Innovation in Insurance:

The case of

Innovation in Services – 20292

Francesco Bologni - 3011631

Paolo Rosso - 1830439
Tommaso Villa - 1828201
 Table of Contents

1.1 Defining Insurtech 2

1.2 Types of Insurance Innovation 2
1.3 Innovators in the Insurance Industry 3
1.4 Types of Insurtech Firms 4

2.1 Lemonade Story & Value Proposition 5

2.2 Target Market 6
2.3 Business Model Innovation 7

2.3.1 Peer-to-Peer aspects 9

2.3.2 Artificial Intelligence & Machine Learning 9
2.4 User Experience Innovation 10
2.4.1 Chatbots & Wizards 10
2.4.2 App and Web Based Interaction 11
2.4.3 Charitable Giving 11
2.4.4 Transparency 11
2.5 Upstream Innovations - Partnerships 12

3 Competition 13

4 Conclusions and Insights 15

4.1 Competitive Advantages and Sustainability of the Business Model 15
4.2 Downsides, Threats and Limitations 16

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1.1 Defining Insurtech
With the term Insurtech, a portmanteau of “Insurance technology”, we indicate the use of novel
technology applied to the traditional insurance industry.
It is quite complex to precisely classify the phenomenon, for mainly two reasons: (i) technology has
always played a central role in the innovation of the insurance industry (as for most other industries),
and (ii) the direction as well as the extent of insurance innovations is heterogeneous.
However, as Braun and Schreiber (2017)1 suggest, we can think of Insurtech as the “complete and
deep digitalization of the insurance industry along its value chain”. Exploiting the resulting reduced
costs and increased accessibility, the field is moving towards the commoditization of commercial
insurance underwriting. Such transformation is carried out both by tech-driven startups as well as
incumbents, often together by means of strategic partnerships or outright control via ownership
structure.
1.2 Types of Insurance Innovation
Before outlining the different kinds of insurtech firms, it is useful to understand the dimensions of
insurance innovation as identified by Startupbootcamp and PWC (2018).2
Regarding Customer Engagement, innovations in this aspect involve novel ways to conduct
Customer Relationship Management including massive use of e-mails, setting up of customer areas
on websites or apps and also the substitution of human agents with chatbots/wizards to guide policies
purchases and claims.
Aspects concerning Law & Regulation have been revolutionized too. Practices such as online
signature of contracts by authenticated digital signatures have been introduced. “Know your
customer” regulations have in some cases been fulfilled by technological means such as the uploads
of IDs and selfies, videoconferences with operators and cross-verification with other financial
providers. Finally, Automation of compliance processes has been carried out stemming from the full
digitalization of practices.
Wealth Management innovations include the use of algorithms to manage assets, possibly following
benchmark models, digital savings plan for the underwriters bundled with the insurance products,
and private pensions management services accessible via website/app.
Data & Analytics tend to play a particularly relevant role in the modern insurance landscape
allowing for pay per use / on-demand insurance (capillarity), personalized premiums thanks to
instant estimation of risk category from multiple data sources (sophistication), and real time risk
mitigation via programmed hedging.

1 Braun, A., & Schreiber, F. (2017). The current InsurTech landscape: business models and disruptive potential (Vol. 62). Institute
of Insurance Economics I. VW-HSG, University of St. Gallen.
2
Startupbootcamp, & PwC (2018, July 27) Trend Report: How InsurTech is breaking boundaries and moving beyond insurance.
Retrieved from https://www.startupbootcamp.org/blog/2018/07/insurtech-breaking-boundaries-moving-beyond-insurance/.

2
Information Security has been affected by technological advances. Inference from huge amounts of
data allows for preliminary screening of claims, automatically raising red flags in dubious cases that
require further investigation.
High frequency data collected through Health and Internet of Things open a wide array of
opportunities to insurance providers. In other words, wearable devices that monitor health state and
position of a person allow insurance designers to come up with innovative and personalized policies.
The same thing happens thanks to tracking devices on movable assets that reduce payable premiums.
1.3 Innovators in the Insurance Industry
Innovation in the insurance industry is carried out both by incumbents and newcomers, though with
different modes and goals. In this section it is presented a brief outline of how these two classes of
operators bring innovative solutions to the insurance market.
Incumbents either rely on internal growth, external growth or partnerships. The possibility to exploit
the availability of internal financial resources allows incumbents to implement a wider number of
innovation strategies with respect to startups. Internal growth is typically structured and formalized
within established organizations. In most cases these organizations institute dedicated research and
development divisions. Also, research activities are well focused and aligned with the corporate
goals.
External growth, on the other hand, involves incumbents acquiring and/or investing in other
companies that provide strategic complementarity or, by contrast, that might somehow threaten the
incumbent. In this case the purpose of the acquisition is to re-shape the competitive address of the
acquired/invested company. Such is the growing trend in many fields of financial services.3
Finally, partnerships are crucial to incumbents as they allow to get close to potentially interesting
realities from which they can draw useful insights as well as operational benefits.
In the case of startups, the innovation represents the very reason for the company creation. Internal
growth is the main tool available to startups to innovate since financial resources are scarce.
Therefore, external growth cannot be performed in most cases, certainly not in the early stages.
Partnerships do not really represent a way to innovate for startups, since partners typically are
incumbents seeking ways to innovate their own business.
In a certain way, the innovation pattern in the insurance sector mimics the patterns of other capital-
intensive industries. Incumbents have the financial capability but may lack the agility to reshape
their paradigms. On the other hand, newcomers may only thrive with pioneering processes that elicit
trust and finances from established firms or affluent VCs. This is the case of Lemonade, that boasts
investments both from industry giants like Allianz as well as deep-pocketed venture funds.4

