README.md

Case-Study of Lemonade, Inc. 🦉

Table of Contents

1. Introduction
2. Who are the founders of Lemonade, Inc?
3. Business Activities
4. Landscape
5. Results
6. Recommendations
7. Sources

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1. Introduction

• Name of company:
  • Lemonade, Inc [15]
• When was Lemonade, Inc. incorporated?
  • June 17th 2015 File Number:

  5769018
  

2. The founders of Lemonade, Inc?

1. Daniel Schreiber, Co-Founder & CEO

• Daniel Schreiber has served as Co-Founder, Co-Chief Executive Officer, and Chairman of the board of directors since founding in June 2015. Prior to co-founding Lemonade in 2015, Mr. Schreiber served as President and a member of the board of directors of Powermat Technologies Ltd., a wireless charging solutions and technology company, from 2011 to 2015. From 2003 to 2011, he served as Senior Vice President of Marketing and Vice President of Marketing and Business Development at SanDisk and M-Systems (which was acquired by SanDisk in 2006), respectively. In 1997, Mr. Schreiber co-founded and acted as the Chief Executive Officer of Alchemedia Inc., an internet security software company acquired by Finjan Software in 2002. Prior to that, Mr. Schreiber practiced corporate commercial law at Herzog, Fox & Neeman, and was a member of the Israeli Bar Association. He holds a Bachelor of Laws with First Class Honors from King’s College London. Lemonade believes Mr. Schreiber is qualified to serve on the board of directors due to his perspective and experience from serving as a Co-Founder and Chief Executive Officer, as well as his experience leading technology companies. [1]

2. Shai Wininger, Co-Founder, Co-CEO

• Shai Wininger has served in various roles, including as Co-Founder, Secretary, Treasurer, and Chief Technology Officer, since founding in June 2015. Mr. Wininger has served as Co-Chief Executive Officer since July 2021, and is a member of board of directors. Mr. Wininger founded Fiverr Ltd. in 2009, and as the Chief Technology Officer, managed the engineering, design, and product departments. Prior to 2010, Mr. Wininger served in senior management capacities for companies including: from 2005 to 2010, Mobideo Aerospace, an industrial grade analytics and control platform; from 2003 to 2005, Handsmart Software, a mobile licensing platform for content driven, mobile apps; and from 1999 to 2003, Trimus Inc., a virtual reality web browser. Mr. Wininger also served as a resident faculty member of Computer Graphics at The Neri Bloomfield Academy of Design and Education from 2002 to 2007 in Haifa, Israel. Lemonade believes Mr. Wininger is qualified to serve on board of directors due to his visionary perspective, technical acumen, and experience in founding and leading technology companies. [1]

• How did the idea for the Lemonade, Inc come about?
  • Daniel Schreiber started Lemonade, inc. to improve the relationship between a customer and an insurance company which is often very cumbersome and slow. Schreiber did not know much about insurance. He met this problem head on by pouring funds, talents and behavioural science expertise into developing world-class chatbots that completely shatter category norms.[4]

It’s not a natural thing for a tech entrepreneur to want to go into insurance, it connotes all the wrong things. It’s perceived as being dull, as being retro-grade, heavily regulated, heavily capital intensive but myself and my co-founder Shai Wininger were a little contrarian when it comes to that. The very fact that it was so off pudding made it kind of interesting. [3]

• How is Lemonade, Inc funded and How much funding have they received?
  • Lemonade has raised a total of $481.5M in funding over 14 rounds. Their latest funding was raised on Jul 2, 2020 from a Post-IPO Equity round. [2]

3. Business Activities

• What specific financial problem is Lemonade, Inc trying to solve?

  • Traditional insurance companies simply make a profit by denying claims, they earn more money. Lemonade aims to transform the insurance industry by taking a different approach. When customers sign up for a Lemonade pet insurance policy, they take a flat fee, which is how they grow and support their company. The remaining premiums are used to pay out claims. If there’s money left over, it goes directly to a social cause chosen by each customer. This changes the nature of their relationship with their policyholders and builds trust. [8]
    • As a tech company doing insurance, Lemonade is constantly updating and expanding products. Since the launch in 2015, they expanded and built a variety of packages and offerings in what they consider one of the most customizable options for pet owners. Whether it’s their preventative care package designed specifically for puppies and kittens, or their physical therapy add-on to support those that need a little extra care, various options are available so customers can have pet health insurance that is personalized to their needs.

