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Lemonade Insurance: I do not think P2P means what you think it means

On September 21st, 2016, P2P renters and home insurance firm Lemonade launched with a great deal of fanfare. There are a number of factors contributing to the positive buzz the app’s launch has generated: its simple, sleek design, the fact that they were able to roll it out after just one year – a rarity in the insurance industry – and of course, it’s finer fintech attributes. According to the Lemonade website, it takes just 90 seconds to get insured, and 3 minutes to get claims paid, all with the help of Jim and Maya, the app’s helpful AI chatbots. Not to worry; policy holders who want to speak to a human at any point in the process can actually reach the real Jim and Maya at Lemonade’s office.

However, one of the fintech concepts blatantly missing from Lemonade is P2P, which seems to be a big part of its marketing strategy. The company bills itself as the world’s first P2P insurance company. The P2P model of lending, in which online platforms match borrowers directly with investors, is fairly straightforward. Yet that model is nowhere to be found in Lemonade.

Instead, it turns out that Lemonade, like its German insurtech cousin, Friendsurance, is using the term very differently than online lenders do. With Lemonade, P2P means that the company pools the premiums of its policyholders to pay out claims…like any other type of traditional insurance.

The Lemonade twist is how the company connects policyholders to one another. While insurtech companies like Friendsurance or the UK’s Bought by Many pool people according to the type of insurance they’re taking out, Lemonade groups people by having them choose a charity when they purchase a policy. Unlike other insurance companies, which retain any unclaimed premium money, Lemonade intends to donate said money at the end of the year to the pool’s charity of choice. The company hopes that connecting people to one another through social action will deter them from submitting fraudulent claims.

The fact is that P2P insurance like Lemonade’s isn’t as P2P as marketplace lending is, nor is Lemonade the first insurtech to pool people around a common thread: Friendsurance’s shareconomy has been around since 2010.

Still, Lemonade is a unique offering in the state of NY, and its clean design, the low premium cut it takes – 20 percent as opposed to the industry’s average 35 percent – and its social component are sure to appeal to the Big Apple’s digitally savvy.

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[interview] Paying for the insurance we actually need via a peer-to-peer model

friendsurance - paying for insurance we need
Friendsurance's Tim Kunde
friendsurance’s Tim Kunde

Tradestreaming had the opportunity to chat about the future of insurance with Tim Kunde. He’s co-founder and managing director of Berlin-based friendsurance, a company taking aim at disrupting the insurance industry. It’s doing so by changing the way we purchase and subsequently, behave with insurance coverage.

Tim graduated with a Masters in International Management. He started his career with The Boston Consulting Group, advising various companies on consumer goods and insurance matters. He is responsible for marketing, business development, sales, IT, product, customer support and CRM.

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What was wrong with the way traditional insurance worked? Why do you think it was expensive and opaque?

In 2010, the founders of Friendsurance realized that many people own insurance that they don’t or only rarely use. However, insurers don’t reward caution and fair play – even though this means less work and lower costs for them.

We don’t think this is fair.

This is why we have developed a disruptive peer-to-peer insurance concept, which rewards small groups of users with a cash-back bonus at the end of each year if they remain claimless: the claims-free bonus, which has been selected as shortlisted project at Word Summit Award 2015.

How does this all work?

Policy owners with the same insurance type form small groups. A part of their premiums is paid into a cashback pool. If no claims are submitted, the members of the group get some of their money back at the end of the year. The claims-free bonus is available for new insurances and can also be added to existing home contents, private liability and legal expenses insurances very easily – without any change in coverage, premium or provider.

You provide bonuses if groups go claims-free during a period. How does that work? Do policy holders really change their behavior in this model? What’s the role of insurance companies in your model? Do they benefit as well?

how friendsurance works
how friendsurance works

The claims-free bonus can be added to existing insurance contracts: A deductible is integrated into the contract, or rather, the existing deductible is increased to the maximum. The increased deductible comes along with a lower premium. The difference between the old contract without deductible and the new contract with deductible flows into the cash back pool.

The premium reduction allows the cash back in case of no claims. In case of a claim, the policy owner does not have to pay for the deductible himself because it is covered by the pool. Therefore, the policy owner profits from the low premiums of insurance contracts with deductible without having to take the risk of high expenses in case of claims.

As the claims-free bonus rewards careful and fair behavior, we record a claim frequency below market average. For insurance companies, improved behavior means reduced cost of claims and also reduced processing cost for small claims.

Additionally, the claims-free bonus helps to increase customer satisfaction as well as customer loyalty. Currently we are cooperating with approximately 70 domestic insurance partners.

You’re active in Germany — will friendsurance model extend internationally? Do you have expansion plans?

Friendsurance has always been planned as international project. We are currently checking expansion possibilities in other markets.

It feels like the insurance industry is ripe for disruption but fewer firms are focused there. Why do you think that is? Why did you target this industry when you created friendsurance?

That there are few startups may be due to the fact that the insurance industry is still very regulated and lacks trust, making it hard to convince consumers of new ideas. You need long vision and patience. But we can see a change: Recently more and more startups are entering the insurance market.

Can you give readers a taste for what else you have planned with the product/service in the future?

We plan to offer additional insurance categories and expand to other markets.

 

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