3 Small, R. (2015, January 8). Challenged by Upstarts, Lenders Try New Strategy: Cooperation. The New York Times.
4
Cunchbase – Lemonade. Retrieved December 4, 2019, from https://www.crunchbase.com/organization/lemonade

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1.4 Types of Insurtech Firms
Braun and Schreiber (2017)5 outline nine categories of insurtech firms, differing in business models
as well as in the facets of distribution, risk carriage and technology employed. Such classes often
overlap and are not mutually exclusive, though they are useful to provide some clarity.

Type of Insurtech Firm Offering

Enable online comparisons between various (insurance)

Comparison Portals product and providers

Brokerage of insurance policies through web portals or mobile

Digital Brokers apps

Offer insurance as complements to products (typically at the

Insurance Cross Sellers point of sale or in an own app)

Peer-to-Peer Insurance Bring together private parties for mutual insurance coverage

On-Demand Insurance Offer coverage for selected periods of time

Offer fully digital insurance solutions that are only accessible

Digital Insurers via online channels

Big Data Analytics & Provide software solutions to generate value from incumbents'
Insurance Software data

Internet of Things Enable data collection via smart devices

Blockchain & Create solutions for a tamper-proof distributed database system

Smart Contracts for transactions

Table 1 - Broad categories of insurtech firms

5
See supra note 1

4
2.1 Lemonade Story & Value Proposition
A brief introduction on the current insurtech landscape serves to better frame Lemonade, the
company at the center of the analysis. From the classification in Table 1, it can be inferred that
Lemonade is a Digital Insurer with peer-to-peer aspects relevant to the charity that customers
choose.
Lemonade was founded in 2015 by two Israeli entrepreneurs: Shai Wininger and Daniel Schreiber.
They imagined “what an ideal insurer would look like from a Millennial’s point of view”.
Firstly, they concurred that the service would be online-only, low-cost and easy to deal with.
Secondly, they understood that the fast payment of the claims would be the standard upon which
new insurers will be tested. Finally, they aimed at shifting the perception of the insurer from a
‘necessary evil’ to an ‘ally serving the social good’.
Lemonade answers the initial question by employing friendly and clear tones throughout its
communications and simplifying policies underwriting using chatbots that guide the prospective
customers throughout every step of the process. All customers can access their personal contract
information via web or app.
In order to tackle the second challenge, Lemonade had to be a licensed insurance carrier itself.
Differently from many other insurtech and fintech startups, which act as intermediaries selling
policies or other financial products backed by established firms, Lemonade retains claim liability on
its own balance sheet. This riskier move enables a core service innovation that is central in
Lemonade business model: the rapid payment of the claims through an AI-enabled algorithm.
The last crucial aspect to solve, namely how to transform the adversarial relationship between client
and insurance company into an aligned interests, was tackled by the work of Chief Behavioral
Officer Dan Ariely. As a behavioral economist he devised the signature charity giveback model of
Lemonade.6
In 2017, Lemonade raised $180 million in four investment rounds. In 2019 it raised $300 million
more. This further investment brought the valuation of the company at $2.1 billion. Venture capital
funds such as Aleph, General Catalyst, GV, Sequoia Capital, Thrive Capital, XL, and SoftBank have
invested in Lemonade. Allianz as well has strategically invested in the startup.7
Lemonade had plans to undergo an IPO in 2019. However, the public debut has been pushed back
due to the debacle of WeWork, another SoftBank- backed company.8

6Baer, D. (2016, February 24). A top psychologist says insurance sucks, so he's joining a startup to fix it. Retrieved from
https://www.businessinsider.com/dan-ariely-joins-lemonade-insurance-2016-2?IR=T
7 See supra note 4
8
Campbell, D. (2019, November 12). SoftBank-backed insurance startup Lemonade has postponed IPO plans after plotting an
offering for this year. It shows how the pipeline for high-growth tech is getting clogged after WeWork. Retrieved from
https://www.businessinsider.com/softbank-backed-insurance-startup-lemonade-has-delayed-plans-for-2019-ipo-2019-11?IR=T

