Quantfury Daily Gazette
Is it lemonade? No, it’s insurance
When I was studying in the 5th semester of my degree, I had to take a subject called “financial markets,” where the main thing was to learn about all the agents that participate in the country’s economy, such as banks, credit institutions, stock exchange and insurance companies. I would like to focus on the latter because my teacher, who was a 70-year-old man that worked all his life in the banking sector, told us a phrase that I will never forget: “If one day you think you are wasting your time on something, wait until you do the paperwork to apply for insurance.”
This led me to question him because accounting used to be a cumbersome process done entirely by hand, but nowadays, processes can be streamlined with computer software such as those provided by SAP SE (BATS EU: SAP). At one point, I found a company called Lemonade (NYSE: LMND) that sold itself with the slogan “forget everything you know about insurance.” But they weren’t popular until the mid-2020s when they went public in the midst of the covid pandemic.
But until then, I only knew about insurance companies like AXA SA (BATS EU: CS); they are Europe’s largest insurance company, founded in 1852 in Paris, with a market capitalization of 66.5 billion euros. They have offices from Argentina to Thailand, with a presence in 56 countries and 157,000 employees. They have a total empire, and it is natural to think that, in over 150 years of experience, they would have had to modernize to such an extent that insurance management processes would take mere minutes. But the reality is they haven’t.
With a quick Google search, I found multiple review sites that showed an average rating of 2 out of 5 stars, which was surprising for such an established company, with the main complaints being around the inefficiency of the service in every aspect. It seemed as if the sector had never evolved in a long time. But now, with Lemonade (NYSE: LMND) in the market, things have taken an extraordinary turn. They offer the ability to purchase insurance for your home, vehicle, relatives, life, property or even your pet in as little as 90 seconds. All thanks to the artificial intelligence used in their bot through an app, which is responsible for budgeting, analyzing, verifying and approving the necessary documents to grant insurance.
According to Bloomberg, 36% of people who had insurance from other major providers have decided to switch to Lemonade’s services. The secret of its success is that its founders implemented a business model aimed at not denying payment to their customers under any pretext. To this end, they decided to keep only 25% of the payments as profit and the other 75% would not be moved, as it is destined to be used for the claims of their policyholders. But what’s more, out of that 75%, you can choose a foundation to donate to with that money.
All this has a psychological purpose which is to avoid fraud claims since the feeling of taking advantage of the money that could go to charity creates a psychological barrier. Another way they avoid fraud is through AI, to compare the client testimony with news stories close to the events that happened, and at the time the claim is approved, they must submit a video testimony, which makes it difficult for people who are lying to feel comfortable in front of a camera.
Lemonade’s (NYSE: LMND) success against traditional insurers is due to the facelift it is giving to this forgotten sector. It is no secret that insurers lose money when you suffer an accident or inconvenience, and the bureaucracy to access that money seems endless, as the seed of doubt will be sown from the moment a claim is made. It will not be until it is determined that there is no fraud against the insurer that you will see the money to deal with your emergency.
That is why a business model that aims to bring out the best in people under a transparent system that overcomes conflicts of interest makes taking out insurance now as easy as sitting down for a lemonade.
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