from Lemonade is a unique feature of aligning the interests of policyholders and the insurer by taking excess profits and donating them to charity in the name of the peer group discussed above. Fraud is a big deal in insurance and most insurers have systems in place to detect and counteract fraud. The charity angle from Lemonade is an attempt to prevent fraud from happening by linking the monetary loss due to fraud, not to the big-bad insurer, but to a softer, more sympathetic victim. Fundamentally, if you are a Lemonade policyholder and your claim is fraudulent is any way, you are depriving some charity of much needed funds.
It is an interesting concept, but my issue with it is that I don’t believe it will have much of a financial punch. The first drawback is that property insurance, being a natural catastrophe (CAT) exposed business, is subjected to infrequent but occasionally massive losses. What appears to be underwriting profits in the quiet years between CATs are really opportunities to strengthen your balance sheet for the inevitable hit. As Lemonade expands to other states, their inability to build surplus because of the charity and their corporate status (see below), will really hamper their business model. They are now and will fully be, reliant on reinsurance to back their entire program. That by itself is not terrible, but with full reliance on reinsurers, the excessive profits that they think will make themselve availed of, in reality, just go to the reinsurer. Think about this, if the reinsurer is taking all the risk, why would Berkshire Hathaway or Lloyds of London (2 of the reinsuring entities for Lemonade) not wish to profit from the transaction? These excess underwriting profits will simply transfer from insurer to reinsurer. My prediction is that the charitable donations will, in most years, be nonexistent or minuscule in comparison to premiums paid.
My second issue with the charity angle, is that I don’t think it will bring the alignment of interest that Lemonade believes it will.One reason is that, if I am correct about the excess profits not materializing, then just the intermittent scheduling of charitable givings makes the whole exercise uninteresting to the insured, in my opinion. If Lemonade can’t provide a significant charitable donation in most years, the alignment will lose its appeal simple because the policyholders won’t be able to hang their hats on it, so to speak. But perhaps worse, the charity angle may lose effectiveness because Lemonade is also marketing that they pay claims “super fast”. Super fast claims handling (which on their website, they tout as a check in minutes), invites fraud. I think there is a major conflict of the business model. If your marketing message is that you can get a claims check in a few minutes without having an adjuster or claims rep work the claim, then your message is music to those who in which the charitable message will have no impact. An an insurance buyer and seller I know that out of super low prices, super fast claims handling and excess profits to charities, I can only choose one of those angles. More than one seems difficult. Getting all three strikes me as impossible.
A broker by any other name…
Lemonade is a broker by another name. Another of Lemonade’s selling points is that insurers have a conflict of interest in that they make money by denying claims. Lemonade, purports to have absolved themselves of this conflict by not actively acting like an insurer. Here’s how:
Lemonade is actually two companies. It is a risk-bearing insurance company AND a brokerage firm. When you buy a policy from Lemonade, the 20% fee goes immediately to the brokerage firm. The remaining 80% stays with the insurer. The paper on which the insurer is based is a B-corporation, which essentially makes it a non-profit. So it is the brokerage part of the business that is the money maker. That is the entity that secured all that seed-funding. Sequoia Capital knows a thing or two about making sound investments. They don’t do non-profits. And once the fee from the premiums that the policyholder pays gets swept into the Lemonade’s brokerage company, it will not be used to pay claims, at all…ever. It is income, free of insurance risk. If the insuring entity ever goes insolvent, all the fees will be protected.
And there is nothing wrong with this. It is a model that has been used successfully already by other insurers. But, by acting as a broker, Lemonade has shifted its risk from the risk of loss or damage of the client towards that of a trusted advisor who only has one product to sell and gets a 20% commission for selling that one product. What if, their product is NOT the best choice for the client? Will Maya the bot steer the buyer elsewhere like a traditional agent would? No. How forceful will Maya point out all the flaws and gaps of Lemonade’s ISO style homeowners policy? Will Maya give direction to the insured about the flood or earthquake policy they really should have, but can’t buy through Lemonade? Somehow I can’t match the hype and excitement of the internet of seeing a broker selling an average product, even if it’s sold via a robot.
Lastly, I want to challenge the major premise of Lemonade, that insurers make money by denying claims. As a professional in the business for 20 years, this is the one selling point that Lemonade and it’s marketing keeps touting that upsets me the most. It upsets me because it isn’t true. In fact, I have seen the opposite. I have seen emails or communications from senior executives to staff adjusters onsite during a natural disaster that flat out instructed their adjusters to move quickly, be fair and if there is any doubt about the damage, settle IN FAVOR of the policyholder. I am not naive enough to believe that insurers never play fast or loose with their claims handling but by and large, insurers pay their claims. In the property area in which Lemonade competes, those policies they sell are legal contracts. Many a court battle has been fought to word the contract so that claims can be settled quickly and fairly. Lemonade is implying that they will be different, they are almost implying that they won’t deny claims. Are there really claims that insurers have denied (and acknowledged via the court system) that Lemonade would not have? I seriously doubt it.
