UK launch of InsurTech Lemonade: Will its AI-powered £4 fonts disrupt the market?

When you think of the insurance industry, digital disruption is probably one of the last things that comes to mind.

The UK insurance industry is the largest in Europe and the fourth largest in the world, managing almost £1.7trillion, according to figures from the Association of British Insurers. But it has been largely dominated by long-established companies.

While banks have been pushed to modernize in the image of upstarts such as Monzo and Starling, and pensions have been dragged into the 21st century by companies like PensionBee, insurance has remained largely untouched.

New entrant: Co-founders Shai Wininger (left) and Daniel Schreiber had no experience in the insurance industry before launching Lemonade

New entrant: Co-founders Shai Wininger (left) and Daniel Schreiber had no experience in the insurance industry before launching Lemonade

New entrant: Co-founders Shai Wininger (left) and Daniel Schreiber had no experience in the insurance industry before launching Lemonade

Now a US-listed company wants to tackle the big beasts and disrupt the way Britons buy their home, life, car and pet insurance.

Lemonade launches in the UK this week and aims to corner the market of young people buying their first insurance policies with its competitive pricing and AI robots.

It is partnering with Aviva to launch its home insurance, which includes worldwide cover for individual personal items up to £2,000 each and comprehensive cover up to £100,000.

Chief Executive Daniel Schreiber tells This Is Money why he thinks New York-based Lemonade brings something new to the insurance market.

What is lemonade and how long has it been around?

Where almost every adult in the UK uses banks in one way or another almost daily, insurance is often overlooked.

Just last week the Financial Conduct Authority sent a letter to insurance bosses amid fears people were canceling their policies during the cost of living crisis.

The insurance market is huge – it represents 11% of global GDP – but it has remained largely unchanged.

A PwC report on the insurance market said there was “untapped potential…especially given some of the dramatic changes seen in the banking industry over the last three to five years”.

The report continues: “There is a clear need for innovation in the insurance industry, driven by increasingly demanding consumers, struggling legacy systems and efficient use of increasingly available data.

London-based Marshmallow, founded by twin brothers Alexander and Oliver Kent-Braham, is a rare example of a company doing things differently.

It develops products using data, aiming to provide insurance at a fairer price to cover non-UK nationals. Last year, it hit a valuation of over $1 billion.

Other attempts by so-called “insurtechs” to enter the market have largely eluded the industry, while more established players struggle with legacy systems and inefficient use of data.

Daniel Schreiber and Shai Wininger launched Lemonade after realizing how far behind insurance had fallen.

“Many of the insurance companies we know today were founded in the days of the horse-drawn carriage – and you just wouldn’t want to build a business for today’s world, as you did in the time,” says Schreiber. “Any industry that is huge, unchanging and unloved is ripe for disruption.”

In 2016, Lemonade launched its flagship tenant insurance in the United States, where it is now one of the best products on the market.

It quietly built a strong investor base and listed on the New York Stock Exchange during the pandemic in July 2020. It has since expanded its product line to include pet health, auto insurance and term life insurance in the United States, while also launching in the Netherlands and France.

Last November, it also announced that it would buy car insurance brand Metromile.

Unlike other tech stocks, shares of Lemonade rallied in August after strong second-quarter results as it continued to boost revenue and improve its profitability outlook.

Digital disruptor: Lemonade's registration and claims process is handled online

Digital disruptor: Lemonade's registration and claims process is handled online

Digital disruptor: Lemonade’s registration and claims process is handled online

“A technology company that makes insurance”

Unlike Anne Boden of challenger bank Starling or Tom Blomfield of Monzo, who spent years working in finance, Schreiber and Wininger had little experience in the insurance industry.

Instead, they built their careers in technology and software, and say they still view Lemonade as a technology-first company.

Schreiber says, “We describe ourselves as a technology company doing insurance, not the other way around, even though we are a fully regulated insurance company.

“As an insurance company powered by AI and social impact, we can replace insurance fueled by piles of documents and phone calls with a customer-centric insurance product.

“The situation has gone unchallenged for too long. Entrepreneurs have been put off by the voodoo surrounding complex regulations and capital requirements, but that’s changing.

“So companies like Lemonade create their own regulated entities, write on their own paper, develop their own technology, and control every aspect of the experience.”

Low-cost, “sustainable” and AI bots attract people under 35

Like other disruptors, Lemonade aims to keep costs as low as possible for its customers with prices starting at £4.

As a result, the registration and claims processes are largely handled by artificial intelligence bots, rather than a real person on the phone.

Lemonade customers talk to the Lemonade bot ‘AI Maya’, receive a quote, sign up, and add coverage.

Its other bot – ‘AI Jim’ – is available 24/7 and handles complaints allowing Lemonade to pay out in seconds.

By using this type of technology, Lemonade hopes to reach new types of customers and has so far been successful in winning over a younger demographic. About 70% of its customers are under 35, of which about 90% are first-time insurance buyers.

They hope to further strengthen their hold on this demographic through its commitment to social impact, which Schreiber believes is particularly appealing to young people.

As part of its claim to be an insurance company “built for the 21st century”, Lemonade, which received its B Corp certification in May 2016, has ensured that its business model is as sustainable as possible.

Instead of pocketing all of his unclaimed bonuses, a large portion of the “leftovers” are donated to charities chosen by the customer.

This altruistic approach is driven by the B Corp movement. We have profiled a number of UK B Corps as part of our B Corp series.

But in a cost of living crisis, as people reevaluate their spending, will people care whether their insurance company is viable if they can get a better deal elsewhere?

“Millennials and beyond are the most sustainability-conscious customers to date and prefer to support companies that support a sustainability approach,” says Schreiber.

“Anyway, being powered by AI provides fairer pricing, faster response, and lower costs. Big Data enables more accurate pricing and automation dramatically reduces costs while improving service.

If Lemonade can really deliver the durability, good service, and low prices it promises, it might just be a winner.

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