Lemonade Case Study
This is a case study I wrote for a client that supplies courses in the field of insurance. Here, I researched the Lemonade insurance firm and performed a comprehensive analysis of what makes them stand out as well as a study of their role in the fintech space.
There has been little to no movement towards technology in the insurance world. In fact, insurance firms have been the slowest at embracing digital transformation amongst all industries. This has given ample room for the fintech space to scurry with creative ideas around insurance. Insurtechs are quickly gaining the upper hand and seizing market share, forcing traditional insurance firms to opt for new approaches or risk the dooming fate of becoming obsolete. One of the by-products of the rare technological transformations of insurance is Lemonade, created in April 2015 by Daniel Schreiber (former president of Powermat) and Shai Wininger (co-founder of Fiverr). “Lemonade Insurance Company is an American property and casualty insurance company headquartered in New York City offering renters and home insurance policies for homes, apartments, co-ops, and condos in many US states in addition to content and liability policies in Germany, The Netherlands, and France.”1 This sparkling new firm took a headfirst dive into a tech approach to insurance, a characteristic that seems to be engraved into its business model, contrasting with other common insurance practices. So, what is it that makes Lemonade so remarkable?
What is Lemonade?
Lemonade is specialised in renter and homeowner insurance. It caters to anything from personal property damage, property theft, loss of use, reconstruction costs and legal liability. “Lemonade is a tech company doing insurance, not an insurer doing an app”, states Shai Wininger, one of Lemonade’s founders. One can easily imagine the appeal this has the potential of having towards the new generation of consumers looking for tech-forward solutions to traditional services. Lemonade is a self-proclaimed “purpose-built, technology-first, vertically-integrated and legacy-free insurance carrier”.
Clients register and sign up through a mobile app, and file any claims through a chatbot, without a single piece of paperwork to deal with. The app is powered by AI and processes claims in as little time as 3 seconds. This is obviously very attractive for seekers of insurance. Their Millenial approach is obvious when looking at the app: color palette, wording, chatbot-based - it seems as though everything is design to capitvate a Gen Z audience.Infact, over70%ofLemonade’scustomersundertheageof35and90%buying insurance for the first time. “Let’s target the next wave of first-time insurance buyers...millennials and Gen Z and their current Renter’s and soon to be Homeowner’s policies.” However, Lemonade doesn’t seem as though it is excluding the traditional insurance seeker, by offering an informative FAQ and how-to.
Lemonade renters insurance consists of coverage for:
Damage or theft of personal belongings. The base policy pays a maximum of $2,500 per item and $10,000 total.
Temporary living expenses should your home become unlivable, up to $2,500.
Liability if you’re held responsible for someone else’s injury or property damage, up
to $100,000.
You can add more coverage to any of these for an extra monthly charge.
Optional coverage types include:
Extra Coverage, which pays out if jewelry, fine art, cameras, bicycles, or musical instruments are lost, damaged, or stolen, with no application of your insurance deductible.
Water backup for damage caused by water coming out of your drain or sewer.
Landlord property damage, in case water or your pet cause damage to the property.
Lemonade’s tech-first approach
Technology is at the heart of Lemonade - everything is at the touch of a screen. Naturally, therefore, being a customer of Lemonade means dealing with:
- Chatbots and AI, for a streamlined, automated process
- No paper, for faster procedures
- Adjustable deductible rate and premiums
- API
- Good social initiative, with its Transparency and Honesty policy
2 https://www.nerdwallet.com/blog/insurance/lemonade-insurance-review/
Three different chatbots replace long-winded interactions with tired employees:
AI Maya — A virtual assistant that collects customer information and provides quotes AI Jim — A bot that handles claims
CX.AI — A bot that answers customer questions
Lemonade’s success is a great example of the potential for AI to disturb traditional industries generally. AI could also have huge implications for the insurance market. Lemonade only has 2% of Prudential’s revenues, but its existence may entice other firms to use AI. The fear of competition may motivate companies to add a more technological approach to their business. Other companies have been using software as a means of drastically improving their services, such as Tractable who used computer vision to assess damage for car insurance claims, floods, fires, and hurricanes; and Omni:us who combines computer vision with NLP to rapidly process all kinds of insurance documents. Shift Technology and Sprout AI have been using AI to find fraudulent claims and automate processes. Indeed, insurance is changing. Mobile phone insurance is growing at 12.5% per year and is predicted to reach $32bn by 2025. Hence, the need for a more technological approach to insurance is increasingly apparent.