5
2.2 Target Market
In order to properly address Lemonade’s target market, two elements must be taken into account:
(i) the type of insurance sector of interest and (ii) the served geographical markets.
For the moment, Lemonade is addressing the market for homeowners’ insurances only, despite its
intentions to expand its operations in the personal liability and car insurance sectors. Taking into
account this aspect and the fact that operations are carried out independently and in an established
manner only in the United States (22 States served so far, with the intention of expanding to all 50
States9), the estimates concerning current target market have to be based on the US Homeowners’
Insurance Market.
According to a report published by Mordor Intelligence10, the US homeowners' premiums
moderately increased since $89 billion in 2015, $91 billion in 2016, and reached $94 billion in 2017.
In 2018 the report registered $104 billion and this sum is expected to reach approximately $125
billion by 2024 with a CAGR of 5.7%.
However, it should also be considered that in 2018 75% of Lemonade customers were under 35 and
90% of them were buying such insurance for the first time11, so the opportunities of growth come
especially from millennials or young customers (one of the centerpieces of Lemonade business
model), representing a part of the total addressable market not directly analyzed when taking into
account the insured people served by incumbents.
As a consequence, the future possibility of serving a generation entering adulthood with a product
that responds to its requirements may generate even more interesting figures in terms of total
premiums paid on the American market.
Revolving attention to future expansion to the European market, the annual study published by
Insurance Europe12 recorded €371 billion in premiums paid by European consumers under the
Property & Casualty category (Property, Motor, General Liability and Accident), with the leading
countries being the UK, France and Germany13, the latter representing the starting point of
Lemonade’s expansion outside the US borders thanks to its partnership with AXA. In 2017 Property

9
Kauflin, J. (2019, May 13). First, Fire All The Brokers: How Lemonade, A Millennial-Loved Fintech Unicorn, Is Disrupting The
Insurance Business. Retrieved from https://www.forbes.com/sites/jeffkauflin/2019/05/02/lemonade-fintech-insurance-
unicorn/#17211a016cde
10
Mordor Intelligence. (2018). US Homeowner's Insurance Market. Retrieved from https://www.mordorintelligence.com/industry-
reports/us-homeowners-insurance-market.
11 See supra note 9
12Insurance Europe. (2018) European Insurance — Key Facts) Retrieved from
https://www.insuranceeurope.eu/sites/default/files/attachments/European%20insurance%20-%20Key%20facts%20-
%20October%202018.pdf
13
Fédération française de l'assurance. (2019, November 18). European insurance market in second place in the world. Retrieved
from https://www.ffa-assurance.fr/en/key-facts-and-figures/european-insurance-market-second-place-world.

6
Insurance reached €101bn in paid premiums, thus representing a market similar to the US one in
terms of size, growing at a slow but constant path.14
The impact and rate of adoption of insurtech solutions will play a crucial role in turning these
potential customers into paying ones, but the possibilities to expand the user base and reap the
benefits of a market which is growing on both sides of the Atlantic Ocean are encouraging for
Lemonade, especially if it will keep pursuing partnership strategies with established players as
already done in the German case.
2.3 Business Model Innovation
Typically, insurance companies aggregate customers in pools according to their risk profiles in order
to build diversified portfolios. After having paid out the rightful claims, the leftover premiums
contributed by customers are retained by the insurer as revenues to finance its operations. Insurance
companies traditionally manage to reap large profit thanks to their large customer base, their
experience in building such portfolios as well as dealing with claims from a technical/contractual
point of view.
Nonetheless, such a model does provide incentives (i) for customers to take on opportunistic
behaviors (frauds) with the goal of getting paid as much as possible and (ii) for insurers to make
efforts to avoid payment of claims with the goal of increasing profits. Indeed, the two parties have
diverging goals which call for conciliation.
Nowadays, there is a variety of companies willing to disrupt the traditional insurance model
providing customers with fair policy terms and a transparent business model, able to align incentives
of both parties. One of these companies is Lemonade.
Two major aspects of Lemonade’s business model differentiate the startup from both traditional
insurers and other innovative insurers like Friendsurance (more about this in Section 3.1) and push
the company towards establishing as one of the potentially most disruptive companies in the
insurance industry.
As mentioned in Section 2.1, Lemonade is a licensed insurer. In a nutshell, Lemonade operates by
charging a fixed 25% fee on premiums paid by underwriters, buys reinsurance for atypical risk
profiles and does not retain any money left over in the claims pool. Instead, said money is donated
to charities chosen by the customers.
Different Revenue Model: the “Ulysses contract” and B-Corporation
At the processes level, Lemonade is more akin to a traditional insurer than many other insurtech
firms. Some policies and risk profiles with milder, on-average risk properties are internally managed
by Lemonade. Other profiles, possibly characterized by extreme risk, call for external support. Just

14
Cherowbrier, J. (2019, March 6). European insurance: property premiums 2010-2017. Retrieved from
https://www.statista.com/statistics/437609/insurance-europe-total-gross-written-premiums-property/.