Look, I like new things, you like new things. Lemonade is the new thing on the 300-year old block. But the shiny new aspects that Lemonade are bringing to the table don’t appear to be worthy of the hype in my opinion. I give them an A for effort in maximizing the hype to drive attention and sales. But insurance is all about the long game. The real KPIs are retention, combined ratios and customer satisfaction. Those will take years to sort out. Are they truly in it for the customer, do they really want to revolutionize the business model or is the exit strategy already in place. The world is watching. I hope they succeed.
About Nick Lamparelli
Nick Lamparelli is a 20+ year veteran of the insurance wars. He has a unique vantage point on the insurance industry. From selling home & auto insurance, helping companies with commercial insurance, to being an underwriter with an excess & surplus lines wholesaler to catastrophe modeling Nick has wide experience in the industry. Over past 10 years, Nick has been focused on the insurance analytics of natural catastrophes and big data. Nick serves as our Chief Evangelist.
New stuff is awesome, and everybody loves Lemonade. What Lemonade is trying to do for the consumer is awesome, the way they're doing it is questionable. They're not really P2P. There is no peer element. The app is slick, but is it really InsureTech? The charity part sounds good, but it's for marketing. They're still getting 20% of your money as the broker, a fact that's not super clear.
This article lead to Nick joining InsNerds' Board of Directors as our Chief Evangelist in late 2016. See, being a guest author pays! (Not in cash, but in recognition, sort of. Mostly now he gets 30 group texts a day and Carly has a more mature Tony to keep in check. Seriously she's outnumbered now!).
77 thoughts on “Don’t Believe The Hype – The Lemonade Story”
Hi Nick, I’ve been following Lemonade closely since before they launched with a mix of both curiosity and suspicion. I’ve also posted many a comment elsewhere taking them to task for statements they’ve made which don’t add up, are naive, or are derisive of our existing profession.
However, I wanted to add that your piece is one of the best I’ve read so far which sums up why Lemonade rubs so many the wrong way. (For all their tech age hipsterism, they are motivated by the old-fashioned, almighty dollar like anyone else.) Really nice work here.
Stephen D. Forman, CLTC
Thank you for saying that insurers make money from denying a claim. It upsets me the most also. I work in the industry as well and it just isn’t true. Denied claims still cost the company money. They still have to pay the adjusters and end up losing money. Every time I see this ad it drives me insane.
“or all their tech age hipsterism, they are motivated by the old-fashioned, almighty dollar like anyone else”
Yeah except how many Insurance Companies do you know of that are a B-Corp? Probably 0.
“just keep in mind that having options [visiting agent in person or on the phone] makes the experience better.”
My issue with this statement is having these options is not the cost-free bonus that is presented in this piece. Having brick and mortar stores costs a significant amount of money. If I’m a digital-only customer, I’m having to subsidize those costs despite never using them. It also disadvantages people in rural areas who can’t easily get to a branch. The phone is the similar, just with a lower overhead cost than the physical branches. This is why banks have started charging money for paper statements to be mailed. If an insurer wanted to charge extra to people visiting/calling their insurer, I’d be happy as a digital-only customer since I wasn’t having to subsidize their older-fashioned (IMO) way of operating.
Obviously, while we still have generations of Americans that were not digital natives, having brick and mortar stores can still be an easy choice to make. But millennials and younger generations are increasingly looking for more digital-centric options, especially if they can pass along savings by getting rid of physical branches. Millennials are also more interested in B-Corporations, so another plus for Lemonade.
If Lemonade rarely sends money to charities as you predict, I could see this PR being looked back on as hype, but if it delivers – I think will be an exciting change in the field.
The idea that Lemonade is passing along the bot efficiency dollars to you or customers in the form of lower premiums is a bit far-fetched. The article points out that the brokerage arm gets 20%, which actually means Lemonade gets 5% or a 30% raise over standard brokers that you can call or walk into, getting 15% to sell a policy. The remaining 80% goes to pay claims, so essentially the profit margin has already been split between the brokerage and the re-insurers leaving maybe a few pennies for the charities. It is amazing to me how many businesses have claims to disrupting the insurance business so they can hype an IPO. It appears that Wall Street is already tired of the story with a downgrade just today to $44 and a sell rating from a major brokerage. The closest disruptor I have seen in my 25 years in business as a broker was Zenefits. They changed the health brokerage industry forever.
Show proof Lemonade isn’t donating to charities. Because this article disagrees: https://www.wsj.com/articles/lemonade-cfo-promotes-do-good-status-path-to-profitability-to-new-investors-11598792401#:~:text=Lemonade%27s%20recent%20%241.1%20million%20donation,2%25%20annual%20revenue%20in%202019.
Article was spot on, great job! Don’t forget they just started and have no claims history data. Ultimately, claims will rise and they’ll need to raise rates, just like every other insurance company.
