Article updated 02-2018
Lemonade Insurance is a new carrier to the market. They are currently available in several states (products available may vary by state) and they are completely changing the property insurance industry as you know it. How? Behavioral science and unprecedented transparency.
Lemonade Insurance offers a high quality, low-cost product that is streamlined and simple to use. Lemonade is built for Financial Independence.
A New Way With Lemonade Insurance
Lemonade Insurance made waves in December of 2015 when it announced it would become the world’s first peer-to-peer (P2P) insurance company.
This was big news in the insurance world – an industry that is relatively unchanged since Lloyd’s of London was founded over 300 years ago.
There are semi-P2P insurance carriers available in the life insurance realm (fraternal organizations like the Knights of Columbus). Yet the property insurance market was devoid of any reputable player.
Lemonade is operating in a class of its own when it comes to property insurance. As a B-Corp, they have a commitment to positive social impact baked into their business model. This is good for Lemonade, good for their policyholders, and good for the community.
The platform is powered primarily by AI. AI Maya takes care of policy management. AI Jim is your source for claims handling. AI Maya will assist in setting up your policy, cancelling your old policy, selecting a Giveback, and other various tasks. AI Jim will walk you through the claims handling steps all in an easy to follow chat format.
How Lemonade Makes Money
This is very simple. Lemonade takes a 20% fixed fee from your premium payment. By creating this fixed structure, they are able to focus more on business rather than expanding profit margins by denying claims.
The Giveback is the bread and butter of Lemonade’s platform. When a policyholder binds coverage, they select a charity to donate their unused premiums to if there is a premium surplus at the end of the term.
This means that filing false claims will harm a charity you support – an act that goes against human nature. The behavioral sciences behind understanding this aligned interest allows Lemonade to pay claims faster and build trust amongst its policyholders.
How It Works
This is how policy premium is distributed and what each bucket is for:
- 20% – Lemonade’s Fixed Fee: Pays salaries, funds further development.
- 20% – Reinsurance: Helps streamline capital management and ensure funds availability for claims.
- 20% – Lemonade Reserve: Prices in reinsurance can fluctuate and so can taxes. This helps build a nice cushion.
- 40% – Giveback: If this pool is not exhausted (paid out through claims) during the period, the funds will be distributed to the charity you have selected.
A 20% fee seems like a lot why does Lemonade need this? I actually think this is quite reasonable. Consider that Uber, another P2P service, charges their drivers 25% commission on every ride!
Why is the Giveback only 40% or less if there are claims? Remember that the primary goal of your insurance policy is to pay claims when necessary. While the Giveback is a noble goal, it is secondary to making sure Lemonade can honor its primary responsibility.
Insurance Types Available
Here are the three owner-occupied policy types that Lemonade writes and what they each cover:
- Homeowners: Entire home, personal property, liability
- Renters: Personal property, liability
- Condo/Co-op: Apartment, personal property, liability
Where Lemonade Is Available
Lemonade has a very aggressive growth planned considering every state has a different regulating authority and local laws/statues to contend with.
I say experiences because I have actually been a Lemonade policyholder twice three times. First in New York, then New Jersey, now in Illinois. Each time the system responded well and the policy was instantly bound.
Lemonade launched on September 21, 2016. Since I had been following Lemonade since the end of 2015, I knew I was going to give it a go once it was available.
I downloaded the app, ran through the prompts and had my policy in force in less than 10 minutes. We had a scheduled item to be added that was no hassle at all – an additional 5 minutes at most. Lemonade even cancelled my Travelers policy for me.
Here is the difference between my incumbent carrier and the policy Lemonade offered. The same policy limits were used.
2016 Premium Savings: 18.6%
We moved to New Jersey before Lemonade was available here. I begrudgingly had to find a new carrier. I shopped around and settled upon Amica Mutual.
The Amica application process made me miss Lemonade. It took me two weeks to bind coverage for a simple renters policy. It was quite frustrating. I enviously watched as Lemonade was rolled out in Illinois and California.
I received word that Lemonade was launching in New Jersey on August 2, 2017. Without hesitation I bound coverage and had Lemonade run through the process of cancelling my old Amica policy.
This is less of an apples-to-apples comparison because I made two changes: I increased our personal property coverage by 25% with Lemonade and also increased the deducible from $500 to $1000.
Premium Savings: 17.4%
Lemonade had launched in Illinois prior to our move from New Jersey, so we just cancelled our New Jersey policy, and immediately scheduled our Illinois policy a minute or so later once we were on the road with our Budget truck.
Now, I did shop around before deciding to stick with Lemonade. I checked a few but I have included GEICO below as we can see how their bundled Auto+Renters rates compare to shopping for the lowest rates per line.
The same policy limits were included in the quote, although it is worth noting that GEICO offered lower loss of use and medical payments limits. Even so, it didn’t help improve their rates much.
Premium Difference: 42.9%
Insurance may not be all that exciting but I will tell you what is:
- Saving 15-20% on premiums
- Knowing that my unused premium will be contributed to a charity of my choice
- Sharing the platform with those on the path to financial independence
If you have any questions about the platform or the process, feel free to leave them in the comments below.