7
as any other traditional insurer, Lemonade relies on a set of reinsurance partners including Berkshire
Hathaway’s National Indemnity and Lloyd’s of London.15
The greatest difference from incumbents lies in the origin of profits, therefore in the core of the
revenue model. As explained in Section 2.2, traditional insurers collect all the premiums after
having bought reinsurance, financed their operations and repaid rightful claims.
Differently, Lemonade only charges a fixed fee of 25% of the premiums to finance its operations,
while the remaining part goes into the management of ordinary risk profiles and purchase of
reinsurance.
Unclaimed monetary remainders are returned in an annual Giveback program, a set of donations to
the charities selected by policy underwriters. Since the company tries to bind itself not to take any
money left over in the claim pools as profits, Lemonade is theoretically indifferent between paying
and not paying claims.
Such game theory tactic, implemented by Lemonade Chief Behavioral Officer Dan Ariely, is called
an “Ulysses contract”16 i.e. a free decision made today to tie oneself to a course of action in the
future. With such preventive move, Lemonade tackles the misaligned interest problem raised in
Section 2.2.
On the contrary, it is up to the customer to “decide” whether to take on opportunistic behaviors.
Nonetheless, she should refrain from doing so as her actions would negatively affect the good cause
she wanted to contribute to in the first place.
Benefit Corporation
Lemonade is a registered B-Corporation (benefit corporation) as a result of the commitment to
distribute unpaid claims to selected charities. However, it is important to note that Lemonade does
not have a contractual obligation to do so. First and foremost, the Board of Directors has a legal duty
of care and must look after the interests of policyholders as well, namely by repaying their rightful
claims.17
At the same time, the Giveback program has already helped numerous philanthropic causes and their
number may be expected to grow in the future together with the figures of customers and revenues.
In 2017, the first year of the program, Lemonade gave away some 10% of its annual revenue
($53,174) to charities. In 2018, the amount donated increased to $162,000 and in 2019 skyrocketed
to $ 631,540. 18

15
Simpson, A. G., & Berra, Y. P. (2016, February 9). Leading Reinsurers Line Up for Lemonade, the P2P Insurer. Retrieved from
https://www.insurancejournal.com/news/national/2016/02/09/398087.htm.
16
It is a nod to Ulysses, who straps himself to his ship’s mast to avoid the alluring call of the Sirens (and yet he can hear their songs
unlike his sailors who wear wax earplugs). Similarly, Lemonade tried to tie its hands from taking unclaimed premiums at the end of
the year as profit.
17
Lemonade Legal Stuff & Reinsurance. Retrieved December 4, 2019 from https://www.lemonade.com/de/en/legal-stuff
18 Lemonade 2019 Giveback. Retrieved December 4, 2019 from https://www.lemonade.com/giveback-2019.

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2.3.1 Peer-to-Peer aspects
The Pooling and Giveback aspect which has been just described is what Lemonade advertises as its
own peer-to-peer model. Nevertheless, it cannot truly be considered a P2P in the strictest sense,
namely “a decentralized model whereby individuals interact to buy, sell or produce services directly
with each other, without an intermediary third-party or the use of an incorporated entity or business
firm.”19
The P2P element could be expressed in how the startup structures its pooling and giveback method.
The Lemonade idiosyncrasy is how the company connects policyholders one to another. While
insurtech companies like Friendsurance or Bought by Many pool people according to the type of
insurance they buy, Lemonade groups people by having them choose a charity when they purchase
a policy. This can be considered a P2P model in the sense that it is a way to connect like-minded
insurance-seeking people with charities, where Lemonade acts as a platform. In a way, the company
enables collective charity giving.
2.3.2 Artificial Intelligence & Machine Learning
Lemonade makes intensive use of AI and Machine Learning technologies in various aspects of its
business, from the underwriting activity to the handling of claims.
The usage of AI significantly improves the processes in insurance as (i) it increases underwriting
precision by improving premiums pricing accuracy, (ii) lowers claims costs by reducing fraud, and
(iii) enhances customer experience through fast paper-free processes.
With regard to the issuance of policies, Lemonade uses big data to predict risks and quantify losses
by placing the customer in a risk group and thereby quoting a relevant premium. These groups of
“uniform insurers” share similar risk behaviors and are compiled by AI algorithms that gather
extensive customer data and monitor loss ratios (“ratio of claims paid by an insurer to premiums
earned”). The more data accumulates, the more recursive risk patterns emerge enabling more precise
assessments. When it comes to pricing premiums the pooling systems resembles that of a traditional
insurer, that is, on the corporate side of the deal customer pooling uses the traditional logic of
portfolio diversification.20
Concerning the payment of claims, AI also plays an instrumental role. As explained in Sections 2.1
and 2.2, Lemonade is a licensed insurer itself. Therefore, the burden of verifying the claims of
managed profiles falls within the company. This enabled Lemonade to implement a proprietary
fraud-detecting algorithm that determines whether a claim should be paid without involving humans
(some 30% of total claims), needs further investigations or is possibly a fraud. In the former case,
the payment can also be almost instantaneous.21

19
Chappelow, J. (2019, November 18). Peer-to-Peer (P2P) Economy Definition. Retrieved from
https://www.investopedia.com/terms/p/peertopeer-p2p-economy.asp.
20Cook, L. (2019, November 27). Lemonade Insurance Review 2019: What are the Drawbacks? Retrieved from
https://www.doughroller.net/insurance/homeonwers/lemonade-insurance-review/.
21 Lemonade Sets a New World Record. Retrieved from https://www.lemonade.com/blog/lemonade-sets-new-world-record/.

