Lemonade reaches 'one million customers' milestone
The swiftly growing company that emerged as one of the most successful IPOs of 2020 and recently launched its life insurance products, shared the information in a release of last year's financial results.
The company confirmed, in a typically layman's terms manner, that despite some ups and downs in their four-year journey, where they had attempted to, "walk and chew gum at the same time", they have now reached a point where they can now move forward "without too much drama".
Lemonade's investments have risen significantly, reflecting the company's market confidence. Funds hit $578m in December 2020, up from $330m in December 2019.
Lemonade's disruptive philosophy
As one of the globally, Lemonade's approach to business has taken a customer-centric approach. The company's AI-powered platform uses behavioural economics to replace brokers and bureaucracy with bots and machine learning.
These solutions, which have created a zero-paper, instant response service, have been coupled with the insurtech's social programmes. A Certified B-Corp, Lemonade gives unused premiums to nonprofits selected by its community, which have included tree-planting projects, providing healthcare and others.
The company underwent a drastic transition last year, at the time of the company's IPO, moving from a monoline business to a company that now provides three types of insurance, namely (P&C, term life and pet health cover, term life. According to reports, more products are due to be unveiled soon. Lemonade has also diversified its combination of new business over a wider suite of products, as well as expanding coverage for their existing customers.
"In parallel to this significant expansion of our product roster, we grew our core business dramatically while improving our underlying economics, all while turning on new countries and states," Lemonade said in an official statement.
It continued, "In force premium ("IFP") increased 87% year-on-year, to $213 million. We concluded 2020 with over one million customers, a milestone reached after just four years in business. It took USAA 47 years. This 5-10X acceleration – relative to the biggest and best incumbents – emboldens us to lean in to the opportunities we've identified."
The company's executives also noted that 2020 concluded with a premium per customer of $213 - which is a 20% increase year-on-year and marks Lemonade's sequential quarter of accelerating growth.
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.