• Who is the Lemonade's intended customer? Is there any information about the market size of this set of customers?

  • In the United States, as of December 31, 2021, Lemonade Insurance Company is licensed to operate in New York (its domiciliary state), Alabama, Arizona, Arkansas, California, Colorado, Connecticut, Washington, D.C., Florida, Georgia, Hawaii, Illinois, Iowa, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and Wisconsin. [1]
    • They also currently hold a pan-European license, which enables us to sell in 31 countries across Europe, and commenced operating in Germany in 2019, and in the Netherlands and France in 2020.
    • When Lemonade launched in late 2016, Lemonade's licenses covered approximately 20 million people, compared to approximately 825 million people as of December 31, 2021.

• What solution does Lemonade offer that their competitors do not or cannot offer?

  • 🦾 AI Technologies. Lemonade is a full stack insurance company offering homeowners + renters insurance powered by AI, behavioral economics, and social good. [5]
    • Maya, the sign-up bot, is available 24/7 and can have the average new customer signed up in under a minute.
    • Jim, the claims bot, makes Maya look slow, regularly settling claims in under three seconds. This includes cross referencing the claim against the relevant policy, running over a dozen anti-fraud algorithms, approving the claim, sending wiring instructions to the appropriate bank and notifying the customer of the good news. All in under three seconds. [7]
    • CX.AI is a bot platform built to understand and instantly resolve customer requests without human intervention. About 30% of all customer inquiries are currently handled this way. Customers often require assistance pre- or post-purchase, ranging from coverage questions to making changes to their policy, such as adding a spouse, updating coverage amounts, changing payment methods, or adding newly purchased items. CX.AI uses Natural Language Processing to analyze and understand customers' requests, helping them perform a growing set of tasks. [1]

• Which technologies are they currently using, and how are they implementing them?

  • Forensic Graph
    • Forensic Graph utilizes the combined power of behavioral economics, big data, and AI to predict, deter, detect, and block fraud throughout the customer engagement. The FBI estimates that insurance fraud in the United States (excluding health insurance fraud) costs more than $40 billion per year, or $400 to $700 per family, in increased premiums. It is a complicated problem to solve for traditional insurers, mostly due to data paucity. Forensic Graph tracks untold signals and analyzes relationships between things which may appear trivial or invisible to humans, but in which machine learning uncovers complex multivariate links that have helped us avoid millions of dollars' worth of potential losses. [1]
  • Blender
    • Blender is a robust insurance management platform that Lemonade built with customer centricity and exponential efficiency in mind. This is a built-from-scratch, cutting edge backend system, designed as a single, cohesive, and streamlined management tool for customer experience, underwriting, claims, growth, marketing, finance, and risk teams. When a claims experience specialist logs in to Blender, for example, they instantly see all claims assigned to them by AI Jim. Blender then provides them with instructions for next steps, and when possible, includes coverage determinations, and alerts of suspicious activity. Critically, they will also see an extraordinary amount of information about the users' behavior patterns and their claim, background information, risk indicators, insurance history, and much more. If a vendor is needed, for example, to assess the damage, all appropriate suppliers will pop up in Blender, and can be dispatched to the field, and paid, at the push of a button. Blender brings similar integrated, customer-centric, and focused workflows to the other Lemonade teams as well. [1]
  • Cooper
    • Cooper is the internal bot (Lemonade likes to think of him as their Jarvis) who runs important parts of Lemonade. Cooper handles complex as well as repetitive tasks, from helping customer experience team handle lengthy, manual processes such as processing paper checks, to automatically running tens of thousands of tests on each release of their software. Cooper continuously analyzes spectrometry imaging beamed from NASA's satellites, identifying wildfires in real time and blocking ads and sales in the affected areas; Cooper collates and formats materials for regulatory filings; and he even handles most of the engineering task allocation, code deployment, Q&A, and more. Cooper makes the team dramatically more efficient and keeps evolving and learning with time.[1]

