How Lemonade tore up the insurance rulebook

File a claim with this Real Innovation Awards winner and in most cases you’ll find a chatbot handles it quickly and efficiently


Insurance is not an industry historically associated with disruption. In the past it has rarely been mentioned in the same sentence as the word innovation. And the idea of insurance claims being dealt with by a chatbot would have probably sounded more like a work of science fiction. But that has all changed since 2015, when insurtech startup Lemonade began tearing up the insurance rulebook and doing things their own way.

While traditional insurance firms have followed the same rigid format for centuries, Lemonade’s founders Daniel Schreiber and Shai Wininger set out to shake up the market six years ago by harnessing the power of AI and big data to replace paperwork and bureaucracy. They also wanted to attach a social good mission to their New York City-based venture, to attract tech-savvy clientele who also wanted ethics alongside innovation.

The key to this disruption is that the founders knew nothing about the insurance industry, an unloved sector that innovation had passed by. Their outlier position enabled them to think of things that no one else had.

No mean feat, but their ambitious business model is already proving itself: Lemonade boasts more than one million global customers after only four years in operation. Their staggering progress has been noticed by business peers and beyond. Last year Lemonade received the Harnessing the Winds of Change Award, part of London Business School’s Real Innovation Awards.

Lemonade boasts an inspired team behind the scenes, intent on continuing to push the envelope in the sector. Among them is Yael Wissner-Levy, the company’s VP of Communications who, after several years in journalism and speech writing, was attracted to Lemonade by the founders’ vision to “reinvent such an unloved sector that had gone unspoiled by innovation, and do it through a mix of value, values, and technology,” she says. “Lemonade's unconflicted business model, B-Corp status, and use of AI stood out to me as something I wanted to help build and grow, and create this model of doing good by doing well.”

For all its innovation, Lemonade ticks all the areas of insurance you’d expect. Its wide-ranging services include renters, homeowners, life, and pet health insurances, which are available to customers across the US as well as France, Germany and the Netherlands. And the company has recently announced it will launch Lemonade Car. But scratch the surface and there are fundamental differences, says Wissner-Levy. “We like to say we’re a tech company doing insurance, not the other way around. Insurance is all about data, and Lemonade is built completely on a digital substrate.”

While traditional insurers’ gross profits are the difference between premiums taken in and claims paid out, giving companies an incentive to refuse to pay claims, Lemonade’s innovative business model has been designed to eliminate this potential conflict of interest between insurers and the customer. Instead they take a fixed fee, typically 25% of premiums, while using reinsurance to limit losses from high claims. And the cherry on the top of their offer: in years of low claims, giving excess underwriting profits to charities their customers choose, tapping into a growing consumer appetite for giving back.

“We flipped the insurance business model on its head,” adds Wissner-Levy. “The relationship between insurer and customer is one that historically was adversarial in nature – two parties fighting over the same money. We removed the conflict of interest and take a flat fee from each customer, leaving the rest to pay claims. So, we're never in conflict on paying legitimate claims.”

The leftover premium then goes into the Lemonade Giveback, an annual event whereas the Lemonade community donates to the charities chosen by their customers. “By donating underwriting profit to charity, we align our financial interests more closely with our customers, reducing the prevalence of fraud and building brand loyalty,” confirms Wissner-Levy.

So far so impressive, but how do Lemonade make good on all these promises in a multi-billion pound industry where consumers want their claims dealt with efficiently and effectively? Well that’s where the technological innovation really comes into its own.

Photo credit: Ben Kelmer

“By replacing brokers and paperwork with bots and algorithms, the company can pay claims in seconds”

Using AI means the team at Lemonade are able to do things that are simply unavailable to incumbents. In short, by replacing brokers and paperwork with bots and algorithms, the company boasts they can pay claims in seconds, improve efficiencies across the boards and sell policies around the clock.

But with such an emphasis on innovation, isn’t there a risk that the human experience will be lost among all the faceless, slick technology? Unsurprisingly the clever folk at Lemonade have thought of that too, explains Wissner-Levy.

“A great example of this balance is how we pay claims; 96% of the time, it is AI Jim, our claims bot, which will take the first notice of loss from a customer making a claim. AI Jim handles the entire claim through resolution in approximately a third of cases.”

She continues: “For claims he is not authorised to settle, or ones where he identifies concerns, AI Jim sends them to our human claims experts but where human escalation is needed, AI Jim will have done much of the heavy lifting so our team can settle claims and support customers in their hour of need as quickly and smoothly as possible.”

Innovation might be the lifeblood at Lemonade but even this forward-facing set-up could not have predicted the impact of the global pandemic, confesses Wissner-Levy. In the early part of 2020, with the full impact of Covid-19 unknown, she details how the company set out on a “defensive footing.” That meant marketing spend was slowed, non-essential hiring was suspended and they offered to defer customers’ payments. “Then, we braced for impact. We expected to see a spike in churn, a drop in demand, and a hit to our cash flow.”

But nothing materialised. Instead, their digital first approach meant teams continued to work remotely alongside the Lemonade bots, who continued to sell policies and pay out claims, 24/7. To the relief of Wissner-Levy and her colleagues the business has “proven itself to be more resilient than we might have feared at the beginning, which is also reflected in the figures.” More than weathering the storm, the company saw growth, enabling them to expand their offer to include Lemonade Life and announce Lemonade Car, while branching out into more US states and European countries. 

Their offer continues to pique the interest of investors too. After raising $300 million in funding in 2019 (bringing the total raised to $480 million), Lemonade went public on the New York Stock Exchange in July last year, making it one of the more successful IPOs of the year.

This success has led to “incredible” recognition from LBS and others, says Wissner-Levy, but there is no time for sitting back and celebrating. Rather, there is more work to do for the pioneering team, in harnessing changes in technology and consumer behaviour and redefining our very perceptions of what an insurance company is.

“As Lemonade CEO Daniel Schreiber says, it is the most 'disruptable' industry in the world: look at its size, how it has gone unchanged by innovation, and quite frankly, how it's unloved,” concludes Wissner-Levy. “The enormity of the industry together with the market opportunity = disruptable. And we’re very excited about what is yet to come.”


Institute of Entrepreneurship and Private Capital

This article was provided by the Institute of Entrepreneurship and Private Capital whose aim is to inspire entrepreneurs and investors to pursue impactful innovation by equipping them with the tools, expertise and insights to drive growth.