Never actually meeting or humanly interacting with your customers is a risk, especially in insurance, where fraud is common. Lemonade uses predictive behavioral analytics to assess digital body language at every step of interaction with the application process with the Chatbots. Behavioral intelligence generates a digital history, giving Lemonade huge amounts of data on their “digital customers” that they wouldn’t have been able to get otherwise. As a result, they offer a thoroughly swift and enjoyable service without sacrificing risk control in the process, thanks to valuable AI tools.
Debunking the image of traditional insurance
“Forget everything you know about insurance” is the slogan you are greeted with when visiting the website. Rigid rows of grey cubicles as far as the eyes can meet; piles of lifeless paperwork on desks; infuriated customers on hold for hours... They aim to take insurance from a “necessary evil and change it into a social good,” offering “insurance that doesn’t suck.”
The traditional view of insurance is definitely not a positive one. The customer experience of insurance is weak, as customer satisfaction surveys show. Outdated infrastructure, badly designed digital touchpoints, and impenetrable legalese may be to blame. The claims process is slow and inconvenient to reduce the risk of fraud. Lemonade has tried to disparage this idea of inefficient insurance by making it fun. In fact, some reviews claim Lemonade “tore up the insurance rulebook”3
“Insurance is one of the most disliked sectors. A key cause is the profound conflict of interest at the very core of the insurance business model. As an insurer, every dollar that I pay you is a dollar less to my bottom line. Insurers basically make more money by denying claims.
3 https://www.london.edu/think/how-lemonade-tore-up-the-insurance-rulebook
Conflicts of interest doesn’t get more entrenched than that. Lemonade is built as a new kind of insurance carrier. Our starting point is that you cannot be in conflict with your customers. You cannot make money by denying them. We needed a broader mission: how can we earmark that money to the good of the community? In this way when you think about embellishing your claim, you are not hurting some unanimous insurer who you don’t trust, but you're hurting friends, your community, things you care about. This modifies behaviour profoundly. We call this partnering on purpose. This is not about altruism, but about enlightened self-interest. It is about realigning incentives and creating a new point of equilibrium where every player acts better.”
Though it has not been explicitly stated, one quick look at their marketing evidently shows who their target audience is: Millenials. They are trying to make signing up for insurance as easier as ordering food off of an app. Subscribers can choose a charity to donate unclaimed premiums to as part of the Giveback Program.
Lemonade makes it easier for anyone to browse their website, producing something drastically different to the austere webpages insurances usually have. In fact, their website is definitely more mobile-friendly than desktop-friendly, which further proves their target audience.
Their use of white space draws attention to the hot pink call-to-action on their homepage: “check our prices”. Users are seamlessly drawn to a quick, easy and efficient process of signing up. Future clients don’t have to look for long in order to get a quote, and then there’s easy immediate access to the chatbot, Maya, who can get the process started in no time.
Not only does the pink color stand out against the monochromatic background, but the Call to Action appeals to any users’ curiosity, still remaining a low-level commitment. It’s important for clients to know the cost of a service before they are able to make a decision, however much the company appeals to them. Enabling this information to be known at the first step of a process is a great idea. Lemonade comes across as trustworthy, even at a glance. Their strategic choice of color is driving visitors to click on the button, which most likely will lead to conversion, thanks to a streamlined process that takes minutes to sign a potential customer up to the service.
The language used is friendly and approachable, and the navigation is stripped to its most important elements: there are only five navigation items. Cutting down on distractions helps Lemonade implement a more simple conversion funnel. It also helps users who could be confused when faced with too many choices - Lemonade isn’t risking users being overwhelmed by too much information.
“Making insurance instantaneous and delightful takes more than breakthrough technology, it takes a new way of doing business. One that’s less conflicted. Insurance that is a social good rather than just necessary evil. And that takes new business models, new actuarial models, and new corporate structures”.
Key concepts
1. Instant Everything
One of the pillars of the Lemonade brand is Instant Everything. They boast an incredible 90 seconds wait time to subscribe, and 3 minutes to get paid. Yes, Lemonade can file claims in under 3 minutes.
2. Straightforward Cost
Regarding prices, the cost of their services is refreshingly straightforward, without any complicated add-ons or asterisks. It is so easy to know what you’re going to be paying as a subscriber and for what.
Powerful Graphs that Create Trust
Social Media
Lemonade, being a company implicitly aimed at Millenials, has used Social Media as a huge part of their marketing. Simple and to-the-point messages are luring the new generation of consumers in: “Protect your home in 90 seconds. No brokers, no paperwork, done.” On Instagram, the ads are eye-catching but also simple, which makes for an effective ad campaign. The minimal number of words gets across and doesn’t overwhelm their audience.