Research the company before getting policy. They have horrible claim process and doesn’t pay out in 3 minutes. Not even 4 weeks. They will say ooh we will pay you in 24 hours then 3 weeks later so we need more information and we need to inspect property. I already replaced everything. Thanks any way fake insurance
Hi Jeremy, I too am experiencing issues. These could be catastrophic for me well beyond just this claim, so I am hoping for some information. After my first conversation with Lemonade, they passed me off to another company who handled everything from there “on their behalf”. Nothing about this has been AT ALL congruent with their advertising and the bulk of their press. Did you experience anything like this?
The marketing of Lemonade is really phantastic (this is not ironic). They are used as a ‘role model’ from many people in their presentations. But: if Lemonade acts like the combination of a direct writer (direct insurer) and a broker with a commission of 20 % from the premium, they won’t have any cost advantage compared to their competitors – like GEICO or Liberty Mutual direct business for instance. This will also become obvious to the customers in the long run … let’s see the premium level in a few years and the renewal (retention) rate. In Germany, you simply can’t be a broker, if you offer only products from one insurer, if you don’t do any maket comparisons, and if you don’t carry out a sound need analysis. Kind regards, Jochem Schueltke
I will say, you ask if Maya the chatbot will point you towards the earthquake insurance you should have but they don’t offer and the answer is yes – “she” was actually very helpful at letting me know that my plan doesn’t cover earthquake insurance and pointed me in the direction of another policy I could purchase. That’s not to say your points aren’t valid, just wanted to answer one of your questions about it.
That’s good to know Justin. Thanks for that.
Did Maya do the same for flood insurance?
Who holds the paper for Lemonade’s homeowners policies?
Needed more valid on the drawbacks of Lemonade.
Thank you Pratheesh!
Actually, from all I’ve read, they have an exceptional pay-out policy. For example:
I also like that signing up is easy. Have you recently tried to sign up for StateFarm, All State, and other large providers? Once they have your physical address, they will bombard you with direct mail.
Not to mention that one of lemonade’s primary advantage is the simplicity. Every major provider has incredibly awful websites with incredibly awful, smothered-in-legalese terms and FAQs that nobody understands.
I find it refreshing and actually exciting that the market is being disrupted by this small company, and judging by the imitations attempts from the big insurance corps, it works:
Thanks for the comment Loreen
I get it. It looks great. I will even use them to buy my daughter’s renters insurance. But don’t kid yourself, there is still a lot of hype here. They are tiny and predominantly playing in the renters insurance space even though they want to play in the homeowners market. They aren’t really disrupting anything, yet. Technology looks great, insurance acumen looks so-so. They will survive as an insurance company, I think, but they already have competitors that have comparable products (see Hippo Insurance) so I think they will end up becoming a competitive player who has financial statistics not too different from the industry averages.
Nick, great article. I was also hoping to find out more about how they’re leveraging machine learning in fraud detection. Wouldn’t that be promising or just more hype?
No one has really looked into that and Lemonade themselves are mum about it. My guess is that with all of the effort required to be an insurer, they likely just used an off-the-shelf fraud model and plugged it in. That’s a complete guess. It’s hard to believe they have the resources to handle all of the back-office insurance stuff and to build all of the technology for the UX that they would also have the bandwidth to build a fraud model from scratch.
They use words like machine learning and artificial intelligence to generate hype and attract all the excess capital floating around in the early stage space. They don’t have any data off of which to do any learning. If they did they wouldn’t be doing ISO type stuff. The big companies are the ones with the data and the abilty to apply “machine learning” or “artificial intelligence” or big data solutions to that data. Of course those companies likely just refer to it as analyzing the data.
I think they have the excitement of an Instagram account and very pretty marketing. Time will tell with the substance, as you noted. The interesting thing (and opportunity) to me is that they are shining a light on how starved the market is for fresh ideas and pretty marketing — and quite honestly, lifestyle. I think people want their services to match their lives. Just seeing this article after Lemonade’s gun control announcement today. I hear you on all these points, and we’ll all be watching to see how this plays out.
What are your thoughts about Hippo insurance?
I am worried a bit about Hippo. I appreciate their technology, but it’s a tough line of business and they are not making much buzz. Especially compared to Lemonade. In personal lines, sales rules
What are your thoughts about Hippo insurance
Nick, I have to say I really enjoyed this artical. Thank you for writing it. I found it very helpful and informative. I just found out about Lemonade and googled for reviews. Yours popped up and I am so glad it did.
I hope you don’t mind a question. I do not know much about insurance but I do have renters with State Farm. The policy is $30,000 with $1 or 2 thousand dollar deductible (I don’t remember which). When I was checking and googling about different insurance companies, it seemed that everything was saying for renters, State Farm is the best. I pay $29 a month auto pay. Should I stay where I am or go with some other type of policy with some other company?