4. Landscape

• What domain of the financial industry is Lemonade in?
  • InsurTech.
    • The homeowners, pet, car and, to a lesser extent, the renters insurance industries in which Lemonade operate are highly competitive. While Lemonade believe they are well positioned to execute the business model and reinvent insurance, Lemonade face significant competition from traditional insurance companies such as Allstate, Farmers, Liberty Mutual, State Farm, GEICO, Progressive and Travelers. Although Lemonade are tapping into markets that their competitors have struggled to reach, the incumbent insurance companies are larger than us and have significant competitive advantages over us, including increased name recognition, higher financial ratings, greater resources, additional access to capital and more types of insurance coverage to offer, such as auto, health and life insurance, than Lemonade currently do. [1]
• What have been the major trends and innovations of this domain over the last 5-10 years?
  • ROLE OF THE ACTUARY [13]
    • Many insurtech companies noted that there can often be a benefit for technology startup companies to have staff who may not know at first the strict rules of insurance regulation in order to spur more innovation.
    • One benefit of the actuarial profession to the value of insurtech companies is to work with the innovations that are occurring and help shape how they can work within the structure of insurance.
  • EMBEDDED INSURANCE [13]
    • Embedded insurance concepts bundles coverage or protections within the purchase of a product or a service itself, offered in real-time or at the point of sale.
    • In addition, the definition of embedded insurance may also extend to offering distinct insurance products for sale in situations where the consumer is already engaged in purchase behavior of other goods and services.
  • INNOVATION ENABLES NEW RISKS TO BE COVERED [13]
    • Cyber risks, pet insurance and other offerings have emerged to begin to broaden the types of risks covered in recent years.
    • New risks, such as wildfire risks and coverage for automated vehicles lack historical data and regulatory required capital.
    • Coverage gaps for many key risks can emerge in these situations, and insurtech companies are primed to provide new opportunities and innovations to cover growing risks that are faced by consumers.
  • VENTURE CAPITAL [13]
    • Capital management companies have quickly graduated over past years from where insurtech was noted as a growing opportunity to the place where venture capital firms are building large portfolios to fund and incubate new innovations.
    • Insurtech companies are themselves moving into situations where their proof of concept has been accepted and looking more towards initial public offerings to attract public capital.
  • EMPLOYERS AS PART OF INSURANCE DISTRIBUTION [13]
    • Insurtech companies are finding new and innovative ways to be involved in the offering of group-based products and noting that a strong employee experience and problem solving, leveraging of technology, can be a more productive solution that focusing solely on distribution techniques and product features.
  • PICTURES ARE WORTH A THOUSAND WORDS [13]
    • With smartphone technology embedding high resolution cameras and machine learning being able to discern information, technology surrounding cameras and images was front and center. Claims for personal auto property damage using cameras was part of several concepts, as well as the growing use of satellite imagery for examining and underwriting properties, assessing roofs for underwriting and using time-lapse satellite imagery to assess claims damage during catastrophic storms.
  • DATA-DRIVEN ASPECTS OF INSURANCE [13]
    • The world of collecting new data sources for use in insurance analytics continues to get larger all the time.
    • Simpler demographic data is still important, but the addition of unstructured data such written documentation, images, audio, video and social media is quickly becoming involved in new ways to look at a customer or a risk.
  • THE CUSTOMER EXPERIENCE [13]
    • As insurance evolves with more emphasis on technology, expanding and enhancing the customer experience is a growing trend.
    • Insurance distributors, the underwriting process, in force policy management and the claims experience all have technology angles that are coming further into focus.
  • COMPETITIVE PRESSURE FROM NEW PLAYERS [13]
    • New entrants to the insurance industry are here, some having fully implemented and grown to be taking risk, establishing a customer base and even growing to build partnerships for the future building communities that center on Internet of Things (IoT) technology.
    • These digital insurers also may tend to take different approaches in their distribution or customer engagement processes as compared to traditional insurers.
• What are the other major companies in this domain?
  • Lemonade, Erie Insurance, American Family, Allstate, Assurant, Liberty Mutual, State Farm, Travelers, Geico and Progressive.

5. Results

• What has been the business impact of Lemonade, inc. so far?
  • Giving Back [1]

Giveback Year	Number of Nonprofit Organizations	Amount
2021	65	$1,128,109
2019	26	$631,540
2018	15	$162,135
2017	14	$53,174

• What are some of the core metrics that companies in this domain use to measure success? How is Lemonade, inc. performing, based on these metrics?

