What if you could buy homeowners insurance in 90 seconds and file claims in three minutes?
Lemonade, an “insurtech” startup that’s raised $60 million to date, says it’s made this possible — and at cheap rates. It uses artificial intelligence to sign up consumers for renters and homeowners insurance, along with a socially minded business model to bring consumer and insurer incentives into alignment.
“We behave a little better. You behave a little better,” said Lemonade CEO Daniel Schreiber.
The company, which enjoys backing from actor Ashton Kutcher, recently announced its expansion to California, earning a public endorsement from the state’s insurance regulator. Lemonade also operates in New York and Illinois, and is looking to partner with landlords and real estate brokerages.
Consumers can purchase plans by communicating with a chatbot in Lemonade’s mobile app. They enter their name and address and field a handful of questions, such as whether their apartment has a fire alarm and roommates. The company fetches other user information from databases and then generates a policy the user can sign digitally.
If users already have another insurance plan, Lemonade can cancel the policy on their behalf while signing them up for Lemonade’s plan.
On top of this convenience, Lemonade also touts a business model designed to foster fair play.
Home insurers usually make money by pocketing the difference between the funds they set aside to cover potential claims and the claims they actually pay out. This causes insurers to be stingy with customers and deny as many claims as possible, according to Schreiber.
The two “are fighting over the same coin,” he said.
Lemonade, on the other hand, always only keeps 20 percent of the premiums it charges and sets aside the remaining 80 percent to cover potential claims. If the insurance doesn’t pay out the full 80 percent, the remainder goes to a non-profit of the consumer’s choice, not the insurer.
Not only does this remove any incentive for Lemonade to shortchange plan holders, it also reduces the odds that plan holders will try to fleece Lemonade, Schreiber said.
Why? Because that would mean clawing back funds earmarked for a good cause, not an insurance company.
“We’re hoping that when you make a claim, you’ll be a little more scrupulous,” Schreiber said.
Lending this scheme credibility, Lemonade has earned B Corporation certification, a designation to companies that meet high standards of “verified, overall social and environmental performance, public transparency and legal accountability.” (At least one real estate brokerage has this certification.)
Filing a claim is also supposed to be a breeze. Users answer questions from a chatbot, upload relevant paperwork and video record an explanation of their claim.
In some cases, such as if a customer filed a claim for a stolen Macbook, Lemonade can send payouts almost instantly.
By slashing operating costs, digitizing the insurance process allows lemonade to charge premiums that start at $5 a month for renters insurance and $25 for homeowners policies — though premiums can be many multiples higher depending on the value of a home and its contents.
Software “collapses the cost dramatically,” Schreiber said.
Lemonade has partnered with some landlords to sell policies to their tenants. He declined to disclose the exchange of value between Lemonade and landlords in these deals. But he noted that landlords may be able to nudge more of their tenants to buy insurance if they make it easy.
He hopes many real estate agents will add Lemonade to their roster of preferred vendors for clients.