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2.4 User Experience Innovation
Lemonade’s value proposition is directed mainly towards millennials and first-time policy buyers.
The marketing strategy largely relies on friendly, clear and easy to understand messages. Also, the
process of purchasing protection through an insurance policy has been greatly simplified.22
The next sections highlight the main aspects of user experience that make Lemonade somehow
different from traditional operators and more appealing to a relatively younger customer base.
2.4.1 Chatbots & Wizards
The simplification of subscription practices happened by making the user experience totally digital.
From the moment of subscription to that of claim management, the user can potentially never
encounter a human being. As a matter of fact, Lemonade makes use of two different AI-fueled
chatbots to handle subscriptions and claims: Maya and Jim.23
When purchasing a policy, Maya walks the customer through a series of straightforward questions
such as the buyer’s address, whether he rents or owns, possible pet ownership, what kind of
valuables he owns. The questions are non-intrusive, delivered in a friendly, easy-to-understand
manner. Lemonade manages to deliver an impression of authenticity by crafting the sign-up process
to sound like a real conversation. The entire process takes about 5 minutes. At the end of it, the
customer chooses the start date and enters the credit card details. Then, she is asked which charity
she would like to donate her unclaimed premiums to.
On the other end, claims are handled by Jim. Jim, like Maya, is facetiously considered a “real person
of Lemonade’s staff”. For claims that can be resolved instantly (see section 2.2.2) or made outside
of working hours, the alter-ego chatbot handles the process via text, chat, or a synthetic voice on the
phone. In the other cases, a real person handles claims that can’t be resolved instantly, such as claims
incorporating degrees of complexity which cannot be dealt with by Lemonade’s AI alone.
Lemonade’s user experience is built around their chatbots. When it comes to chatbots, authenticity,
conversation flow, and simplicity are fundamental. They are a great solution for a generation which
wants to get things done quickly but doesn’t want to spend time on the phone with a real person.
The experience is quick and requires zero paperwork, and can be done via the website or app.
2.4.2 App and Web Based Interaction
Theoretically, any phase of the process occurs on Lemonade’s website or app. This aspect does not
really provide strong competitive advantages to Lemonade with respect to its insurtech peers. In
fact, there is a multitude of innovators which built their entire value proposition on this aspect. An
example is provided by Facile.it, through which customers are supposed to never get in touch with
a human operator on the other end of the line. Nonetheless, while companies doing so typically
exploit insurance policies of traditional insurers, Lemonade differentiates itself from them since the
company itself is the source of the policies it sells using this approach.

22Al-Saad, T. (2019, December 19). Marketing to Millennials - Lemonade's Growth Strategy. Retrieved from
https://www.growthmanifesto.com/lemonade-growth-study.
23Introducing The Lemonade App [See It In Action]. (2016, September 21). Retrieved from
https://www.youtube.com/watch?v=flSLI2JmWVE.

10
In any case, this aspect of the value proposition should be accounted as a ‘must have’ as the whole
market is trending towards its adoption. We might think of it as minimum requirement for accessing
relevant insurance markets.
2.4.3 Charitable Giving
Recent surveys suggest that younger consumers, mainly in the millennial segment, are more
concerned with Corporate Social Responsibility than other age segments. Larger than the Baby
Boomer Generation, Millennials are Boomers’ children and have been reared as optimistic,
confident and opinionated decision makers.24
A study found that nearly nine-in-ten (88%) consumers feel a responsibility to purchase products
they think are socially and environmentally responsible. Even so, evidence suggests that there is a
lack of any obvious relationship between the social and environmental effort/impact and brand
awareness among consumers. This highlights that companies may not be adequately promoting their
corporate social responsibility and sustainability endeavors even if over 90% of global citizens want
to hear about corporate social responsibility initiatives and progress (Cone Communications,
2013).25
Lemonade is certainly one of those companies which exploit the CSR element of their business at
its best. Lemonade advertises its social impact as a benefit corporation in any way possible, therefore
constantly transmitting customers the best image of itself and making it more likely to have them
buy from Lemonade.
2.4.4 Transparency
As already mentioned, a trait which has always characterized insurance companies is the typical
conflict of interest between insurer and insured. Lemonade has changed the game adopting a system
able to align incentives of both the service provider and the buyer. Applying a fixed fee on premiums
results in reduced incentives to not pay rightful claims. Customers are well aware of the system
implemented by Lemonade, which is communicated on both its website and app, at the moment of
purchasing a policy. Transparency is valued by customers who are more willing to buy from
Lemonade knowing that dealing with claims will not result in endless disputes.26
2.5 Upstream Innovations - Partnerships
Partnerships between technologically-driven startups and big established incumbents have become
more and more frequent and strategic in the last years: new players most of the times need it as part
of an expansion strategy, without running the risk of being destroyed by bigger entities, while
industry “top players” are accompanied in the necessary transition towards the use of new
technologies, reducing the threat of disruption.
In this respect, Lemonade decided to partner with AXA Germany in order to take its first steps in
the European market, as part of an expansion strategy created for leading the insurtech company

