Lemonade: The Insurance of The Future?

I Signed up for Lemonade's Renters Insurance and It Was Super Easy

Among the companies forwarding digital transformation is Lemonade. Insurance might not be the first place you think of when digital transformation or disruptive innovation come to mind. Insurance is just insurance, right? Also, this is a crowed market full of established brands. How can this Lemonade thing go anywhere?

Lemonade is setting itself up as the insurance of the future thanks to its emphasis on AI and chat bots. Yes, I was just as skeptical as you are when I first read about it as well. Chat bots never seem to get the job done for me. My experience with chat bots is about as pleasant as my experience with driving in Boston: Slow, frustrating, full of cursing, and I never seem to be able to find what I’m looking for. Personal tangent aside, if Lemonade’s AI is viable then it should make the whole process of insurance a significantly smaller headache than it is for most people.

This appears to be the case for Lemonade. They say that the best things in life come to those who wait. They never said however that getting approved for insurance coverage is one of the best things in life. According to their website, their algorithms allow you sign up in as little as 90 seconds (!). It cannot be overstated how big this is. Long gone are the days of waiting days and weeks to hear if you’ve be approved. I dream of the day that this innovation takes hold in other companies and industries (I’m looking at you, Eversource). It’s been said that mine is a generation who has grown up with instant gratification. While there are plenty of negatives to this, the flipside is that this expectation spurs further innovation. Quicker turnaround times started becoming the norm as processing capacity and speed amped up across the digital landscape. And now, it’s come to the realm of insurance.

Too good to be true, right? Well, despite being such a new player in the industry, they already boast the highest level of customer satisfaction amongst renters (https://www.dig-in.com/list/amica-lemonade-rank-highest-in-home-rental-insurance). So not only does the AI-based sign up work, the support chat bots appear to be doing their job as well. This is to me is the bigger surprise. Like I said earlier, support chat bots never seem to be able to help me with what I need. Clearly these other companies are treating their bots as an afterthought while lemonade makes them a core competency. Or more likely I’m just bad at asking questions.

As you may have inferred from Lemonade’s strong reputation in the rental market, their customers tend to skew younger. An AI-centric insurance company is bound to attract a young crowd as they are (generally speaking) more likely to be open to the idea. It is for this reason that Lemonade has a lot of long-term potential. With a young and loyal customer base, they should continue to grow and perhaps even replace the top dogs in the field.

Speaking of dogs, Lemonade has also positioned itself as a big name in pet insurance (forgive the complete and utter boomer humor). A good number of people became pet owners during the pandemic and Lemonade honed in on this. Just last month, they announced that they would be adding preventative care to their pet insurance coverage (https://www.pymnts.com/insurance/2021/lemonade-debuts-preventative-care-coverage-for-puppies-and-kittens/). Preventative care is apparently not commonly covered, setting Lemonade apart from the rest of the crowd. This is warms by heart as an animal lover, but what it really speaks to is the situational awareness of the company. Not only are they digitally savvy, they are cognizant of the fact that there are still segments of the market that can really be dominated.

Another point of differentiation for Lemonade is their charitable giving program. Customers are able to choose nonprofits and donate to them via money left over from paying off claims. Call me a cynic but I don’t think is just pure altruism. Like every other company, Lemonade is at least in part doing this for its own image.  

There is another question about Lemonade’s ethical commitment and it’s centered on the automation. As we’ve discussed a few times already this semester, one must take into consideration the socio-economic implications of AI. But I don’t think that Lemonade is guilty of any wrongdoing here. It’s not as if they have a large staff of customer service workers that they suddenly replacing. They were formed in 2016 and their identity as a company hasn’t changed. If State Farm suddenly shifted towards AI then I think those concerns would then be warranted. Lemonade isn’t going to gain a monopoly over the entire industry and displace all the customer service employees. A more likely scenario would be that Lemonade’s model is so successful that other companies begin to follow suit. Innovation and its downstream effects are unavoidable, but if they are gradual then the drawbacks can be somewhat mitigated.

Overall Lemonade is a promising company. They aren’t yet profitable but that is likely to change. Their AI should continue to improve as potential customers continue to warm up to the concept. On top of that, they will soon be offering car insurance and thus really begin to take off. The real question is that with all of this said, why am I still screwing around with MetLife?


  1. lexgetdigital · ·

    Great post, Ben. Lemonade has always intrigued me since diversification is the name of the game in insurance, and they seem to lack some (as you mention – their pool tends to skew younger). While a younger pool is definitely better for health insurance (which is why younger people tend to pay less for such insurance), I’m curious if it’s all that much better for renter’s and homeowner’s insurance. I suppose younger homeowners are responsible enough to buy homes, but are they generally making enough to afford homes that are less susceptible to fire/water damage/vandalism? I’m not so sure. Similarly, I’m not sure if renter’s insurance is required mostly in apartments less susceptible to those dangers (i.e., newer construction) or if the opposite is true or if all is true and that renter’s insurance is required generally. All this being said, I have my doubts that this less diversified pool is actually optimal for Lemonade as it begins to scale. After all, the two pillars of insurance are risk transfer and pooling of premiums – and non-diversified pools challenge both.

