No one enjoys the slow-turning wheels of bureaucracy that can delay an insurance settlement by days, weeks, months, or even years. But do we need a system that can settle insurance claims in mere seconds? Lemonade, a disruptive insurtech that has digitally automated much of the insurance process, apparently thinks so.
Lemonade recently announced it had shattered a world record by settling an insurance claim within two seconds using artificial intelligence and machine learning. It’s not clear exactly where the record-keeping for insurance claims is held – Guinness World Records says it has no international standard for claims settlements (Guinness does, however, note the record for the most high-fives in one minute – 260 – belongs to the CEO of a Florida insurance company).
But the two-second feat seems to have beat Lemonade’s previous record, set in 2017, when a Lemonade customer hit ‘Submit’ on a claim for a $979 Canada Goose Langford Parka, and received notification that the claim was approved and closed within three seconds.
In that quick moment, Lemonade said, AI Jim – Lemonade’s chatbot – reviewed the claim, cross referenced it with the policy, ran dozens of anti-fraud algorithms on it, approved the claim, sent wiring instructions to the bank, and informed the client the claim was closed. All in a blink of an eye.
Lemonade’s ‘game-changing breakthrough’
Lemonade, which is known for leveraging AI and machine learning, called the one-second shave off settlements a “game-changing breakthrough,” and said it demonstrated the company’s commitment to customer-centricity. But it does, at least, demonstrate the significant potential technology has to reform the entire insurance industry.
Or does it?
Lemonade, along with several other insurtech upstarts, launched almost a decade ago amid much Wall Street hoopla with the expectation it was the next Google, Tesla or Uber – tech companies that promised to disrupt the stodgy insurance industry. Instead, it has struggled to find footing. Worth nearly $10 billion at its peak in 2021, it now lists a market cap of $1.21 billion. Its stock, which once hit $165 per share, is settled currently around $17 per share.
The founders of insurtechs like Lemonade came from the raucous and largely unregulated high tech world and, to a great extent, underestimated both how much an impediment state regulation could be to growth and how quickly those stodgy legacy companies would adjust and heavily invest in the very technology Lemonade was highlighting as a competitive advantage.
While attracting hordes of customers and selling millions of dollars worth of policies – Lemonade recently reported more than 1.8 million customers and $653 million in premiums – it has yet to make a dime.
Profit ‘still several quarters away’
“While we have line of sight to our target loss ratios, we believe this destination is still several quarters away,” the company said in commenting on it its first quarter results last month. “We will continue to constrain our growth until our loss ratio is within that range.”
Clearly, the insurtechs haven’t been able to gather customer data as fast as they had hoped in order to build a better insurance selling model. And states have clamped down on their use of data and pricing formulas. Moreover, it has been a challenge to take market share from the established giants that spend millions on advertising and marketing. One insurance executive recently said he believed the insurtechs built their companies with what the legacy companies called adverse selection: customers the big boys didn’t want.
“The company is young and thus lacks strong brand recognition,” wrote LEL Investment LLC, a financial blogger at Seeking Alpha. “Its small size and financial loss situation might make it less trustworthy to consumers in our view. Its strengths in the fast claim process and deployment of AI technology partially make up for its weaknesses.”
LEL believes customer retention, at 87%, is a weak spot for Lemonade. “This suggests that some customers may not be completely satisfied with the company’s products, services, or pricing,” LEL said.
Lemonade, though, still has its fans on Wall Street, with some believing that those vaunted profits and the payoff for technological advantages are just beyond the horizon.
They point to the fact that Lemonade stock has gained 43% this year and its quarterly losses weren’t as bad as expected. And they believe that the speed and efficiency with which the company can process applications and claims is a big plus for consumers.
“One of Lemonade’s key selling points is its use of AI and machine learning algorithms, which enable customers to obtain insurance coverage in as little as 90 seconds and receive claims payouts within three minutes,” said Dilantin De Silva, founder of BeatBillions, an investment research platform. “This emphasis on speed and efficiency sets Lemonade apart from traditional insurance providers.”
By addressing underwriting challenges and exploring opportunities in higher-premium insurance segments, De Silva said, “Lemonade remains a formidable player in the insurtech space, poised to capitalize on its strengths and expand market presence.”
It will just take more than a few seconds.
Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at email@example.com.
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