First, Fire All The Brokers: How Lemonade, A Millennial-Loved Fintech Unicorn, Is Disrupting The Insurance Business

While Lemonade’s growth has been steep, so too has its learning curve. At the end of 2017, its loss ratio—the amount it pays in claims divided by the premiums it collects—was an unsustainable 166%, compared to 65% to 70% for large insurers.

Lemonade had set a world record by paying one New Yorker’s claim for his stolen Canada Goose parka in three seconds—the time it took Lemonade’s claims bot to run 18 antifraud algorithms and send bank instructions to deposit $729 in the man’s account.

Still, becoming a real, regulated insurance carrier meant Lemonade needed more time to launch and more capital to grow. (A carrier typically must maintain cash reserves equal to at least a third of revenue, Sagalow notes.) So far, the capital has flowed—and from some big names. Through 2017, Lemonade raised $180 million in four rounds. In 2019, it ... See more

The company takes 25% of insurance premium revenue for administrative costs and potential profits. The other 75% is used to fund customer claims, buy reinsurance (laying off some risk) and pay certain taxes and fees, with anything left going to charities that customers choose. The social-compact pitch: Lemonade can’t profit from denying legit claim... See more

Rather than sell policies backed by established insurers (the way fintech competitors Hippo and Jetty do), Lemonade would become a licensed carrier itself, retaining claim liability on its own balance sheet.

Holed up in a room with a whiteboard, the founders sketched out what an ideal insurer would look like—from a Millennial’s point of view. It would be online only (no paper or insurance brokers), low-cost, easy to deal with and “trustworthy.” They weren’t naïve about needing insurance expertise and, in May 2015, recruited Ty Sagalow, a 36-year indust... See more