  2. bccryptoassets · ·

    Great comment, I couldn’t have said it better. Those insurance companies have been in business for way too long to now be disrupted. Insurance is one of the few industries that I don’t foresee any disruptors taking over. To sum up why I don’t think Lemonade will be successful, I’ll quote Lexie; “the two pillars of insurance are risk transfer and pooling of premiums.” They will certainly have success, but for how long, we can only wait to see.

  3. I’m with you on chatbots, but I can totally see a more streamlined insurance process being very attractive for demographics that are moving frequently. It would be a big pain in the neck to go through traditional processes each time.

    1. bengreen123 · ·

      Lemonade is perhaps just coming out of the early stages of the hype cycle. If you look at it’s stock over the last year it’s been really volatile. I can’t find a P/E ratio but I’m guesstimating that it’s now down to a realistic valuation and going forward it shows a lot of promise. But back in January is was grossly overvalued like pretty much everything else. But I do think the press about chat bots that actually factored in and that would currently put them near or in the slope of enlightenment.

  4. allietlevine · ·

    Ben, thanks for sharing about Lemonade! I would have to imagine that it would be unbelievably hard to disrupt such an established industry but at the same time there is a lot of room for competition. That being said, I do appreciate their product differentiation by having the giveback program.

    I read online that Lemonade has about 1.1 Million customers. And they got to that number in one-fifth the time it took State Farm to do it. This is key for two reasons:

    1. It allows Lemonade to cross sell to their customers other insurance products. It looks like they’re getting into car insurance.
    2. The enormous amount of data they have collected will help better their AI models.

    Wild guess here, but perhaps one of the industry veterans will purchase the company for their technology expertise!


    1. bengreen123 · ·

      First off, love the Fool. Secondly, as you point out big data plays a huge role in Lemonade short term success. We can expect the world big data to grow exponentially and that’s why I think Lemonade is going to be a solid company going forward.

  5. Christina S · ·

    Interesting (and funny) post! I think your observation here is incredibly insightful:

    “expectation spurs further innovation. Quicker turnaround times started becoming the norm as processing capacity and speed amped up across the digital landscape. And now, it’s come to the realm of insurance”

    I think the pandemic has accelerated this trend even further, and it sounds like Lemonade is ahead of the curve by leveraging technology in a new way and, as you say, making it their core competency. In a way, this fragmentation of the industry reminds me of what we’ve seen elsewhere with niche players springing up to target very specific customer bases/needs in a way that behemoths can struggle with (that is, until the behemoths acquire said niche players).

  6. llamadelmar · ·

    I have not heard about Lemonade but now I’m interested in learning more. I do wonder though if established insurance companies have already started to invest in AI in their business models. It seems like they would need to be aware of the new competitors and changes in their environment especially if their consumer base will have technology experience and expectations.

  7. DropItLikeItHox · ·

    This was really interesting; I hadn’t heard of Lemonade before this post. You read my mind as I was reading this “how could there be a newcomer to the insurance game with such high barrier entries” but it seems like they’ve definitely carved out their own segment of the market via millenials. This also makes a lot of sense, since I imagine most millenials will be renting for longer periods of time compared to older generations. I ended up getting a quote for renters insurance and it was actually 3x what I’m paying with Geico now; but I will say, I think my Geico insurance is heavily discounted because I have multiple types of insurance with them. I’ll be curious to check their site again once they’ve added car insurance and see if prices begin to discount in the near future.

  8. I’m old school, I prefer human’s over chatbots. Although, I noticed that many companies are using chatbots to communicate directly with their consumers. A few years ago, the RMV launched an intitative called, “war on wait times,” and although they never ended up using chatbots, it made me think about its effectiveness to help cut down wait times. The Federal Government should consider using it to help people with their student loans versus waiting four hours to get a call back from an agent. I also agree with the professor, the users most likely to benefit from Lemonade, are those who are more transient. Finally, I’m a total sucker for great and efficient customer service. But what matters most is the type of benefits and cost of Lemonade’s insurance plans compared to competitors, which will determine whether their business model is scalable and can attract more users.

  9. I’m glad I’m not the only one on this comment thread that had never heard of Lemonade before! And I don’t know how much tolerance I’d have for chat bots with my insurance vs say a chat bot for something less critical (like a retailer.) After owning our home for 13 years, we had the first incident that required filing a home insurance claim: a roof shingle came off in a storm and water got into the walls, floors and ceiling of our attic and my daughter’s bedroom. Was a big pain but the insurance company was helpful with lining up mitigation and walking me through the process and that was a lot of phone calls with the rep assigned to the claim. There were a lot of nuanced conversations that took place and I probably would have been cursing a lot more than I did if I had to try to navigate through that with a chatbot.

    Oddly enough, the pet insurance piece intrigues me the most as that might be something I would try with something like Lemonade (which would make a great pet name too!)

  10. yanamorar · ·

    Fascinating post! I hadn’t heard of Lemonade before, so I am thrilled you shared this! It is great to see that AI and innovation are coming to a sector that has historically lacked tech advancements. I also really like the fact they focus on the pet industry; I believe this will be a winning move going forwards as more and more people are adding a furry friend to their day-to-day lives during the pandemic (possibly me soon). And once I do, I will make sure to check Lemonade out!

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