There's a lot to love about Lemonade, the much-hyped US insurtech which finally launched its first insurance products last week.
- The bot-like interaction design of its home insurance quote journey is delightful. Building on Guevara (sadly it closed in 2017) and others, it moves the customer experience of buying insurance on a mobile device on from the tedious process of form-filling.
- Its pricing is keen. The acid test for all B2C fintechs is delivering tangible value to customers that incumbents can't match. Starting at just $5 a month for renters insurance, Lemonade's prices are around 50% cheaper than its direct competitors'. That's excellent.
- Its business model is refreshingly different. Like InShared in the Netherlands, Lemonade takes a fixed percentage of insurance premiums to fund its operations. Any underwriting surplus is donated to charity as a nudge to discourage exaggerated claims. This adds up to a compelling proposition for investors as well as customers.
So what's not to love?
It's only available in New York. Like other US insurtechs, Lemonade faces the absurd constraints of the US's anachronistic state-based system of insurance licensing and regulation.
After $730m of funding, Health Insurance disruptor Oscar is still only available in 4 states. Pay-per-mile car insurer Metromile is only available in 7, and has had to spend $192m acquring a traditional carrier to enable national expansion. (Yes, that's right - "national expansion", not "international expansion".)
This is a barrier to insurance innovation that's as big and dumb as a border wall. It's a shame for US insurance startups like Lemonade, but it's also odd that insurtech VCs don't invest more in Europe, where the regulatory environment is far more benign.
Lemonade's policy documents consist of 20+ pages of turgid legalese. Here's a random soundbite to give you a flavour: "This Exclusion E.2. applies but is not limited to an act or omission, regardless of its nature or circumstance, involving a service or duty rendered, promised, owed, or implied to be provided because of the nature of the "business"."
This is the kind of old-school, obfuscating language that undermines trust between insurance companies and their customers. What's more, because it uses a standard wording written in 2010 by the Insurance Services Office, Lemonade's policy is literally identical to home insurance policies from thousands of other organizations (the Kentucky FAIR Plan, for example).
In fairness to Lemonade, this too may be a function of US regulatory constraints. But why not have Fairer Finance review documentation for clear design and simple language? Why not look at Google data to see what unmet insurance needs people have, and build new policies that meet them? Customers deserve better policies, as well as a better experience and a better price.