Thanks so much
I was with State Farm in Atlanta and Baltimore and paid $10 a month and it covered only me (no roommates, whether they were a significant other pro not). I’ve never heard of $30/month with $1k deductible. That seems absurdly high, especially with a high deductible. I pay $6/month for both my fiancé and me on Lemonade. (We pay another $80/year for earthquake insurance but we live in San Francisco so it seems worth it.) My bike was stolen recently and the mobile claim process was very easy, and my claim was approved in minutes.
Thanks for the reply. See my reply to Clark above.
I can see the attraction to Lemonade, I got it for my daughter in college. I would never buy it for myself because: 1. I have some assets I need to protect that are important to my family, 2. I get discounts for bundling disparate coverages such as auto and 3. I am lazy and I don’t want to manage my insurance personally, so I prefer to work with agents who can do most of the managing for me.
As far a the price Clark pays, it seems Clark has replacement value much higher than a traditional tenants policy which explains the higher cost.
Thanks for replying. I can’t make a recommendation without having some serious regulator action come upon me, but let me do a pro/con between SF and Lemonade.
For State Farm:
Pro – A+ rating, giant balance sheet. Super highly likely they will pay their claim in a natural disaster. They have a full suite of products so a customer would have no issues acquiring coverage for most things, most everywhere in the US. You can get bundling discounts with auto coverage. Because of their size, they have the capital base to be one of the lower cost providers and have generally been known to be that. They can write business below cost and still be profitable: https://www.insurancejournal.com/news/national/2017/03/01/443224.htm .
Con – Traditional insurer. Agent based. Claims can take some time to resolve. Digital interfacing is pretty lacking.
Pro – digital interfacing is modern. The use of bots allows simple transactions to be done in seconds. super cheap rates (that is a con as well see below). Extremely socially conscious.
Con – no rating. Tiny balance sheet. As they move in states with natural catastrophes, this will become an issue. Super cheap rates, which will put pressure on their balance sheet. This will be a short term phenomenon. Their rates will need to rise in the future. Another con is their self-righteousness. This will be a pro for some but every time I read an article from them I think of this video: https://www.youtube.com/watch?v=TMTkedIUX8U
I personally have a travelers renters/auto policy for the discounts. My daughter is a college student in California and I bought her a Lemonade policy.
Have you noticed that deductibles. Yes the policy is cheaper but for homeowners in Texas the deductible is approximately 4.5% as opposed to 2% standard for wind/hail. They will not stress there balance sheet if someone cant file a claim with less than 20,000 dollars damage to a 400k replacement cost house. That math works out in their favor big time.
Nick, how dare you criticize Lemonade, the new emperor of the insurance industry.
Surely this lemonade business model is beyond reproach and will be the down fall of every “incumbent” insurer.
Nick your article is spot on, but a bit overly generous to Lemonade by not going too insurance geeky on us and calling out even more technical flaws with Lemonade’s approach.
Lemonade claims traditional insurance carriers make money by denying claims. Only a guppy could swallow that swill. Has Lemonade never heard of Insurance Bad Faith and a weaponized internet? Insurance carriers get crushed in courtrooms every day because they screw up claim settlements. Angry, ill-informed consumers find dark pleasure using the anonymity of the internet to disparage any perceived slight. There is no incentive to deliberately cheat consumers on insurance claims. Plus, insurance companies are made up of real people not Randolph and Mortimer Duke. Those real people want to go home at night without ulcers and a guilty conscience. Nothing would make them happier than to pay claimants everything they want. But what claimants want and what they’re contractually owed have to align.
In my years of experience I have never seen an insurance carrier deliberately cheat a consumer. On the other hand, I’ve witnessed far too many consumers lie on their applications and their claims.
My instincts tell me the founders of Lemonade, while well-meaning, are incredibly naive. Most consumers are motivated by self interest. (See Ferengi.) They may sign up with Lemonade because it feels good. When that fork in the road presents itself, though, cognitive dissonance will send them down the road of self interest.
When their books are bleeding red because their socially conscience customers become personally irresponsible the Lemonade kids will want to take a listen to The Who’s 1971 classic, “Won’t Get Fooled Again.”
Just the idea that you could have a business model based on people wanting to ‘do the right thing’ is a heartening and worth while experiment. I’m all for it. But thanks for the clarification – transparency is all to the good!
In answer to your statement:
“Lastly, I want to challenge the major premise of Lemonade, that insurers make money by denying claims. As a professional in the business for 20 years, this is the one selling point that Lemonade and it’s marketing keeps touting that upsets me the most. It upsets me because it isn’t true. In fact, I have seen the opposite. I have seen emails or communications from senior executives to staff adjusters onsite during a natural disaster that flat out instructed their adjusters to move quickly, be fair and if there is any doubt about the damage, settle IN FAVOR of the policyholder.”