24 Havas Prosumer Reports. Retrieved from https://download.havas.com/prosumer-reports

25
Cone, L. L. C. (2013). Cone Communications Social Impact Study: The Next Cause Evolution.
26 See supra 22

11
beyond the borders of the United States. Shai Wininger, Chief Lemonade Maker and cofounder of
Lemonade declared that they chose Germany for their first international launch because “it combines
a very traditional insurance industry, with a very forward thinking, digital-first consumer”.27
The partnership between the two companies involves, as a strategic starting point, a multi-year
reinsurance agreement to share insurance-related risk. Reinsurance can, in fact, be intended as an
“insurance for insurance companies”, an instrument part of the traditional business needed to reduce
risks against unpredictable events, such as natural disasters or huge losses affecting a single big
costumer.
Through this partnership, Lemonade has been able to launch in Germany, as the very first country
to offer this kind of service, its Policy 2.028, its new insurance policy designed to be short, easy to
understand, transparent and accessible from any kind of device and everywhere. It is intended to be
an open source insurance policy, something that other companies can use and all have the capacity
to shape, thus being a product particularly appealing to AXA in order to orient its transition towards
digital transformation.
Lemonade engaged in other important collaborations as well, especially in the US market where its
operations are consolidated. In order to expand its customer base, it recently signed an agreement
with Avail, an online platform for house rent. Thanks to this partnership, Avail users will be able to
get an insurance policy on the house just 10 seconds after signing the lease contract and will be able
to manage any aspect of it through the Lemonade app.29
This agreement brings benefits both to the company, in terms of user base expansion, and to the end
user, in terms of enhanced experience and greater added value. It can be considered as a cross-selling
strategy, i.e. offering distinct complementary products to a customer to improve or optimize the
original product by adding new functionalities.30
Cross-selling is a technique used by many big players, especially in e-commerce and retail.
Examples include Amazon suggesting complementary products when a purchase is completed, retail
stores offering insurance on electronic devices, or McDonald’s giving discounts on sides when
ordering a menu. The final goal, independently by the way cross-selling is implemented, is to catch
as much consumer surplus as possible, while increasing its perceived added value and satisfaction
level.

27Insurtech Lemonade partners with Axa in Germany. (2019, June 13). Retrieved from
http://www.thefinrev.com/2019/06/13/insurtech-lemonade-partners-with-axa-in-germany/.
28Insurance Journal. (2019, June 20). Lemonade's European Expansion Begins in Germany. Retrieved from
https://www.insurancejournal.com/news/international/2019/06/12/528983.htm.
29Insurzine. (2019, October 2). Insurtech, Lemonade stringe partnership con Avail. Retrieved from https://insurzine.com/insurtech-
lemonade-stringe-partnership-con-avail/.
30Hayes, A. (2019, November 25). Cross-Selling: What Everyone Should Know. Retrieved from
https://www.investopedia.com/terms/c/cross-sell.asp.

12
Pursuing the same expansion goal, Lemonade established also partnerships with SoFi31 and
WeWork.32 The former is an online personal finance company that provides different services and
loan solutions, especially to students, while the latter is a commercial real estate firm that focuses
on offering shared workspace to startups and established enterprises, but also private rents through
the WeLive division. The common element of these collaborations is the need of incumbents to offer
an insurance service oriented towards young digital consumers, especially millennials, which has to
be user-friendly, easily accessible and different from the traditional characteristics associated to the
insurance sector, thus being more appealing to the target user. The benefits for Lemonade are
represented not only by the expansion of the customer base, but also by the penetration in user
groups not necessarily connected to the personal insurance world.

3 Competition
Looking at the competition represented by other companies following a similar business model or
the concept of P2P in their operations, it is possible to identify different players especially outside
the US market, thus representing a possible threat to the expansion in new countries that Lemonade
is currently pursuing.
In Germany, Friendsurance was established in 2010 and was able to collect $15M in four different
financing rounds. 33 It based its business model on a peer-to-peer insurance concept, which rewards
small groups of users with a cash back bonus at the end of each year they remain claimless.3435
Through connecting on the platform, policyholders can create a sort of “deductible network”
enabling them to reduce insurance costs in a significant way. In fact, customers pay a premium
upfront, but in the absence of claims within a year everyone gets reimbursed.
The company’s claims-free bonus is available on a range of retail products in Germany: home
contents, private liability, and legal expenses insurances.
Friendsurance operates as a broker, combining this “social network approach” with the offering of
established German insurance companies. The benefits are a significant reduction of frauds on the
insurers’ side, and lower costs for end users.
The main difference with Lemonade is represented by the redistribution of unclaimed premiums:
the American operator gives them back to charitable associations and programs, while the German
one offers a cash-back directly to users. The reason behind creating a pool is thus different, since
Lemonade customers are brought together by the same social cause, while Friendsurance

31SoFi. (2019, April 15). SoFi Fills Out Insurance Offerings Together with Lemonade and Root. Retrieved from
https://www.prnewswire.com/news-releases/sofi-fills-out-insurance-offerings-together-with-lemonade-and-root-300831505.html.
32Noto, A. (2018, October 8). WeWork partners with Lemonade to provide insurance to WeLive members. Retrieved from
https://www.bizjournals.com/newyork/news/2018/10/08/wework-partners-with-lemonade-to-provide-insurance.html
33Cunchbase – Friendsurance. Retrieved December 4, 2019, from
https://www.crunchbase.com/organization/friendsurance#section-overview
34Terry, H. Friendsurance in Germany makes insurance social again. Retrieved December 4, 2019 from https://www.the-digital-
insurer.com/dia/friendsurance-germany-makes-insurance-social-again/
35Fintastico Team (2016, June 13). Friendsurance: The P2P Insurance Concept. Retrieved from
https://www.fintastico.com/it/servizi/assicurazioni/friend-insurance/

