Peer-to-Peer Personal Lines Insurer Lemonade Opens for Business in New York
Peer-to-peer insurance startup Lemonade is open for business in New York, nine months after the startup’s debut and initial venture funding announcement.
The New York-based company, which its founders promise will reinvent the insurance business model and make insurance a “delightful” experience for consumers, is now selling homeowners policies in the Empire State beginning at $35 per month, and renters coverage that starts at $5 per month.
Lemonade says users can buy the coverages instantly, from any mobile device, quickening a process that otherwise may taken days or weeks.
New York is the first state in which Lemonade is approved to conduct business. While the firm plans to expand, when that may happen remains unclear. A spokesperson responding via email noted an “expansive vision” that will include “expanding both geographically and in terms of lines of business in due course.”
Lemonade attracted $13 million in seed funding from outfits including California’s Sequoia Capital and Aleph, a venture capital firm that typically partners with Israeli entrepreneurs.
Entrepreneurs Daniel Schreiber and Shai Wininger (also company president) co-founded Lemonade. They’ve attracted veteran insurance executives from AIG and ACE for Lemonade’s executive team. Among them: Lemonade Chief Insurance Officer Ty Sagalow, a veteran executive from American International Group.
Everest Re, Hiscox, Lloyd’s of London, XL Catlin and Berkshire Hathaway’s National Indemnity are among Lemonade’s global reinsurance partners.
Lemonade bills itself as a game-changing high-tech P2P insurance carrier that will upend how insurance is sold and make the process of buying it much nicer and easier for consumers. Its founders believe the current insurance system is “antagonistic” and “annoying” —as its own behavioral scientist claims in a promotional video.
The name for the company captures the idea of turning what the founders believe consumers feel is a “lemon” of an experience into “lemonade.”
“Most Americans view insurance as a necessary evil rather than a social good, and that’s something we’d like to change,” Schreiber said in the capital raising announcement.
The founders contend that traditional insurers place growth ahead of customers’ interests whereas the affinity or peer-to-peer model places customers first and promises to reduce fraud and other operating costs as a result.
“The downward spiral is easy to chart but hard to reverse: growth quashes affinity, alienation fosters fraud, and heavy-handed claims adjusters replace trust. Before you know it, premiums go up, while getting paid becomes a nightmare. In this industry, the pursuit of growth is a race to the bottom,” Schreiber writes on the company’s web site.
A P2P insurer invites users to form small groups of policyholders who pay premiums into a pool to pay claims, but members get any leftover funds at the end of the policy period. Lemonade says it will donate any leftover funds, or underwriting profit, each year on customers’ behalf to a cause of their choice. Lemonade Inc. is a public benefit corporation that promises that social impact is part of its business model.
“Instead of making our money from denying claims, as is the norm within the industry, we treat your premiums as your money (shocking!), take a flat fee for our services, and return what’s left to a cause of your choosing,” the company’s blog tells its customers.
Lemonade is not the only P2P insurance venture. Germany has friendsurance (founded in 2010), the United Kingdom has Guevara, and China has TongJuBao.
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