Well in my experience of health insurance (same business model, yeah?) whether from the desire to keep money as long as possible, or sheer incompetence or just old, unscalable bureaucracy, submitting claims is a pain in the ass – if you’re lucky. Talk about ripe for disruption…
“My instincts tell me the founders of Lemonade, while well-meaning, are incredibly naive. Most consumers are motivated by self interest. (See Ferengi.) They may sign up with Lemonade because it feels good. When that fork in the road presents itself, though, cognitive dissonance will send them down the road of self interest.”
My instinct tells me that the above is obvious. So obvious that a bunch of intelligent entrepreneurs must have some idea of it. It’s easy for those who live in a particular paradigm to see any deviation from it’s principles as ‘naive’. But I don’t think it’s the cautious cynics who disrupt industries. The point is to try to close the gap between self interest and good business in creative ways. Also, I’m a great believer in the idea that if you assume the worst, you’ll perpetuate it.
Good article though – thanks!
Thanks for your replay
Health insurance and Property & Casualty are vastly different. It might have the word “insurance” in it but it’s a completely different species.
Has anyone done an analysis of their rates? My (uneducated) guess is that their “algorithms” err strongly on the side of caution and that their rates are only competitive in areas with relatively low risk of natural disaster exposure. They might throttle that down after a few years of success, but their marketing is fairly dependent on being able to show large charity payouts.
Thanks for the reply Jordan
They are taking a beating on their loss ratios right now. I have yet to meet a single person yet that thinks you can profitably write $5,000 in contents and $50,000 in liability for a renters policy for $65. (especially when they are skimming $13 off the top as their own commission). They would need 96 policies to cover a single $5,000 claim.
How are they able to re-insure if the loss ratios are so poor? Wouldn’t the re-insurers be losing money too? If I’m mistaken, would you mind explaining where I’m going wrong?
Thanks in advance.
I really enjoyed your article.
there just needs to be enough of the premium available to cover whatever level of risk the reinsurer will takes. Reinsurance can be structured many different ways to decrease risk ie it could be layered, for a 50k liability component RE coverage only kicks in between 40-50k, they would know the math on how many liability claims make it to that tier, obviously far less than 0-40k. One example of structure, but there are many
Thank you Nick! Your article brings objectivity for customers and investors, to whom Lemonade’s communications are being targeted.
Beyond Lemonade, there is an unfulfilled need and expectation in the market for more transparency, easier to understand products and hassle-free quoting-issuance-service-claims process that Lemonade and other (new or existing) players are trying to address.
Lemonade insurance? Claims are the lemons and they make themselves wealthy collecting Lemonsde Premiums! Full value $$ on your loss, nope.
Fast return electronically? Ha ha ha.. try 4 months of back and forth and lies. Trust me, I am going to the California Insurance Commisioner with this!
Do you mind providing some general info on the case – would love to know why so long against their bold claims
Nick, wish I would have read this article before becoming another bad review. Their statement …
When filing a claim, if you have receipts that’s great! But, we know that not everyone saves their receipts. Tip from us: make sure to keep your receipts on the more expensive stuff you buy—say $250 and up. That way, we can settle your claim more quickly. Even if you don’t have the receipt, keeping note of where and when you purchased more expensive items will help us help you. Please note that if you have a claim, we’ll always work closely with you to identify suitable replacements.
… is completely false. If you do not have a receipt or proof of ownership, they will not cover you. In fact, in my own experience, they become aggressive and insinuate that the victim (me) is guilty of trying to perpetrate a fraud. Obviously they do not want to pay claims.
Sad to think I finally found an insurance company I could feel good about.
I just did a quote on Lemonad’s web site and it was $300/yr more than my current insurance.
Any additional comments about Hippo. You had mentioned earlier that you weren’t so sure about them. Has your opinion improve or gotten worse? I’m thinking about going with them but it’s hard to believe their cheap prices. They don’t have much claim history online either.
I (Tony, not Nick) am a big fan of Hippo. I’ve chatted with their leadership a couple of times and I think they’re the real deal.
I like Hippo. I like all the insurers who are sticking their necks out trying to make a better business model. What I was unsure about was whether their business model attempt would work or not. Hippo is run my pretty solid business people. I think they will be fine. I personally would not try to compete in straight up homeowners given how competitive it is and how thin the margins are. I think the upside is limited, but it’s becoming clear that Hippo (and Lemonade) are the top of their classes for their models.
First off, great article! I was wondering what are you thoughts now that they have grown a bit? Do you think that their expanding base of customers (millennials) have or will contribute towards solving some of these issues you mentioned (balance sheet problems, reliance on reinsurers, claim frauds)? Is Lemonade’s pricing still more competitive than the market now and if so will it be able remain?
Also, just trying to understand the industry a bit more, from what you said, Lemonade in essence directly takes 20% of all payments as revenue. How does this compare with traditional insurance firms? (Whats the margins like for them?) Does getting rid of humans and using bots really save that much costs?
