Sep 21, 2021 14 min read

Daniel Schreiber, CEO Lemonade: changing the way people think about insurance

lemonade-daniel-schreiber-interview-rick-huckstep-wiser-newsletter

Newsletter #35 (Premium): Lemonade is the AI-powered, digital insurer with a social conscience. They redefined the insurance business model, achieved more in 4 years than most do in 40, & growing at pace. In this exclusive interview, Rick Huckstep talks with CEO, Daniel Schreiber.


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Redefining the game

"It's the game, not the players."

This is what Daniel Schreiber, the co-founder and CEO of Lemonade told me 5 years ago. At the time, Lemonade was just about to launch its first insurance product in New York. He and I were on a video call and Daniel was explaining the "how" and the "why" that made Lemonade different to everyone else.

And it came down to one thing. Behaviour.

The issue for the insurance industry (and I generalise, although the data supports the perspective) is that people don't trust insurers and insurers don't trust people. In designing and building Lemonade, an AI-enabled digital insurance platform, Daniel and co-founder Shai Wininger had identified this as the problem in the insurance business model they wanted to solve.

Five years later and we're back on a video call. This time to talk about how it went in Lemonade's first 5 years, and what's next for them. We talk about their journey, their customers, their move into car insurance and the differences operating in Europe versus the United States.

And I make a shameless plug to write "Lemonade, the Story" before we second-guess who would play Daniel and Shai in the subsequent "Lemonade, the Movie".

But first, let's start at the beginning...

Insurance will never be the same again

This was the headline I posted exactly 5 years ago today. The day that Lemonade, the digital insurance startup, opened for business on September 21st, 2016.

I believed the headline back then, just as I believe it right now.

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In the five years since getting their first licence to sell renters insurance in New York;

  • it took Lemonade a little over 4 years to reach a million customers (when it typically takes several decades),
  • they now sell at least 1 of their insurance products in every state in the US (if you're unfamiliar with insurance in the USA, each one of the 50 states has its own regulator. Lemonade has to be licenced separately for each and every one of them),
  • they're an international business with operations in the Netherlands, Germany and France, as well as the United States,
  • Lemonade provides multiple lines of insurance with a portfolio of products comprising renters, home, pet and life (and are about to enter the car insurance market),
  • they're a publicly-traded company with a market cap of around $4.5bn, having IPO'ed on the New York Stock Exchange in July 2020.

These are all remarkable achievements for a company in its first 5 years.

The InsurTech "scene" in 2016

To give you some context for what was going on in 2016, let me reminisce a little.

Insurance has always been an industry that has used technology, going all the way back to tabulation machines in the late 1800s. But in the Internet age, the insurance industry had not kept pace with new innovations. Many (most) insurance companies were still running on pre-Internet computer systems that were slow, sluggish and restrictive.

The opportunity was ripe for "disruption". Enter the digital insurance startups.

The digital insurance startup "scene" was fondly known as "InsurTech". A social media hashtag that became the watchword for a new generation of digital innovators with a mind to disrupt the stale and analogue world of insurance. That was in 2015.

A year earlier (before InsurTech became known as "#InsurTech") I had written my very first blog post. I had asked the question, "where is the insurance tech in fintech?". That was the start of the social media phase of my career and gaining over 110,000 followers.

By the time I had my first conversation with Daniel Schreiber, I had interviewed 100's of insurance technology startups and published around 100 articles about them. I was also mentoring and advising the founders of tech startups at Startupbootcamp in London and at Mundi Labs in Madrid.

This was a time of great optimism and enthusiasm for redefining insurance for a digital age.

All of the largest and oldest, fuddy-duddy insurance companies wanted to be part of the InsurTech "scene". If they weren't actively involved with the startup accelerators, they were creating their own "innovation labs", such as Aviva's Digital Garage run out of an old fire station in Shoreditch.

For a taste of what it was like back then, read this article from late 2015 about an InsurTech meetup in London's Moorgate. Or this one that I posted in the summer of 2016.