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policyholders are usually people already knowing each other, wishing to reduce their personal costs
on several insurance items.
The final outcome and the similarity of the business models however create a possible threat for the
expansion of Lemonade in the German market, thus making the partnership with AXA even more
strategic and necessary to achieve a satisfactory market share and path of penetration in the user
base targeted by both operators.
Revolving to the UK market, Guevara could have represented a comparable company in terms of
revolution brought to the car insurance market. It was founded in 2013,36 but went out of business
in 2017, due to its inability to establish a fully capitalized underwriting vehicle. 37
It was designed as an online platform enabling users to pool their car insurance premiums in order
to save money.38 At the subscription of the first insurance policy, the premium was offered by the
company under terms comparable to most competitors in the UK market. The savings for users
entering a pool occurred at renewal for the subsequent year: if no pool member had accidents in the
entire year, the company offered significant reduction to the group, promising up to 80% savings on
a cumulative basis over years. Moreover, an initial cap on premiums prevented them from raising
over the quota paid at the very beginning.
The possibility to enter a pool was offered in two different ways: either getting invited by a friend
or family member already using the service, or being automatically assigned to a pool by Guevara
artificial intelligence, which elaborated the “best fit” according to the usual metrics about risk and
driver’s behavior followed by traditional insurance companies.
Other interesting features were represented by the possibility to switch pool if a new friend or family
member started to use the service in a subsequent moment in time and the function allowing
members to silently vote out someone considered “too reckless”, who was assigned by Guevara to
a different group.
Even if this firm doesn’t represent a direct competitor anymore, its features could be imitated by
Lemonade for its planned expansion to the car insurance business, while the dynamics faced by
Guevara up to its closure, the market analyses conducted and the forecasts made by analysts
regarding its expected revenues and adoption by UK consumers can be a good indication for the
strategic decisions to be taken for entering that geographical market.
In China, the P2P insurance model of business was embraced by TongJuBao39, also known
internationally as P2P Protect Co. The startup was founded in 2014 and still is in the seed funding
status, but is willing to establish an online community of shared interests, social relations and mutual
40
assistance.
36
Cunchbase – Guevara. Retrieved December 4, 2019, from https://www.crunchbase.com/organization/guevara
37Shi, C., & Geoghegan, M. (2017, September 21). P2P insurer Guevara shuts up shop. Retrieved from
https://www.insuranceinsider.com/articles/114457/p2p-insurer-guevara-shuts-up-shop
38Woods, B. (2014, July 1). Guevara, a 'revolutionary' P2P Car Insurance Service in the UK. Retrieved from
https://thenextweb.com/uk/2014/07/01/guevara-revolutionary-p2p-car-insurance-service-launches-uk/.
39 GoMedici -TongJuBao. Retrieved December 4, 2019, from https://gomedici.com/companies/tongjubao
40Cunchbase – P2P Protect Co. Retrieved December 4, 2019, from https://www.crunchbase.com/organization/p2p-protect-
co#section-overview

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At the basis of the company’s way of operating there is the interest to help users share information
about different policies and to enable them to cover their risks without inter-mediation of the
traditional insurance industry. 41
Being oriented towards the Chinese market, it focuses on matters particularly relevant for the
Chinese customer, like marriage safety, child safety and income protection. The platform provides
“Community Protection” to its members, who request cover for a specific life risk and can join an
existing community or create their own one together with family members, friends and colleagues
from known contacts. Members pool their premiums together and withdraw if they have a claim,
while if a major portion of the pool remains unclaimed at the end of the year, all members can
receive a refund, up to 75% of the initial premium paid. Everyone inside a group has a voice and
can vote for major changes.
TongJuBao is not an insurer or broker, it focuses on bringing people together on a platform and
collects fees only on the premiums paid by members at the moment of joining a pool, while not
receiving any percentage of the claims.
Being it a startup not yet diffused on the market, it would be misleading to address it as a direct
competitor for a possible expansion in the Chinese market, but the model adopted provides useful
insights on the typology of network to be established and the main characteristics of the Chinese
customer, both elements possibly deemed useful by Lemonade managerial team.

4 Conclusions and Insights

Moving on to the final part of this work, the competitive advantage of Lemonade in relation to the
current insurtech field is analyzed. In particular, trying to answer whether Lemonade business model
is sustainable in the longer term. In the last section, an insight is proposed about what could be some
issues Lemonade might face if it goes on disrupting the legacy insurance field.
4.1 Competitive Advantages and Sustainability of the Business Model
Lemonade is a clear example of what innovation in services in the insurance industry looks like. It
has a business model that fully digitalizes the value chain as well as bringing P2P and Incentives
Alignment aspects. Even on their own, such innovations already express valuable novelties in the
field.
While not being the first fully digital insurer nor the first to introduce P2P aspects in the claim
management, Lemonade is one of the rare “unicorns” in the insurtech field.
Lemonade’s status is testified by its promising traction: by 2018 the company sold 450,000 policies,
by November 2019 the number rose to 1.2 million42. Moreover, levels of Lemonade customer

