Critics Say Lemonade is Traditional Insurance in a Fancy Wrapper
Numerous anonymous analysts have called Lemonade a regular insurance company in a fancy-looking tech wrapping. The anonymous analyst entitled “General Expert” writes that Lemonade is “just an insurance company with a fancy website.” The Friendly Bear writes, “Lemonade has no secret sauce. It is a plain vanilla insurance company (primarily selling renters insurance) that reinsures all of its risk.”
Anonymous critics are always suspicious. If they are confident of their criticisms, why hide? Do they have a hidden agenda? Are they writing for Lemonade’s competitors? Are they short sellers?
While we should be wary of anonymous critics, there are still notable and well-respected critics such as ARK Invest’s Nicholas Grous, who says, “What [Lemonade] has really done is take a friendly UI [user interface] and friendly UX [user experience] and put it into a legacy insurance, essentially wrapped it around a legacy insurance business. So nothing too much differs from what a Lemonade policy renters insurance offers vs. State Farm or Allstate” (Ark Invest August 2020 Webinar, 35:34-35:58).
We have the highest respect for Ark Invest, Cathie Wood, her analysts, and their fantastic work investing in disruptive innovation. However, we disagree with Ark Invest's evaluation of Lemonade as merely a traditional insurance company wrapped in a friendly UI and UX.
It may be possible that Ark Invest has changed their view on Lemonade since August 2020, but we are unaware of any public statements on Lemonade since August 2020.
In order to respond to Ark Invest and anonymous critics, we will start with one example of Lemonade's tech advantage over traditional companies.
One Example of Lemonade's Tech Advantage: Automated Data Gathering and Data Integration Within the Company
In the scuba gear story, Lemonade CEO Daniel Schreiber tells the story of a potential customer that asked customer service whether Lemonade would cover his scuba gear getting stolen from his car outside of his apartment. The customer service department said yes, they would cover his scuba gear. So this customer signed up for renters insurance and about two weeks later, the claims department received a claim for stolen scuba gear (source: Daniel Schreiber interview with Dave Lee Investing, 46:02-47:45).
Traditional Insurance Companies: Poor Data Gathering and Siloed Departments
Most large traditional insurance companies don’t have a high level of integration between departments. The customer service department is swamped with questions and complaints by email and over the phone, while the claims department is swamped with claims by email and over the phone.
Most companies (not just insurance companies) do a poor job of data gathering off phone calls, if they even gather any data at all from phone calls. And most companies don't effectively gather data from emails that can be meaningfully used later. A large amount of potentially useful data is lost because there is no internal workflow manager that can gather and analyze all such data.
Furthermore, in traditional companies, each department is siloed off from one another. The claims department and customer service department probably don't ever see each other, let alone communicate with one another frequently or daily.
Lemonade's internal workflow manager, AI Cooper: Automated Data Gathering and Data Integration across the entire company
Lemonade has their own internal AI bot Cooper, which manages internal workflow and automates many tasks that traditional companies hire humans to do, which obviously forces the company to pay salaries and benefits. In contrast, Lemonade automates many tasks with AI Cooper. Rather than emailing a fellow employee asking for small things like a report, a Lemonade employee can ask AI Cooper. In a previous post, we looked at how AI Cooper and Lemonade's customer service bot AI Maya use NASA satellite data to track catastrophic events like fires and storms. If something bad shows up, they automatically alert Lemonade employees and customers.
In the case of the stolen scuba gear story, Lemonade’s AI Cooper drew data from the customer service department, in order to alert the claims department about potential fraud. The customer inquiry about stolen scuba gear seemed relevant to the claim for stolen scuba gear, and AI Cooper caught the potential connection.
Of course, not all such connections are fraud; it could have been a coincidence. In fact, Daniel Schreiber never confirmed if that specific incident turned out to be fraud. But the main point remains: with automatic AI data integration, red flags across departments can be raised for human agents to further inspect. And this connection is made automatically by AI Cooper, rather than by a human employee.
Conclusion & Summary
The departments of large companies are usually siloed off from one another and thus cannot draw the meaningful connections that Lemonade can with its fully integrated workflow manager, AI Cooper.
Lemonade's level of data integration is rare in traditional companies, which gives Lemonade a competitive advantage in needing to hire and pay less employees. Lemonade estimates that competitors employ one person for every 150-450 customers, whereas Lemonade employs one person per ~3,000 customers.*
Takeaway: Lemonade's AI Cooper automatically gathers internal data and draws meaningful connections for the company. This kind of automated data integration is one of Lemonade's competitive tech advantages over traditional rivals.
*Lemonade had 329 employees disclosed in their July 2020 SEC filing, and Lemonade has one million customers as of the end of 2020 (disclosed in their Q4 2020 shareholder letter). The number of employees may have changed since July 2020.