Making Lemonade

I had first heard of Lemonade in late 2015.

Stories about a new InsurTech startup were coming out of New York and it was immediately obvious to me that they were different. Lemonade was not like all the other startups I had worked with. Naturally, I was intrigued and wanted to know more.

But it took me a while, a lot longer than normal, to finally make contact with Daniel Schreiber. After 6 months of stalking Daniel, we eventually had our first conversation in August 2016. This was the first of several over the years, leading up to this latest one to commemorate 5 years.

I posted the article from our conversation on the day that Lemonade announced they had been given their first-ever insurance licence (in New York, 21/9/16).

As it turned, this was one of my most successful articles in terms of engagement. It was also the first where I attracted negative comments. This was unexpected because let's face it, I was talking about insurance technology. It's hardly a subject to incite a riot!

It seemed that I had poked the Luddites and they objected to my assertion that the glorious world of insurance was about to be changed forever by a digital upset playing a different game. That didn't even come from the insurance sector.


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Insurance powered by AI and driven by Social Good

In July 2020, Lemonade went public. In an initial public offering on the New York Stock Exchange, Lemonade raised $319 million to add to their already sizeable war chest. This enabled Lemonade to not only continue its growth strategy but accelerate it.

With over a million customers and a digital operation that makes moving into new jurisdictions significantly easier, Lemonade had built a global brand in remarkably quick time. They had also done it in a way that many of the largest insurance companies had been unable to do.

Lemonade is able to expand into new geographies and new jurisdictions with the same business model, branding and customer experience, but without the overhead of setting up a whole new country operation. This is because everything they do is digital.

This is a significant advantage for Lemonade over the incumbent insurance players, who typically run each country as a separate and discrete insurance operation.

lemonade-daniel-schreiber-interview-rick-huckstep-wiser-newsletter

Meanwhile, they are also changing the way customer's think about insurance, particularly when it comes to claims. They redefined the insurance business model to remove the inherent conflict of interest that undermines trust. And built-in a charity giveback scheme that shares unspent money with good causes, not shareholders.

Lemonade makes the buying of insurance as easy and compelling as subscribing to Amazon Prime. It's a digital service that is always on and automated.

Here are the 5 reasons why I'm bullish on Lemonade.

5 reasons to be bullish on Lemonade

1) They have redefined the insurance business model

This is pure genius.  The beauty is in the simplicity of Lemonade's strategy to completely remove the inherent conflict of interest that dogs traditional insurance.

Not only can insurance be confusing, complicated and misunderstood, it can also be mistrusted.

This stems from the traditional insurance business model that creates a conflict of interest between customers (who buy the insurance) and the insurance companies (who provide it).

There's a vicious circle that drives (bad) behaviour on both sides because the insurer doesn't trust the customer and the customer doesn't trust the insurer.

This consequence of this behaviour is to empower (some) customers to feel it is OK to embellish a claim. And to legitimise (some) insurers to feel it is ok to delay and obfuscate paying out an insurance claim. Fundamentally, the gap between the promise that is sold and the reality of the claims experience that is given is often chalk and cheese for insurance customers.

And all this behaviour comes down to the business model, or as Daniel says, "it's not the players, it's the game that's at fault!"

Which is why Lemonade has redefined "the game".

Here's how it works.

For every $, £ or € paid in premium, Lemonade takes 75% and they put it into a pot called "paying claims". They take the remaining 25% and put that into a pot called "running the insurance company and making a profit".

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In other words, they have separated out the money to pay insurance claims from the money to run the company. Customers are not fighting over the same $, £ or € with the claims handler.

That's it, simple, right?

And it gets better. Because any surplus funds in the "paying claims" pot is given to charities chosen by their customers (not shareholders in the form of dividends.)