5. Creative Ideas
Their balloon dipped in paint shows an innovative approach to insurance marketing. Instead of repeating overused terms related to insurance to present the company, Lemonade chose to show a balloon being dipped in bright pink paint with the hashtag #OddlySatisfying. This creative approach led them to create a buzz around the dull idea of insurance.
6. Community
Lemonade’s sense of community is one of its selling points. Their Community section is overflowing with profiles of young, bubbly, and diverse customers, telling their stories in a Q&A. Some of the questions are:
How was your experience signing up for Lemonade? What happened with your claim?
Did you experience any pain points along the way? What charity did you choose for your Giveback?
They seem to be the product of live interviews - the questions fluctuate according to the answers, which shows authenticity and inspires trusts. The questions are meant to show how Lemonade works and what its key values are. The Community section is a helpful tool for Lemonade to build their brand and show they have gained the trust of real people, with real stories.
This shows that building a community around your service can become a self-perpetuating and effective form of branding, as long as it is marketed in the right way. Especially when offering a service that is not very personal, due to its use of AI and chatbots. It’s nice to be able to put a face on Lemonade’s clients and to realize they are “normal” people - just like ourselves.
Lemonade and SEO
Being a fintech company, of course Lemonade was going to do an impeccable job of SEO. Yet another way in which they can be differentiated from their competitors. They have used Google and SEO rankings search as a real tool in generating leads, thanks to:
● Google Ads
Lemonade have focused on ad copy that appeals to their target audience - it’s always important to remember that ad copy show sell benefits and not features.
“Make Your Mom & Landlord Proud”
“Killer Prices!”
“Protecting Your Stuff Has Never Been Easier”
● Organic Search
Visible organic rankings are very difficult to achieve for a new brand. Older companies have a natural advantage, even if they’re not fully optimizing the use of SEO because long-term
credibility and trust come into play in organic searches. New firms will therefore find it difficult.
However, Lemonade has achieved a second page ranking (position number thirteen) in a short amount of time for the keywords “renters insurance”, which has 201,000 searches per month according to Google Keyword Planner.
They are also doing very well on emerging organic trends with keywords such as “P2P insurance”, culminating at a tiny but powerful 90 searches monthly - they are on the first page for this search. Their strategy is not only to follow trends but also to create them, anticipate future high-volume terms like “P2P insurance” for example.
A testament to transparency
Naming a brand-new company something that sounds as innocent as Lemonade is definitely a risk. Co-founder Daniel Schreiber admitted to the chance taken in a January 2018 blog post. It is now safe to say the uncertainty has paid off: in 2017, Lemonade made $10 million in sales and was insuring over 100,000 homes. In their blog, they boast of going from 0 to 100 million in 3 years, as well as one million global customers after only four years in operation. The blog post was a part of the so-called ‘transparency project’, #transparency.
One of Lemonade’s core values, and consequently, biggest selling points, is its oath to transparency.
Which other insurance brand would have the guts to proclaim this? They have even published examples of negative feedback across their blog and website. When a company admits its faults and weaknesses, they instantly come across as trustworthy because of how they are including potential clients in their inner workings. We feel a sense of community and feel drawn to this honest, human brand.
“People are generally honest. We all have a trust self-image that we might push from time to time. It’s like speeding; that doesn’t make us feel like a bad person when we do it. The same goes for insurance. People don’t feel aligned to the insurer, but they do feel the relationship is adversarial. This gives people a sense of entitlement and leads to embellishment and even fraud.”
More about the ‘social good’ agenda
Lemonade is a “certified B Corporation” which means it meets “the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.” Their ‘social good’ agenda is at the heart of not only their brand but their marketing scheme.
When you sign up for Lemonade, you choose a non-profit from their list to donate your unused premiums to. This forms a community of peers that systematically support charities from their premiums. This is a huge selling point, especially for Millenials seeking insurance.
Lemonade has also taken a stand on ‘gun worship’: “We’re under no illusion that our industry, let alone our company, can solve gun violence. But being unable to change much doesn’t give us a license to change nothing.” Since October 2017, Lemonade limits how much they’ll pay for damage or theft of firearms to $2,500. They also exclude assault rifles altogether.
Solving the conflict of interest problem, one client at a time
When clients sign up to Lemonade, and pay their premiums, the company takes a flat fee of 25% out of the premiums to cover its operating expenses. The remaining 75% is used to pay claims submitted by users. For perspective, traditional insurance companies charge 35% as premium fees.