Thanks a lot,
Yes, the law of large numbers is the saving grace for insurers. They are beginning to mature, they are beginning to lower their combined ratio, they are beginning to become a traditional insurance company with all of the same financial pressures that they all face such as the need to raise rates, worry about losses & they are are starting to feel the heat from reinsurers who are currently absorbing most of those losses. So while they showed up touting a new business model…they are a digital version of the same ole business model. Which is what I predicted.
Thank you for your article. I make it a habit to research a new company prior to making a commitment to do business with them. I, wholeheartedly agree with your statement about “waiting to see how they handle a natural disaster”. I live north of Houston, Texas and believe me, I think their company would have gone under if they had to deal with Hurricane Harvey. We were blessed to not receive any damage, but many, many people in the area were not so fortunate. I just got a quote for Lemonade Renter’s Insurance and reduced coverages for each item as low as possible and the quote that I received was $9.25 per month. While this is less than I am paying currently with Progressive Property and Casualty, I am choosing to stick with my current carrier which is less than $4.00 more per month ($13.22). I’m going to take a sit back and watch approach before considering changing to Lemonade. The concept is refreshing and I prefer to do as much without having to interact with a company’s IVR as possible. I appreciate that more business can be handled online, at any hour of the day or night. The concept of donating to a good cause is an enticing part, but the untested territory of paying claims is still too risky for my pocketbook.
Uber sophisticted? Oh, yeah. So much so that they “forgot” to have any means of logging in to their website.
This is supposed to be state of the art? Well, it’s not even web 1.0. Bought a policy, found better coverage for ~ pennies more, can’t login to cancel my Lemonade policy.
Oh, and there is no contact button or form. Hey, working on that customer retention, right?
Arrogant putzes, more like. (using latest Chrome on Win7)
I am new to the insurance industry and have no affiliation with Lemonade. At the same time, I am no stranger to what modern technology and business model innovation looks like in a number of other industries.
Insurance, as an industry, seems to have ultra-conservatism built into its DNA — ultra-conservatism to the point of resisting innovation to its last breath. It makes sense: the essence of the worldview of insurance is the hope that nothing bad ever happens. The only way to ensure that nothing bad ever happens is for nothing new to ever happen. Reading many of these comments here and in other places online helps me understand why this industry has been so slow to innovate. It’s a foreign concept.
You can tell that a small startup is on to something big when so many from the established industry start reacting so fearfully and hatefully — including this piece. My favorite comment (not in this thread) was “You mark my word, Lemonade will be out of business in a year.” The date of that post was a few years ago.
This industry should really come up with a policy to insure itself against disruptive innovation. That seems to be the only way it knows how to deal with it.
Now, a few reactions to this particular piece. As a “veteran of the insurance wars”, I’m sure you can handle a small frontal attack.
What is this “machine language” of which you speak? Do you happen to mean machine learning? Or perhaps natural language processing? If you do mean machine language, you’re in a very different generation and style of technology than what Lemonade is innovating with.
Can you please define “insurtech” before saying that Lemonade is not insurtech?
At least I think you are trying to say Lemonade is not insurtech. If there’s a logical structure to this part of your debate it would be called “non sequitur”. To paraphrase: “Lemonade is not insurtech because I personally don’t like their technology.”
Most of the criticisms of Lemonade I see online from the armchair entrepreneur critics are of the form, “I don’t see how they can make it work and I’m going to pretend that it is impossible for a start-up to ever pivot, therefore they are doing it wrong”. As they continue to grow, these arguments look more and more ignorant. For successful startups, pivoting a business model is not an exception to the rule. It is the rule. Seeing someone pat themselves on the back for predicting that a startup will change is kind of humorous.
One example: “Lemonade will have to deal with fraud despite their use of P2P and charities, therefore Lemonade will fail.” Do you really think they don’t know the realities of fraud and aren’t already working on solutions *in addition to the ones they have already talked about*? Do they have to spell out what each employee in their business does in every article or blog post in order to satisfy the armchair entrepreneur critics? I’d like to see a single one of you critics write down on paper a plan for an insurance business as innovative and full of potential as Lemonade has created, let alone execute and achieve the results they have achieved thus far.
“The world is watching. I hope they succeed.” Your sincerity is overwhelming. 🙂
Since the article was written over two years ago, I have now have two more years of data to consider in my evaluation of Lemonade. All this new data supports my original version of the article.
These are experienced entrepreneurs who know how to raise money, build a product, generate hype and as we will see in the next year or two, exit out, handsomely profiting their investors and themselves. Have they raised the bar? Without a doubt. Has their success been more about this revolutionary new approach to insurance or the hype? Without a doubt its the latter. They are morphing into a digital version of a traditional insurance company…as I have predicted in various outlets. The gravity of the economics that drive the industry are sucking them in like a black hole. The law of large numbers are beginning to rescue their loss ratio, they are now desperately seeking new distribution sources (ie brokers), they are feeling the pinch from their reinsurers who were/are bearing the brunt of their losses, prices are going up, claims denials are increasing and slowly but surely we are hearing the complaints of policyholders who have been denied claims or have had poor customer service (read some of the comments here).