41
Bitesize InsurTech: TongJuBao. (2017, August 25). Retrieved from https://www.oxbowpartners.com/2016/startup-of-the-week-
tongjubao/.
42
Schreiber, D. (2019, November 14). Zero-to-100 Million in 3 Years. Retrieved from
https://www.lemonade.com/blog/zero-to-100/

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satisfaction suggest a positive trend: 92% of customers would renew their policy, 93% would
recommend it to a friend and 94% rated their claim experience positively.43
Lead time is a crucial variable in any industry witnessing disruption. The first company able to
deliver to the market an innovative solution may reap great benefits. For instance, Lemonade was
able build up a positive image in the minds of customers, combining the “millennial” view (fast and
hassle-free insurance) with the charity giveback perk. Lemonade had also the opportunity to set up
early relationships with potential partners and to experiment with different solutions before
competitors are even in the market.
Lemonade business model redistributed favorably operating costs toward higher margin activities.
The fully digital underwriting and the AI assisted claim screening help bring down personnel costs
compared to legacy insurers. The Automation Index (policies sold per employee) performance metric
suggests very well so: Lemonade sells 2500 per employee while the most efficient legacy carrier
sells 1200.44 At the same time, the path toward aligning the interests of insurers and customers
(“Ulysses Contract”, P2P Charity aspects) could generate value. Indeed, fraud management is a
major source of costs for insurances and Lemonade devised a solution to reduce costly opportunistic
behaviors.
These measures allow an increased availability of funds, both from internal and external financing
sources, for acquisition of key resources and for R&D efforts, key aspects for maintaining a
sustainable competitive advantage in a knowledge-intensive field.

4.2. Downsides, Threats and Limitations

Degree of appropriability
A major weakness of Lemonade’s business model is the absence of “strong” Intellectual Property
Rights protection for its innovations, such as patents. This is an issue common to many service
providers. Other companies might imitate or even outright copy Lemonade offerings.
Lemonade mainly relies on copyright protection and the Computer Fraud and Abuse Act45. While
offering a degree of defense, still there is tangible risk of Intellectual Property infringement. Indeed,
Lemonade had filed a lawsuit to the German company ONE insurance and its parent company
Wefox.46 ONE allegedly reverse-engineered some features of the insurance product of Lemonade.

43
Insurance Ratings and Reviews – Lemonade. Retrieved December 4, 2019 from https://clearsurance.com/insurance-
company/lemonade-insurance-company-5851ea2d0b01ce3345a66f23.
44
Schreiber, D. (2018, September 20). Two Years of Lemonade: A Super Transparency Chronicle. Retrieved from
https://www.lemonade.com/blog/two-years-transparency/
45 (2013). Computer Fraud and Abuse Act of 1986. [Bethesda, MD :ProQuest],
46Crook, J. (2018, June 15). Lemonade files lawsuit against wefox for IP infringement. Retrieved from
https://techcrunch.com/2018/06/15/lemonade-files-lawsuit-against-wefox-for-ip-infringement/.

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The case was dropped after a meeting of the companies and the modification of some aspects of
ONE product considered in violation.47
However, it is interesting to note that the case never went to court. It might be difficult to assess
infringement in the case of a provided service, even if there were grounds to think so. Legal battles
might be counterproductive as they are costly and cannot stop every imitator. Similar cases may
result in great capital disbursement by Lemonade or in a significant slowdown of its expansion
strategies, both serious issues for its operations.
Relatively simple product
Another downside, strictly connected to the one presented above, is the simplicity of Lemonade
offering. Home insurance has a mass appeal and is offered by many other companies, already
moving forward with the deep digitalization of the insurance value chain. Established incumbents,
strong of superior resources, could replicate the business model without great obstacles.
Therefore, strategic partnerships for expansion in new geographical markets result essential to avoid
destruction and overcome possible entry barriers. At the same time, a different portfolio of insurance
products, accessible with the same “millennial” formula, could strengthen Lemonade offerings.
Capital Intensive Industry
The insurance industry is a capital-intensive industry, exposed both to systemic risk and exogenous
and uncontrollable factors.48 Lemonade grew and flourished during a favorable economic cycle after
the 2008 Financial Crisis, but there’s the possibility to face a complete turnaround in case of events
like economic crisis, demand crisis or failures in the insurance system in countries where the start-
up operates or plans to.
The diversification of its products represents only a minor protection against such a risk, thus leaving
the possibility to survive only to major players, endowed with greater resources, at the occurrence
of a serious quandary.

47O'Hear, S. (2018, August 3). Insurance app Lemonade looks set to drop lawsuit against Germany's Wefox. Retrieved from
https://techcrunch.com/2018/08/03/insurance-app-lemonade-looks-set-to-drop-lawsuit-against-germanys-wefox/
48Corradi, D., & Coppola, M. (2018, June 19). How Insurers Can Build Value by Transforming Capital Management. Retrieved
from https://www.bcg.com/en-ch/industries/insurance/how-insurers-can-build-value-transforming-capital-management.aspx

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