December 5, 2022

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2 Radical Ways Lemonade Is Flipping the Insurance Market

Lemonade (NYSE: LMND) is leaning on AI to power its claims and fuel its underwriting decisions, and is reimagining the business of insurance as a whole. In this clip from “IPO & SPAC Show” on Motley Fool Live, recorded on April 11, Motley Fool contributor Jason Hall discusses how Lemonade is aiming to uniquely upend the insurance industry.

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Jason Hall: Let’s talk about, first of all, what is Lemonade? It’s an insurance business and it’s really looking to disrupt the insurance industry and I think it’s important to understand that it’s looking to change things in two fundamental ways. No. 1, we hear about the AI. It’s looking to use AI to power its claims, to power its underwriting decisions, and to do even more to automate so much of its business that is manual and done by people in most of the insurance industry. That’s important. But the other thing that I think is just as important is how it’s structured. Again, I’ve talked about following the money and understanding incentives in businesses to find opportunities and risks, and it’s structured as a public benefit company. It’s committed to pay a portion of proceeds to charities that its customers identify. It also is built so that it takes a certain share of revenues that it takes no matter how great the underwriting is. In other words, it’s not necessarily going to make a lot more profit off of underwriting. Then, it uses reinsurance to manage its claim liability. By doing this, the management says this is really fundamental to its mission, to break down those barriers, to think about a traditional insurance company. Their goal is to keep your money as long as possible, to keep that float, to reduce the amount they are paying on claims as much as they can, and as a result of that, when I’m insured and I’m filing a claim, the incentive now is for me to inflate the claim to make sure I get as much as I can. It’s very adversarial. It’s always been this way. It’s really, really challenging and the way that Lemonade is built, it wants to partner and grow with its clients over time and by changing those incentives, you file a claim, its AI can approve it in seconds. Some really, really powerful things that Lemonade is looking to do.

Jason Hall owns Lemonade, Inc. The Motley Fool owns and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.