'You have to dig deep, change the underlying business model'

Replacing agents with bots, startup upends home insurance industry

Lemonade, active in 11 US states, donates any outstanding funds to charity instead of pocketing them — ‘so we never make money by avoiding claims’

Shoshanna Solomon was The Times of Israel's Startups and Business reporter

Lemonade's Shai Wininger at the Tel Aviv offices of the insurance firm, December 20, 2017 (Shoshanna Solomon/Times of Israel)
Lemonade's Shai Wininger at the Tel Aviv offices of the insurance firm, December 20, 2017 (Shoshanna Solomon/Times of Israel)

New York-based Lemonade Insurance Company, founded by Israeli entrepreneurs Shai Wininger and Daniel Schreiber, is seeking to revolutionize the way we insure our homes.

The startup, which began its activities with homeowner and renters insurance, is a licensed insurer in 11 US states, including California, Illinois, New Jersey, New York and Texas, allowing users to insure their homes by doing away with agents and replacing them with bots and artificial intelligence. Customers answer a set of simple questions through a chat with the company’s bot, Maya, and, in seconds, can get their home insured. It takes 90 seconds to get insured, the company’s website says, and three minutes to get paid, if and when a claim is made.

Technology is key to how Lemonade works. The firm raised $120 million in December 2017 from investors including Sequoia Capital, Japan’s SoftBank and Google Ventures, the largest amount raised by a US artificial intelligence startup in 2017, according to MoneyTree Report from PricewaterhouseCoopers LLP (PwC) and CB Insights. The total funds raised by the company come to some $180 million, according to data published by Start-Up Nation Central.

“We aim to create a mind-blowing insurance experience for our users,” Wininger said in an interview with The Times of Israel at the company’s R&D center located in a refurbished, historical Templar building in the Sarona area of Tel Aviv. “Insurance is one of the most hated industries in existence.” And this presents Lemonade with an “unusual opportunity.”

Customers generally don’t trust insurance agents because they are never sure whose interests they are representing, those of the user or those of the insurance firm, Wininger explained.

The terminology used by insurance companies seems to be purposely dense — they use the word premiums, for example, instead of the simple word, price, and make it difficult to know what you are getting, for your money. It also always seems very hard to get your money refunded, when you do have a claim.

And all of this happens, said Wininger, because the “model of the insurance industry is fundamentally flawed.”

This is how the traditional insurance model works: only half of the money paid to insurance companies is actually used to pay for claims. Insurance brokers often make a 20% commission on policies, and the rest of the money goes mostly to cover the costs of inefficient, highly bureaucratic firms. Typical insurers in the US employ more than 100,000 people to manually handle sales, customer service and administrative work, Wininger said.

“The industry is known for its inefficiencies,” he said. “Since Lemonade does most of that work automatically using bots and AI, we can provide our customers with dramatically lower costs.”

Lemonade employees working at the firm’s R&D center located in a refurbished, historical Templar building in the Sarona area of Tel Aviv, December 20, 2017 (Shoshanna Solomon/The Times of Israel)

But the worst problem with insurers lies in the intrinsic conflict of interests with their customers, because whatever money remains at the firm, after claims are paid, gets pocketed by the insurers. This means that the less they pay out in claims, the more money they make. This conflict is the reason why insurance companies are reluctant to pay claimants, and why they’re so hated, Wininger said.

“Sometimes, to change the user experience, you have to dig deep and change the underlying business model, and that’s exactly what we did,” he said.

Enter Lemonade. Unlike traditional insurers, Lemonade takes a flat fee — the one that would normally go to the insurance brokers — and sets aside the remaining funds for claims. In a good year, when there’s money left unclaimed, the company does not pocket the money but donates it to causes their customers choose.

“We give remaining unclaimed funds to charities in order to ‘tie our hands,’ so to speak, so we never make money by avoiding claims,” Wininger said. “By doing this we’re making sure that our team is never tempted by the incentives that cause traditional insurers to act the way they do.”

Lemonade, founded in 2015, is a public benefit corporation and is a certified B-Corp — a for-profit company certified to meet rigorous standards of social and environmental performance, accountability, and transparency.

“Lemonade has been recognized as the leader or trendsetter within their field of expertise,” Ltd., a Tel Aviv-based research firm that analyzes private companies that use artificial intelligence, said in a report on the company. Even so, the company needs to address “the regulatory issues of each market it enters, slowing distribution in some regions.”

Lemonade is “also obsessed” with using technology to become more efficient — reducing the industry’s heavy reliance on manual labor, said Wininger.

“Our technology is powered by bots that handle most of the policy life cycle process. We’ve also built our own back-office systems that are focused on streamlined operations and automation. A lot of the innovation that takes place in the company is aimed at our internal operations. We aim for more than 90% reduction in operation expenses from the average incumbent.”

Wininger has almost two decades of experience in founding and managing technology company. Before co-founding Lemonade he co-founded Fiverr, an Israeli startup that has become a global leader for online freelance services.

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