Why is Lemonade’s arrival into Europe an opportunity for traditional insurers?

Last week Lemonade raised $300m Series D financing led by SoftBank, with participation from Allianz, General Catalyst, Google Ventures, OurCrowd and Thrive Capital. The investment is meant to help Lemonade expand beyond the U.S., with the European market in their focus.  What reaction can we expect from European Insurers?

How does Lemonade work?

Lemonade is currently offering Home Insurance policies. Users need to download the app and answer a few questions before getting a quote. Lemonade then takes a fixed slice of a user’s monthly payments as revenue and sets the rest aside for claims. Unclaimed premiums go to the user’s charity of choice. It’s just a matter of time before Lemonade opens its doors to new insurance propositions, such as life or motor insurance.

How will Lemonade’s arrival to Europe impact the insurance industry?

According to Oxbow Partners, the reason for Lemonade’s move into Europe is to provide an objective data point on the ability of insurance to be a global, technology-led proposition.

Lemonade is a fully digital company with the ability to expand into new markets with no local infrastructure costs, consequently lowering its operating costs in comparison to traditional carriers. They have digitized the entire insurance process replacing brokers and paperwork with algorithms. Such a business model has enabled them to collect data more efficiently, which drives improved underwriting and pricing management.

Opportunity or threat for Insurance players?

Uber, an example of a successful tech-led business model with global expansion, has disrupted and redefined mobility services, where a significant number of existing market players were either unable or initially unwilling to adapt to new market needs and therefore became obsolete. On the other hand, companies that were ready to switch to digital remain competitive and continue to operate successfully.

Insurance carriers will need to evolve to keep up with changing customer needs and expectations, as well as increasing innovations disrupting the industry. The key opportunity for insurers lies in forging partnerships with insurtechs, which offer innovative and proven  technologies. Insurtechs will enable insurers to offer competitive new products and functionalities, as well as to swiftly switch to a digital business model.

For more information on how partnerships between insurtechs and insurance companies can provide various benefits for an insurer, as well as to their customers please see our previous blog post.

 

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