Making matters worse are that they are in a small sliver of market, with now lots of copy cat competitors and will need a massive amount of capital (via investment and reinsurance) if they are going to get the premium growth needed to justify that massive valuation. Reality has sunk in. I appreciate the new bar they have set for a digital experience, but at the end of the day, they now face exactly the same problem any other startup in insurance face, just with massive expectations. Which is ironic, because their claim to fame is/was how the insurance industry has this massive conflict of interest where for every $ in claim denied, was 1$ in profit. Now it is they who are denying the claims in order to get their loss ratio under control.
Will they be around in 5 years? Of course. My guess is that they will be a lot larger than they are now, with similar financial results to their competitors. I also guess that the current slate of owners will be long gone and most of their investors will have cashed out and a new team of investors (the public most likely) and management will need to manage a new set of expectations.
Nicholas, thanks for your response. Could you please point me to the sources/data behind the changes you have seen in Lemonade?
Coverager.com has written several articles on Lemonade. Here is one: https://coverager.com/lemonades-cards/
Follow Matteo Carbone as he is following all of the insurtechs: https://www.linkedin.com/pulse/mo-premium-losses-insurtech-start-ups-get-big-matteo-carbone/
And here we go: https://www.calcalistech.com/ctech/articles/0,7340,L-3763547,00.html?utm_source=Coverager&utm_campaign=c016ee7030-EMAIL_CAMPAIGN_2017_10_07_COPY_01&utm_medium=email&utm_term=0_4d21ab2376-c016ee7030-280134605
PS – typical with the hype, this article gets many things wrong. Equating revenue with premium and hinting that Lemonade has the superior market share in renters insurance, when they are a small player currently. Also, life insurance is an incredibly difficult product to sell, its amusing to see how, if the process could only have a smoother digital experience, sales would increase…which couldnt be further from the truth.
….I investigated Lemonade Insurance for my needs. On 2 separate occasions, I applied for auto 7 then homeowners insurance. After inputting my zip code….Denied both times.
DO NOT PURCHASE insurance from this company. Signed up with Lemonade about a year ago. Purchased an additional rider for electronics, bicycles and also paid for the increased “replacement cost” coverage. My premiums are about $19/mo. Unfortunately I had to file a claim due to a burglary and Lemonade has been a nightmare. The adjuster contradicted themselves in numerous emails, repeatedly claimed Actual Cash Value despite the Replacement Cost coverage and had the nerve to email me a link for a used $80 apple watch on EBAY, complete with “dings and scratches” to replace my stolen one. Macbook Pro, Ipad mini and Apple watch (all currently supported) = $621 payout, not including the deductible! Save yourself and stay/go with the stuffy brick and mortar companies …. No one pays insurance premiums to buy someones used crap off EBAY.
Lemonade abruptly cancelled my insurance. After numerous emails to “Diane” I was finally able to extract a reason why. Apparently they do not insure “old” houses. Even though ours was extensively renovated (gutted to the studs, all sheet rock replaced, and brand new electrical, plumbing and heating systems installed.) The house was also completely re roofed. We passed State construction, plumbing, electrical, fire and safety inspections less than a year and a half ago. We offered to provide their underwriters with this documentation, but they were not interested. They also seemed to have an issue with the fact that we were in the process of repainting the exterior, although they insist that the interior and exterior be well maintained structurally and cosmetically, and houses do occasionally have to be repainted. Oh and we do host through AirBnb (only when we are present in the house) another no no.
I am sure many of the Millennials that they have targeted have homes that fall into these categories.
Of course Lemonade is entitled to set whatever guidelines they choose. My issue is that they are not transparent about this during the application process. The result is that I feel I was tricked into giving Lemonade several hundred dollars for a service that they have no intention of providing. If I had filed a claim while my insurance was “active” I am sure that Lemonade would have used all of the above excuses to deny my claim. This policy (bait and cancel) is potentially very profitable for Lemonade.
We do not currently have a mortgage, but the consequences for those that do could be dire. This is something that despite Lemonade’s social conscious posturing, they clearly do not care about.
They could have disclosed these criteria up front, but chose not to do so. In their rush to automate the application process they have created a situation where people are going to feel that they have been scammed by Lemonade. I know I do
So you never read the policy and expected them to absorb the liability of strangers in your home.
“Oh and we do host through AirBnb” – I want my cheap insurance. I want my money from strangers… who might total my place. If that happens, I want to file a claim for $1000’s with a $25 deductible. and be made whole fast, on my iPhone! I won’t properly screen my “guests”, why should I? That’s what insurance is for… tee hee. I was canceled. Unfair! I have a right to make money by turning my home into a commercial establishment without having to pay commercial risk premiums. Unfair!
