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Bitesize InsurTech: Lemonade update

Lemonade

We first covered Lemonade in September 2016.  Our main observation was that the company’s marketing had been incredible, but coverage in the press superficial (at best).  Having received a number of emails from the company in recent days, we thought we’d make a few predictions for the year ahead.

Recap: What’s Lemonade?

Lemonade is a disruptive insurance company in the USA currently selling renters and home insurance.  The company has invested heavily in technology to support its customer proposition.  On the claims side, an AI-powered proposition recently allowed the company to claim that it had set a “world record” in claims settlement – 3 seconds.

The company launched as “peer to peer” (P2P), with any surplus in the customer pool being distributed to charity at the end of the year (see our September 2016 post for more detail).

Lemonade’s efforts in 2016 has landed them with a further $34m in Series B Round funding from General Catalyst and Google Ventures, taking total funding to date up to $60m.

The Oxbow Partners view

1. The 3 second claims process: It is clear that Lemonade have developed some impressive automated processes to deal with claims. The user experience (UX) is stellar and customers will love this. But how scalable will the process be – not all claims are as simple as a lost coat – and, in particular, will it be a soft target for fraudsters?  Ultimately it will stand or fall with the quality of the fraud controls.

2. Information on business volumes: Lemonade released their figures for the first 48 hours of trading ($14,300 GWP from 142 policies) but there has been no subsequent update.  We have to assume that trading has been reasonable otherwise they wouldn’t have been able to raise another round to fund a launch in states outside New York.  We’re promised more here.

3. Gradual scaling back of the P2P angle: Lemonade’s marketing initially focused heavily on the P2P angle and how it would revolutionise the relationship between customers and insurers. We struggled to see how Lemonade was P2P and it appears that Lemonade is pulling back on this angle.

Our predictions for 2017

There is no doubt that the Lemonade hype machine will continue well into 2017 and we continue to be astounded by the quality of its marketing machine. The company will do well and grow, although not at “hypergrowth” levels as it will be harder to move from early adopters to more mainstream customer groups in insurance than other segments.  Lemonade will focus on its customer proposition and quietly drop the P2P angle.  It’ll continue to raise money but won’t be bought by a trade player – yet.

Update 20 January 2017 update: Lemonade dropped the P2P positioning overnight UK time on the 12th January this year.  Subsequent blog post from Lemoande here.

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Chris Sandilands

Partner at Oxbow Partners
Chris Sandilands, ACII is a Partner at Oxbow Partners. Chris advises (re)insurers and brokers on a range of strategy topics and M&A. Chris started his career as a D&O underwriter at Munich Re, before joining Oliver Wyman, the consulting firm. You can reach him at csandilands@oxbowpartners.com.

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