Paying insurance claims in three seconds using artificial intelligence is one way that Lemonade, Inc. intends to gain a competitive advantage in the market for renters and homeowners insurance, according to the Lemonade initial public offering filed with the SEC on June 6, 2020.
Formerly known as Lemonade Group, Inc., Lemonade, Inc. was incorporated as a Delaware corporation on June 17, 2015. Based in New York City, it is a “new kind of insurance company, one built from scratch on a digital substrate, a contemporary business model and no legacy.”
Insurance Products and Admissions
Lemonade offers renters and homeowners insurance in the U.S., with policies covering stolen or damaged property. Personal liability coverage is also provided to protect customers if they are responsible for an accident or damage to another person or their property. Landlord insurance policies are available in some states for condo and co-op owners who rent out their property less than five times a year.
Premiums for renters insurance start at $5.00 per month and homeowner insurance at $25.00 per month.
Lemonade is currently licensed to conduct insurance business in 40 states, and actually operates in 28 states, including Washington, D.C. (AR, AZ, CA, CO, CT, D.C., GA, IA, IL, IN, MA, MD, MI, MO, NM, NJ, NY, NV, OH, OK, OR, PA, RI, TN, TX, UT, VA, WA, and WI). The states where Lemonade operates include approximately 75% of the U.S. population.
The company also offers contents and liability insurance in Germany and the Netherlands. The company holds a pan-European license, which allows it to sell in 31 countries across Europe.
Lemonade, Inc. includes the following entities in the U.S. and E.U. operations:
(1) Lemonade Insurance Company, an insurance corporation organized under New York law
(2) Lemonade Insurance Agency, LLC, organized under New York law
(3) Lemonade Ltd., a company organized under the laws of Israel
(4) Lemonade Insurance N.V., a public limited company organized under the laws of the Netherlands
(5) Lemonade Agency B.V., a Netherlands private limited liability company
(6) Lemonade B.V., a Netherlands private limited liability company
(7) Lemonade Life Insurance Agency, LLC, organized under Delaware law
Targeting a Younger Audience
The majority (70%) of Lemonade current customers are under the age of 35, according to the Lemonade initial public offering, and many insureds are first time insurance buyers.
The “mobile-first, digitally-native” user is attracted to Lemonade with the allure of a two-minute median time to get a bindable renters insurance quote, and three minutes for a homeowners quote. Claims are also filed through the Lemonade app, which the claims-bot pays in as little as three seconds.
Lemonade plans to grow with customers as they advance through life’s major events. As of March 31, 2020, the median age of a Lemonade customer with an entry level $60 a year policy — corresponding to $10,000 of possessions — is about 30 years old. Customers with policies of about $600 tend to approach 40. A smaller subset of customers paying up to $6,000 a year have a median age of 50.
The Lemonade initial public offering reports that 90% of customers said they were not switching from another carrier. Nevertheless, the website touts the fact that many policyholders do switch from other carriers. Switching patterns include the following:
31% Assurant, Farmers, Homesite, Progressive, Stillwater and more
16% State Farm
10% Liberty Mutual
As of March 31, 2020, Lemonade had 12,445 customers of condo insurance policies, 10% of whom had graduated with us from a renters policy.
Insurance Claims and Panel Counsel
The first notice of loss filed by a customer who is making a claim is done by “AI Jim,” an artificial intelligence “bot” (software application). One third of all claims are resolved entirely by AI Jim, meaning that the claim is either paid or denied electronically. The Lemonade initial public offering notes that this is done with “zero claims overhead,” also known as loss adjustment expense, or LAE. (Of course, we know that technology has its own costs. – MG)
Theft or vandalism account for 52% of claims, followed by water damage (26%), fire (8%), then crime, falling objects, and other types of liability.
Insurance claims that can’t be resolved electronically are assigned to human claims experts based on their specialty, qualifications, workload, and schedule. The goal remains a prompt resolution, since much of the advance work has been reviewed using continually evolving artificial intelligence and data analytics.
Lemonade view the claims process as an opportunity to stand apart from competitors by “removing friction, hassle, cost, and delays” to increase customer satisfaction.
What this may mean for insurance defense claims attorneys is: a) fewer litigated files; and b) an intense pressure to resolve matters quickly and cost effectively. Any Lemonade panel counsel members could probably be expected to also know their own performance metrics when it comes to average time to close a case, average cost of a claim, and related measures.
Lemonade Financial Results
The Lemonade IPO reports revenue was $2 million, $23 million, and $67 million in 2017, 2018 and 2019, respectively, while net losses also grew from $28 million, to $53 million, and $109 million, respectively.
Lemonade’s gross written premium (“GWP”) grew from $9 million in 2017, to $47 million in 2018, and $116 million in 2019. For the three months ended March 31, 2020, GWP was $38 million.
Net losses per dollar of GWP dropped from over $3 in 2017 to under $1 both in 2019 and for the three months ended March 31, 2020.
Excess claims are covered by reinsurers, and excess premiums are usually donated to nonprofits selected by customers as part of the company’s annual “Giveback”.
Read the Lemonade IPO for More Details
Read the Lemonade initial public offering as filed with the Securities and Exchange Commission (SEC.gov) for more information. Check with SEC’s EDGAR database for any additional documents.
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This article is provided for educational purposes only. It is not to be interpreted as legal advice or an opinion in regard to any topic discussed. The article should not be used as a substitute for legal advice from a licensed attorney in your state. Every situation is different and circumstances vary widely depending on the governing state law, policy provisions, and related considerations.