So now, not only is the conflict of interest removed (the insured and the insurer are not fighting over the same $) but the customer knows that any embellishment they make to their claim is taking money away from the local kids home, cancer charity or animal shelter that they support.

lemonade-daniel-schreiber-interview-rick-huckstep-wiser-newsletter

2) They have full control over the customer experience

Lemonade is an end-to-end insurance company. There are no insurance brokers to sell Lemonade insurance, and no third party organisations to handle insurance claims from Lemonade customers.

Even the technology stack (AI, machine learning, chatbots, insurance operations etc) has been built by Lemonade, not bought from a software or technology company.

Lemonade is what is known as "vertically integrated".

It is this combination of having full control of the entire insurance operation that enables Lemonade to deliver a seamless, end to end experience for its customers. (If anyone has ever made an insurance claim, you'll know that the people you talk to are not the same people who sold it to you. In fact, they probably won't even be from the same organisation that you bought it from.)

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Side Note: The roots of vertical integration go back to Rockefeller and Carnegie in the steel and oil industries. These companies owned everything from the mines to the refining plants, from the gas stations to the railways. This is where the phrase "owning the rails" comes from, a term often used to describe a business that controls the customer experience.

A modern example of "owning the rails" is  Apple.

When Steve Jobs opened the first Apple Store in 2001, it was a gangster move that saw Apple take control of its own distribution, rather than relying on retail stores to sell Apple products. Now, Apple Stores are luxury brand temples to the product, bucking the trend in retail away from the High Street.

The Apple-owned App Store "owns the rails" in the app market, despite the efforts of Epic Games and lawmakers to ease some of the restrictions. (Read more here).

3) Lemonade make it easy to buy insurance

Think about how you buy insurance yourself?

For most, it's a once a year shop around for the best deal, taking the best price on offer. When you find it, you buy 12 months worth of cover in an annual insurance policy. Then in 12 months time, you rinse and repeat the process.

Buying traditional insurance this way is a transactional, loyalty-free process.

For insurers, this is a race to the bottom. It has driven many of them to underprice insurance just to win the business. Then they jack the price up at annual renewal on the basis that many people simply don't bother to shop around. Insurers rely on this inertia to make up their cost of selling you a cheap price in the first year.

Lemonade's model is different.

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With Lemonade, their customers pay for their insurance with a set monthly fee. As their circumstances change, Lemonade makes it both easy and compelling to simply add a new insurance product to the existing bundle of insurance.

For example, you may be paying $10/month for renters insurance. You get a pet and now pay $16. You move to a bigger place, take the dog or cat with you and the monthly fee goes to $21. You start thinking about the future and decide to add some life insurance. Soon, you will be able to add your car to the bundle of Lemonade insurance coverage. (I made these numbers up simply to illustrate the point, which I hope you got.)  

The beauty of this business model from a Lemonade perspective is that when an existing customer adds a new insurance product to their monthly bill, it costs Lemonade virtually nothing to sign them up.

Since 2018, the average revenue per customer has grown 5-fold from $45 to $246.  

It is this simplicity in making it easy to buy insurance that has been one of the key factors in Lemonade's growth to over a million customers.

Fun Fact: around 9 out of every 10 Lemonade customers have never bought insurance before (Lemonade are winning new insurance customers, not stealing them from the competition.)

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4) Instant Everything; Lemonade are 100% digital

Lemonade employs around 500 people to do the things that can't be automated. Everything else is automated.

From the buying of insurance to the setting up of a customer account to the settling of a claim, the customer experience is paperless, instant and 100% digital. Around a  third of insurance claims are processed automatically, but the rest do need some human intervention to finish the claims process.

At the heart of the customer experience are two AI-enabled chatbots called Jim and Maya. They take care of buying insurance and making a claim.

Both are automated processes that work 24 hours a day. They will never say to you "your call is important to us, our next available agent will be with you in 3 hours, 37 minutes". Jim and Maya are always available.

There are two defining characteristics of the Lemonade chatbots that have been deliberately designed into the customer experience.

1) First, they are designed to be playful.

