J.D. Power: Why Lemonade’s Policy 2.0 Matters

Recently insurtech start-up Lemonade launched a product initiative called Policy 2.0.

According to Lemonade, it will simplify the language within a standard insurance policy so insureds can easily understand what is and is not covered. Designed through an open-source platform, it enables anyone from competitors to state regulators to contribute to its design — all towards meeting Lemonade’s mission to make insurance simple for consumers.

The project is in its design phase and not expected to be released until 2019, and is fraught with regulatory and legal challenges, but the underlying premise of the initiative is on target.

According to our J.D. Power 2018 Insurance Shopping Study, the No. 1 factor impacting customer satisfaction is understandability of coverages. Just 67 percent of consumers felt their carrier had done a good job in ensuring they completely understood their coverages. Companies able to meet customer expectations in this regard achieved a 9 percent lift in customer satisfaction scores.

Lemonade’s Policy 2.0 initiative addresses this core issue while reinforcing three broader trends across the property/casualty industry.

First, digital service providers continue to influence consumer expectations and preferences, and have ushered in an era in which products and services must be relevant, personalized, easy and timely. Despite significant tech investment, the auto insurance industry has been playing catch-up with other consumer-facing industries on this front.

Second, consumers are empowered like never before, so insurers are making investments to improve customer experience to attract and retain business. With less than 2 percent new consumer entrants this year, growth requires taking share from competitors. This puts a focus on conveying and delivering on value.

Third, this provides another example of insurtech’s collective impact on the P/C industry. Of the $2.4 billion in seed funding that flowed into insurtechs last year, the majority focused on enhancing the value chain rather than disrupting it. Lemonade’s Policy 2.0 is an example of this movement.

Multiple challenges persist in taking Lemonade’s Policy 2.0 from concept to market across all 50 states, but the over-arching principle of consumer-centric design is a lesson for insurers.

Super is director of J.D. Power’s P/C insurance practice in Chicago. He will be a panelist at the 2018 P/C Insurer Super Regional Conference in July. Email: thomas.super@jdpa.com.