Lemonade: Disrupting Insurance with Instant Everything,

Killer Prices, and a Big Heart

It was a warm October morning in 2018 as the sun beat down on the sprawling desert resort situated in the
Israeli Negev. Inside the billowing white “Bedouin style” tents gathered the leadership team of insurtech startup,
Lemonade. The team listened keenly as co-founders Daniel Schreiber and Shai Wininger, who served as the
company’s CEO and COO, respectively, shared ambitious growth plans for the upcoming year, including the
launch of new insurance products as well as global expansion. Founded in Tel Aviv in 2015, Lemonade’s
mission was to disrupt the insurance market by using artificial intelligence (AI) and principles of behavioral
economics to offer a delightful user experience that featured a digital, “hassle free” sign up process, lower
prices, and quicker claims payments. Lemonade’s co-founders wanted to improve society’s negative image of
the insurance industry by building trust and transparency back into the system, launching a “lovable brand,” and
practicing social good (the company was founded as a public benefit corporation and a certified B Corp.)
Lemonade had come a long way in the two years since it launched its renters, condo and homeowners insurance
products in New York. It had expanded to 24 U.S. states, insured 425,000 customers, and covered almost $50
billion in insured value. Sales in 2018 were expected to reach about $57.2 million, up from $10.1 million the
year before. The team of 125 was split between Tel Aviv and New York City. The company had raised $180
million in venture capital funding to date. As the dust settled from the offsite retreat, Lemonade’s leadership
team reflected on the bold moves presented by the co-founders. Entering Europe with existing products had
merit, but the fact that no consumer-facing insurance brand had operated successfully on both continents
suggested this move could be challenging. And while additional products could help the company better serve
customer needs and more effectively compete with incumbents’ bundled offers, developing new insurance lines
that met the high standards Lemonade had set for its products would not be easy. Hence, concerns began to
surface about the risks of stretching the company too thin if these paths were pursued simultaneously. Schreiber
and Wininger met several weeks later to finalize strategic planning. They were torn between the desire to propel
the company forward by undertaking both paths at once and the recognition that, given limited resources, the
company might be better off prioritizing one direction first and putting off the other to 2020 or beyond. If that
was the case, in their minds the dilemma boiled down to, “Which of these bets made the most sense for
Lemonade to take in 2019?”
Brief Background of Insurance
Modern insurance has its roots in the aftermath of the 1666 Great Fire of London. 1 The destruction of tens of
thousands of houses emphasized the need to form a system that would secure funds to repair buildings
demolished by fires. In the following years, several insurance societies and companies were formed, pooling
member resources to cover possible fire damage and other matters such as travel. The first American insurance
company was established, to cover fire damage, in Charleston, South Carolina in 1735. Over the years the
industry evolved, as more insurance companies were founded and more areas of potential disaster were covered.
Laws, acts and regulations were passed and the sector became more standardized and supervised. Yet the U.S.
insurance market remained fragmented, with regulations differing by state, under the McCarran-Ferguson Act. 2
Meanwhile, a single European insurance market was established in 1992, based on the EU’s Third Nonlife
Insurance Directive. The mechanism behind the insurance industry was transferring risk from the policyholder,
whether an individual or a business, to an insurance company, in order to protect the policyholder’s assets if an
adverse event occurred. While the main income source was the premiums earned, insurance companies invested
some of the premiums to ensure solvency in case of a major disaster and to make a profit for their shareholders.
The primary expenses included claims payments, underwriting costs such as salaries, and commissions to
insurance brokers and agents.
The industry consisted of three main sectors: Property & Casualty (P&C) offered home, auto, and commercial
insurance to protect against financial loss from damage to property or exposure to liability. Life & Health
(L&H) offered life insurance to protect against the risk of financial loss resulting from an individual’s death, and
annuity products to ensure income for retirement; as well as Accident and Health (A&H), which covered
expenses for health and long-term care or provided income in case of disability. Health insurance (not under
L&H policies) covered medical and healthcare expenses. In the U.S., health insurance was offered by private
companies, as well as by government programs such as Medicare and Medicaid. 3,4
There were four primary channels of insurance distribution, differentiated by the level of authority and risk
bearing: (1) Lead generation providers transferred customers’ data to insurance companies, without much
authority or risk. (2) Agencies and brokers. Agents represented insurance companies and could sell insurance
products of one or multiple carriers. Brokers represented insurance buyers and could sell direct to consumers or
as wholesalers to other agents and brokers. (3) A Managing General Agency (MGA), unlike agents/brokers, was
vested with some authority from an insurer and could perform certain functions usually handled by carriers,
such as underwriting and settling claims. (4) Carriers built and marketed insurance products, decided which
risks to insure and priced policies; they employed customer service representatives to fill out forms and
accept/deny claims.5 Carriers had to meet capital adequacy requirements. (See Exhibit 1 for more information on
underwriting and Exhibit 2 for a chart of the four channels.)
Traditional insurance carriers that had been active for decades accumulated significant amounts of data. Their
actuaries used the data to calculate risks associated with various criteria and priced their products accordingly.
The carriers submitted their rates (prices) and forms (policies) to the regulator for approval, and were bound by
them; though they could resubmit changes. Based on existing actuary models, an agent/broker screened
customers using an underwriting and policy management system. An approved customer would receive a quote
for a specific policy, based on their assessed risk potential. The screening process could take between several
hours to several weeks. If a disaster happened and a customer filed a claim to cover their losses or expenses, the
insurance company would investigate the claim and decide if and how much to pay the customer. This process
often took several weeks, and up to several months for large claims or claims suspected as fraudulent. Given the
unpredictable nature of claims from year to year, insurance companies sought to mitigate the financial risk they
undertook by purchasing policies from other insurers; a practice known as “reinsurance.” In effect, the primary
insurers transferred a portion of a particular risk to reinsurers in exchange for a percentage of the premium
income they received from their insured parties.6

ned to offer only renters insurance, but utilized the waiting time for the license to develop homeowners and
condo insurance. Upon receipt of the license in New York, Lemonade filed in California. Receiving the license
in these two big states, which were considered rigorous, would presumably decrease the regulatory filing burden
in other states.
goal is to have 90% of interactions handled by bots, leaving the 10% complex ones or those that require a
human touch, like your house burning down during a wildfire, to our CLX team.”