I’ve had Lemonade for a little over a year. In that time I’ve had two claims.
1. Water damage (caused by us) to downstairs apartments. Filed the claim, had one basic conversation with the company. Paid $9k+ to my landlord without another word from them.
2. In June, we had a total loss of our home from fire (not caused by us). We hired an adjuster and we’ll be seeing the full, 100% payout of our renters policy. We gave them no receipts, nor were they requested. Just values (I did have receipts for almost everything anyway). Of course our experience would’ve been different if we’d handled the process ourselves, but just as I wouldn’t litigate for my freedom without a lawyer, a claim like this is clearly beyond my skill set.
I’m not sure if the Lemonade policy or the adjuster we hired was the best money I’ve ever spent, but it’s one of them.
would be highly interested in knowing if you are still a policyholder?
Check this out. you cannot sue them. you waive any right to get more than 6 months premiums or 100.00, whiceve is more based on the contract you electronically agree to before getting a quote.
the contract will take 30 minutes to read. who will spend 30 minutes reading their contract before you are to get a quote. Nobody. contract wording below.
OUR TOTAL LIABILITY TO YOU FOR ALL DAMAGES AND LOSSES SHALL NOT IN ANY CIRCUMSTANCES EXCEED THE GREATER OF (A) $100, OR (B) THE AGGREGATE OF THE AMOUNT (IF ANY) PAID BY YOU IN THE 6 MONTHS IMMEDIATELY PRECEDING BRINGING OF A CLAIM AGAINST US OR OUR AFFILIATES.
This is actually from their website TOS, not the insurance policy:
“IN ANY EVENT AND WITHOUT LIMITING THE GENERALITY OF THIS SECTION TO THE EXTENT PERMITTED BY LAW YOU AGREE THAT…” https://www.lemonade.com/terms-of-service
“In fact, I have seen the opposite. I have seen emails or communications from senior executives to staff adjusters onsite during a natural disaster that flat out instructed their adjusters to move quickly, be fair and if there is any doubt about the damage, settle IN FAVOR of the policyholder.”
Well written, but this is anecdotal evidence. As someone who has been in the industry for so long, any data to back this up? Until then this is just unsubstantiated opinion.
ah yes, let me go find that email and share it with you…
3 billion market cap on 67 million in revenue (2019) (loss of over 100 m for the year).
What are we missing?
I enjoyed your article. Thank you.
not much mention of the potential of their AI ? That’s got a lot of disruptive potential…
well, what does the AI do?
They are not transparent at all. They have pages describing how much more sense it makes to not get carrier insurance to protect your phone against things like accidental drops, how with them their basic insurance covers phones and everything else. I’ve been with them for about a year now, dropped my phone, made a claim and was denied because of a line on page 9 that says falling objects are not covered. There is no additional coverage to protect cell phones even after they go on and on about how carrier insurance is a waste of money. So I have to pay out of pocket to fix my phone and the carrier insurance I refused because of what i read on their site would’ve saved me money. Most likely I’ll file a small claims suit against them because of it. Their own website makes it very clear they cover cell phones and that they’re a much better choice than carrier insurance. The one line that says they don’ cover cell phones in their contract doesn’t specifically say cell phones, they simply say falling objects are not covered unless a wall or roof falls on them first. That’s very ambiguous. Plus, they put it in one line on page 9 where you wouldn’t really find it till they direct you to it. It just sucks that they would actually say, and it’s still on their site, It says: “Bottom line: If you’d like to cover all of your stuff, including your phone, at a lower price, renters insurance is the way to go.” —LIE. And: “How do I insure my phone with renters insurance? If you decide to protect your phone (and the rest of your stuff) with renters insurance, getting a policy with Lemonade is easy! All you need to do is get a basic insurance policy, which takes less than 2 minutes” —LIE. You do that, think you’re covered, and you’re not. The ONLY thing it turns out to cover is if your cell phone is stolen and only with a police report.
Good bad or indifferent, insurance is a sticky business and millennials like doing business from their phone wether it’s ordering pizza or insurance. They’ve gotten to almost a million customers quickly with a very well designed, easy to use app. They will continue to grow, they have a path to profitability and will be an insurance “player” in 5 to 10 years.
This article isn’t going to age well.
Lemonade is the future. If you can’t see it, you’re just blind.
Prob a much of the future as flying cars
Amy, how did this company do in Texas during the recent freeze? hope you and your family are doing well there.
“The paper on which the insurer is based is a B-corporation, which essentially makes it a non-profit.”
This is factually incorrect. A B-corp is not a non-profit.
Thanks Zach for responding. They area B-corp and have pledged to give all premium dollars after claims to charity. The carrier element of their model is punting the profit making element of the business. It’s a part of the “it’s not our money” strategy that they think will resonate with younger consumers. The agency part of their business is the money maker.