Today’s announcement by Lemonade provides an example of what actual disruption in insurance looks like. Disruption — the term is overused in the hype around innovation. In Celent’s research on innovation in insurance, we see that what is often tagged as disruptive is actually an improvement, not a displacement, of the existing business model.
The information released describes how Lemonade seeks to replace traditional insurance. Yes, they have built a digital insurance platform. Beyond that significant feat, they seek to replace the profit-seeking motive of their company with one based on charitable giving, acting as a Certified B-Corp (more info on B-Corps). They are also using the charitable motive as the guide to establish their risk sharing pools, thus creating the peer-to-peer dimension. Unlike other P2P efforts, Lemonade goes beyond broking the transaction and assumes the risk (reinsured by XL Catlin, Berkshire Hathaway and Lloyd’s of London, among others).
However, like other P2P models, such as Friendsurance, Lemonade faces a real challenge regarding customer education. The Celent report Friendsurance: Challenging the Business Model of a Social Insurance Startup — A Case Study details the journey of the German broker along a significant learning curve regarding just how much effort was required to teach consumers a new way to buy an old product.
The next few weeks will surface answers to they second-level questions about this new initiative such as:
- How/if their technical insurance products differ from standard home,renters, condo and co-op contracts;
- What happens to members of a risk sharing pool when the losses exceed funding;
- Will the bedrock assumption, that a commitment to charity will overcome self interest and result in expected levels of fraud reduction?
It is refreshing to see some disruption delivered in the midst of all the smoke around innovation. Celent toasts Lemonade and welcomes this challenge to business as usual!