A conflict of interests between insurance companies and their clients has existed from the beginning of the history of insurance because of the fact that rejected claims circulate into their profits. “What if we start a new insurance company that doesn’t have that conflict of interest? Customers will switch to a product they can trust.” Lemonade knew this kind of conflict was damaging the customer-company relationship, so they took a stand in offering a solution. Thus, the company will never benefit from rejecting claims because the money will
be spent in any case - to reimburse or to donate. There is no reason for Lemonade to reject claims as long as they comply with the company reimbursement criteria.
Lemonade’s world takeover? Not yet...
As a business, learning from others’ mistakes and successes is essential to growth. For insurance companies, the strategy to adopt could be behavioral data. Though Lemonade has used tech as a selling point to their audience, all is not lost for other firms. Insurance carriers just need to use similar behavioral analytics strategies, just like Instagram used Snapchat’s stories and made a huge success out of them. Founder Daniel Schreiber predicts: “What we’re seeing here is something that is going to be very traumatic for the whole insurance space,’’ he says. “Data is overtaking expertise.” Lemonade’s loss ratio went from 166% to 86% between 2017 and 2019. In the first quarter of 2020, it was just over 70%.
Schreiber claims: “We’re getting smarter. Lemonade started at a data disadvantage, building up a data set from scratch and collecting information at every customer interaction. We knew it was only a matter of time before we were at a data advantage. If we’re not there yet, we sure are close. Interacting with our customers directly and digitally means we know them really well, even if we’ve never met them face-to-face. That knowledge is translated to a ‘risk score’ that accurately predicts future loss ratios, and can be used across the organization, from marketing to acquisition to policy management and claims. It has not yet impacted our pricing sophistication, but that day will come – just like credit history did and auto telematics may soon.”
Lemonade’s loss ratio target, customer-centric attitude, innovative business model, and technology-first approach attract the attention of traditional firms. Lemonade though, has less than 0.1% of the Home and Renters insurance market. State Farm has 19% and Allstate has 10%. This puts things into perspective. In addition, their AI models and infrastructure are far from perfect, as many claims are still being processed manually. Their desire for geographical expansion may be halted by the difficulty bots may have in processing complex claims like natural disasters. Will Lemonade’s loss ratio manage to maintain its rhythm of improvement as factors evolve?
What to take away from Lemonade
In a nutshell, Lemonade is:
● Upfront and transparent pricing
● No phone calls, just chatbots
● No paper, all app-based
● Greatly reduced prices
● Instant gratification
● Artificial intelligence
Lemonade got its digital-first approach to understanding customers completely right. However, missing out on the huge part of communication that is non-verbal could be a handicap for companies. Static forms and applications can restrict from collecting key information about customers as individuals - they are making decisions about underwriting, pricing risk, and claims without essential information.
Though firms should take away such systems from Lemonade, it’s important to note that it could take months, even years to achieve such a complex and wide technological operation.
Where the company truly excels, is on its price. In many studies, it is several points ahead of its competitors. Over half (52%) of renters select a brand based on price. However, 71% of Lemonade’s customers proclaim that they chose the brand because of the price of its services. Also, 55% of Lemonade customers are only buying renters insurance because it is required by their landlord — 45% higher than the industry average. The fact that their customers are younger built their market share but is also a disadvantage. Lemonade is able to provide a quick and efficient experience of purchase through its mobile app at a low price point. Hence they are crafting a perfect product to supply a demand built on a necessary, but not entirely desired, transaction. It seems as though consumers aren’t going with Lemonade for the company’s ability to provide amazing insurance, but more to find a solution to an obligation.
Though Lemonade boasts an insanely quick delay in filing claims and signing up, it is becoming increasingly clear that their completely digital process is at a disadvantage in relation to traditional firms. The most common complaint from customers, much higher than competing brands, is that it is too hard to ‘get ahold’ of Lemonade. Lemonade is below the industry average when it comes to customer satisfaction with brand interactions. It is difficult to find contact numbers on the app, and even when one is able to find a means of contact, calls have long wait times and result in many unanswered questions.
Consumers are attracted and satisfied with the app, but support is not one of Lemonade’s strengths. The basic requirements of a relationship of transaction are met, but it is missing out on developing strong relationships with its customers. As their needs will grow and evolve, sometimes becoming more complex as renters become homeowners, for example, direct contact through agents or customer service representatives will become necessary in order to guide clients through new processes. Therefore, Lemonade’s low price-point might have to be coupled with more interactions with clients to continue to evolve.
