The insurance industry is one of the largest and oldest industries in the world.
Insurance is an over-$5 trillion industry worldwide. As of October 2020, 2.83 million people work in insurance in the United States alone. And most insurance companies are over one hundred years old (if not older), established during and/or shortly after the Industrial Revolution.
Problems with present day insurance
Insurance is ripe for disruption
Despite being a large, old, and disliked industry (elements that point to the need for change), insurance has undergone very little innovation, despite the arrival of the Internet, artificial intelligence, and smartphones.
Numerous “InsurTech” companies have arisen (Root, Policygenius, Next Insurance, Lemonade), but none have caused significant disruption...
How can these problems with insurance be solved from a first principles analysis?
“First principles is a physics way of looking at the world. And what that means is you boil things down to the most fundamental truths . . . and then reason up from there.”
data-driven + AI
Increasing customer delight through...
Behavioral Economics is the study of psychology as it relates to the economic decision-making processes of individuals and institutions.
"Today’s insurance construct makes our peers invisible (strike 1) and casts our insurer as our adversary (strike 2). Lemonade’s insurance model changes both, eliminating the adversarial dynamic, realigning incentives, introducing transparency."
Insurance companies have an incentive to deny claims in order to boost profits. Lemonade’s transparent flat fee removes the incentive to deny claims since revenue is fixed.
Any leftover money is given to non-profits chosen by customers such as the American Red Cross, Teach for America, and UNICEF.
Lemonade’s Giveback Program removes the incentive for customers to commit fraud because such actions would essentially be “stealing” money from their chosen charities.
Harnessing the Power of Big Data
Lemonade’s AI carefully analyzes your video submission for signs of fraud, especially non-verbal cues that traditional insurance companies cannot and do not collect since they do not use a fully digital claims process.
Lemonade’s Data Advantage
By using artificial intelligence (AI) and machine learning Lemonade continually improves their underwriting, gets better at detecting fraud (by analyzing videos sent in by claimants), and streamlines their internal workflow and customer interaction.
These continual improvements ultimately lower their loss ratios (a key metric for their success) and overall operating costs.
Lemonade’s use of AI and automation extends to their internal processes through their digital internal workflow manager, AI Cooper.
This allows for a level of data integration among departments that is not possible with traditional insurance companies where departments are siloed off from each other and rarely (if ever) communicate with each other.
Developing a Digital Platform
These are high costs that are no longer necessary in the 21st century with the Internet (and how easy it is to work from home), AI eliminating the need for rote human tasks, and widespread smartphone use.
AI Maya handles customer service and sign-ups, while AI Jim handles claims. By creating an excellent user interface (UI) and user experience (UX), Lemonade is able to:
1. Streamline customer interactions
2. Process claims quickly (often in a matter of seconds)
3. Cut costs by needing to employ far less human employees/agents
AI automation allows Lemonade to do things other companies cannot easily do. For example, Lemonade's AI can automatically create fire and storm warnings based on NASA satellite data.
During the California Woolsey Fire and Camp Fire in 2018, Lemonade’s Project Watchtower was able to detect heat signatures allowing the Lemonade team to turn on their Catastrophe Response Procedure and form a war room to focus their energy on that area. They were able to relocate 71 families to safety.
Lemonade’s Tech Stack
Lemonade’s tech stack employs AI to streamline interactions with customers and within the company, allowing Lemonade to have far fewer employees than traditional insurance companies.
Lemonade estimates that competitors employ one person for every 150-450 customers, whereas Lemonade employs one person per ~3,000 customers.
Be a part of the Insurance Disruption.
Lemonade is harnessing the power of AI to delight their customers and rapidly gain market share. Explore how our Fintech Disruption Strategy aims to take advantage of these changes.more about Our Strategy