1. Lemonade (LMND) Stock. Lemonade has seen a growth in stock value since it's listing. [12]

	July 2, 2020	December 31, 2020	December 31, 2021
Lemonade, Inc.	$100.00	$422.41	$145.21
Nasdaq Composite Index	$100.00	$123.78	$153.27
Nasdaq Insurance Index	$100.00	$123.27	$140.90

2. Taxes. The components of the net deferred tax assets are as follows ($ in millions): [1]

	2021	2020
Deferred tax assets:
Net operating loss carryforwards	$ 127.4	$ 92.7
Deferred ceding commission	7.8	4.8
Lease liabilities	3.4	—
Net unearned premium	2.6	1.4
Stock-based compensation	2.4	3.8
Charitable contribution	0.9	4.7
Startup costs	0.7	0.9
Other	0.6	0.3
Total gross deferred tax assets	145.8	108.6
Deferred tax liabilities:
Right-of-use assets	(3.3)	—
Depreciation and amortization	(2.2)	(0.9)
Deferred acquisition costs	(1.3)	(0.8)
Total gross deferred tax liabilities	(6.8)	(1.7)
Valuation allowance	(139.0)	(106.9)
Total deferred tax assets, net	$ —	$ —

• How is Lemonade, inc. performing relative to competitors in the same domain?
  • Users are switching from other insurers: [15]

• Lemonade, Erie Insurance, and American Family insurance are regional carriers that offers auto, homeowners, life, renter, and pet insurance. While Lemonade, inc. doesn't rank for auto, homeowners, and life insurance, it's No.1 in renters insurance customer satisfaction. Lemonade also offers affordable pet insurance policies with discounts and short waiting periods. [9]

6. Recommendations

• If you were to advise Lemonade, Inc., what products or services would you suggest they offer?
  • Lemonade's auto insurance is only available in Illinois. They should expand their auto insurance statewide to boost and scale up their coverage 🚀. [11]
    • This is the difference between the various auto insurance coverage types: [10]

Damage	Comprehensive	Collision	Liability	Full
Theft	Yes	No	No	Yes
Vandalism	Yes	No	No	Yes
Fire	Yes	No	No	Yes
Natural disaster	Yes	No	No	Yes
Falling objects (tree)	Yes	No	No	Yes
Animal damage	Yes	No	No	Yes
Collision/accident	No	Yes	No	Yes
Rollover	No	Yes	No	Yes
Bodily injury/medical bills	No	No	Yes	Yes
Physical damage	No	No	Yes	Yes
Property damage	No	No	Yes	Yes
Uninsured motorist	No	No	Yes	yes

• Why do you think that offering this product or service would benefit Lemonade, Inc?
  • About 90% of Lemonade's current customers said that they were not switching to Lemonade from another carrier. Lemonade are well positioned to grow their customer base by continuing to attract first time buyers, an underserved population. This will exponentially boost Lemonade's growth as a national and global insurance competitor. Their covarage is highly attractive to new customers and those wanting to switch to a new provider. [1]
• What technologies would this additional product or service utilize?
  • Customer Cortex, Forensic Graph, Blender, and Cooper, together with AI Maya, AI Jim, and CX.AI atop. [1]
• Why are these technologies appropriate for your solution?
  • Artificial inteligence has been working for Lemonade, inc. I am predicting Lemonade will continue to offer even more affordable insuarance using these technologies.
    • While Lemonade is a legitimate insurance provider, it's important to do your own research to ensure that Lemonade is the right insurance company for you. [6]

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7. Sources

1. Sec Lemonade, Inc 10k 2021 ¹
2. Lemonade, Inc. Crunchbase Funding rounds ²
3. Interview with Daniel Schreiber, CEO and Co-Founder of Lemonade, Inc. ³
4. Meet Kevin Episode 24, CEO of Lemonade, Inc. ⁴
5. Lemonade, Inc. Open Source Policy on Github ⁵
6. Lemonade insurance review: Easy-to-use digital insurance provider with low rates ⁶
7. The Lemonade effect: What every business can learn from this startup’s focus on scarcity ⁷
8. Lemonade Q&A: Pet insurance, consumer education ⁸
9. Home Insurers Struggle with Customer Loyalty as Boomers Flock to Rental Market, J.D. Power Finds ⁹
10. Lemonade insurance review: Easy-to-use digital insurance provider with low rates ¹⁰
11. https://www.dig-in.com/news/lemonade-car-insurance-launches ¹¹
12. Lemonade on Stackshare ¹²
13. Society of Actuaries Research Institute InsureTech Connect 2021 ¹³
14. Lemonade’s S-4: Background surrounding the Metromile acquisition ₁₄
15. Lemonade ₁₅