This is deliberate. Because it makes the experience "different" to the usual insurance experience. When buying insurance, the whole process is automated and takes around 90 seconds. The questions asked are simple and the coverage is explained in plain English.

Side Note: Lemonade re-wrote the traditional insurance policy into a simplified plain English version, removing conflicts that you'd need a lawyer to work out and out of date references from the 18th century (have you ever read an insurance policy?).

2) The second is that they have made customer engagement easy. When it comes to making a claim, around a third are settled instantly with no human intervention at all.

The customer (simply) records a message on their phone, as though they were telling their mates down the pub what had happened to them. Assuming all the details line up then the claim gets paid automatically.

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And this is really clever.

It's quick and instant and personal. It's like telling your mates what happened without feeling like you having to prove you're telling truth.

On top of that, customers know that if they were to embellish the insurance claim they would be taking money away from the good cause of their choice.

The point is that Lemonade is using AI to determine that the claim is genuine and then act on it. What they don't do is use physical or personal features to deny claims. They have humans to look at claims that can not be processed straight away. And it is the humans who make the call on paying out.

Fun Fact: The quickest time Lemonade has settled a claim in is 3 seconds! (That's a world record.)

There is another strategic advantage of being 100% digital, which is that it is easy to enter into new markets and new geographies. With a digital insurance business, Lemonade does not need to open up offices in every country, county or state that it operates in.

Within the EU it is even easier than in the USA for Lemonade. Once they have a licence to operate in one country, they are able to virtually adapt to the local language and market conditions and enter new European Union member states.

5) Lemonade's leadership

There is a universal truth that applies to all startups. Which is that the leadership team matters. Ask any early-stage investor and they will tell you that every single investment decision they ever make is based on an assessment of the leadership of that startup.

With Lemonade, you have the perfect combination of Daniel Schreiber and Shai Wininger, the co-founders and co-CEOs of Lemonade.

Daniel and Shai are not from the insurance industry. They used this to their advantage when stepping back to look at the industry from a new perspective. Daniel is a lawyer by profession and Shai was a cofounder at Fiverr, the successful online marketplace for freelancers.

They have complementary skills. Daniel is the inspiring storyteller that fronts the brand. Shai is the mastermind who built the machine. Both are as important as each other to the design, build, execution and direction of Lemonade.

But it is one thing to have a vision and a strategy. You also need the ability to execute, especially if you want to change a $5 trillion 400-year-old industry like insurance. To date, the ability to execute has been flawless.

At the outset, they looked at the data and the metrics and the stats for this $5trillion industry and figured out a way to do it differently.

Remember when I was reminiscing at the start of this essay, back in 2015/16 everyone else was trying to find a way to do insurance "better".

But Daniel and Shai came at it by trying to do insurance "different". This was and is their secret sauce.

Changing the way an industry works is hard and requires a unique combination of storytelling and execution if the founders are to pull the future-forward. I believe that if anyone is going to do this, Lemonade will.

For now, set your calendar for 21st September 2026, because I've already set up the 10-year anniversary discussion with Daniel!



Interview with Daniel Schreiber

To coincide with the 5 year anniversary of Lemonade going Live, this is the conversation I had with Daniel Schreiber. We talked about the first 5 years for Lemonade, what's next, entering the car insurance market, and the differences between Europe and the United States.  

We did NOT talk about Arsenal!


Additional Sources of Insight and Information

A big heart, killer prices and instant everything!
It’s a year since Lemonade opened for business. At the time, I posted this article on the day of their launch.

Letter to Shareholders, Q2 2021. Source: Lemonade

Lemonade raises $319 million in initial public offering. Source: Insurance Business America

B-Corporation Explained. A model for social capitalism. Source: Lemonade

Lemonade reinvents the insurance industry with machine learning. Source: HBS

Lemonade Insurance: Why You Should Get This Digital Insurance. Source: Robots.net

How Lemonade’s founders raised a massive seed round just by talking. Source: Business Insider


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