In a blog item titled “We suck, sometimes,” a co-founder of Lemonade, the insurer powered by behavioral economics and artificial intelligence, revealed a recent 1,000 percent growth spurt but unprofitable underwriting results along with a bigger business.
“One of the things we still didn’t get right is our loss ratio…It’s still in the red,” wrote Shai Wininger, part of an executive team that famously set out to design an insurance company that doesn’t suck (in their words), without sharing reported loss ratios or the exact target ratio for the percentage of premium that’s paid out in claims.
He didn’t have to disclose the figures.
InsurTech followers Matteo Carbone and Adrian Jones recently published the statutory results of Lemonade and two other InsurTech carriers on Carrier Management and in LinkedIn postings titled “Five Dispatches From InsurTech Survival Island” and “Bigger and Redder: The First Quarter in InsurTech Startup Financials.” On a statutory basis, Lemonade’s net loss and loss adjustment expense ratio for 2017 was 75, according to Carbone and Jones, who also calculated an 80 net loss and loss adjustment expense ratio for first-quarter 2018.
Carbone and Jones conclude that Lemonade and the other InsurTech carriers will probably see their loss ratios come down as they continue to grow top line in years to come. “The question is whether the figures get to a sustainable level,” they wrote.
Wininger suggests that such a goal is within reach. “The good news is, for the first time, we’ve reached the point where we have enough data to take action and bring it down. Fixing our loss ratio requires fine-tuning the machine, tweaking product, pricing and filings,” he wrote in his blog item, reporting that encouraging results have already started to emerge.
That’s not all Lemonade is in the process of fixing, however. Wininger also revealed that customer claims experience—for customers whose claims are handled by humans instead of bots—is also a work in progress.
“Unlike bots, which can scale to infinity and beyond, our human team was struggling to keep up. Despite the fact that we received very few complaints, we should have done a better job of communicating and getting claims settled quicker,” he wrote, noting that the median time for manually settling a claim was around 11 days before Lemonade decided to “rewire” the process. Now, it’s come down to just one day.
Eleven days “may sound reasonable to some, but we couldn’t let it pass,” he wrote, also sharing two of the few complaints that did trickle through—one from a disgruntled customer who said a claim check was promised in two days but that he’d heard nothing after three weeks.
According to Wininger, Lemonade shaved 10 days off these claims with the introduction of “Claim Advocates.” This new set of “customer experience specialists” who represent customer interests rather than insurer interests “are selected and trained to help [Lemonade] provide a high level of empathy and radical transparency” to customers.
“Now, with the introduction of our Claim Advocates, the specialists [adjusters] team gets to invest their time in professional claim management, leaving the communication to our advocates,” Wininger wrote, also noting that claim squads now have “separate areas of responsibility around loss types: theft, fire, etc.
“This allows them to become domain experts and increase their efficiency dramatically.”
As Lemonade works to fix some problems, on the plus side, Wininger chronicles these and other triumphs:
- The growth of the business. Reporting growth “by a ludicrous 1,000 percent” for the last six months compared with the same period last year, Wininger noted, “We sold the equivalent of last year’s total revenue in just one quarter (Q1 2018).”
- Geographic growth. Lemonade launched in 10 new states in the last six months and announced plans for global expansion.
- Financing. Lemonade closed a $120 million financing round led by SoftBank.
- Innovation. Lemonade launched an open source insurance policy, Policy 2.0.
- Customer Satisfaction. Measured by NPS scores, a 97 percent renewal rate and a 4.5-star bot. “Our AI Maya bot is also making great strides, with 19 percent of support requests handled by the bot from start to finish, with a satisfaction score of 4.53 stars out of five,” Wininger wrote.
Separately, Lemonade’s other co-founder, Daniel Schreiber, disclosed another negative chapter in Lemonade’s history recently in a LinkedIn post—a lawsuit against InsurTech ONE insurance and its parent company, alleging IP infringement.
Lemonade maintains that wefox’s founders used aliases and bogus addresses to create phony Lemonade policies and initiate fictitious claims—in an effort to reverse engineer Lemonade.
“We believe in the tech revolution insurance is experiencing,” Schreiber said, noting that his company joins others who want regulators, investors and the public to “believe in the integrity” of the revolution’s innovations. “That’s why we hold ourselves to strict legal and ethical standards, and it’s why we call out those who do not,” he said, explaining a reason for the suit.