AI insurtech Lemonade nabs a $300 million investment (SFTBY)

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US-based insurtech startup Lemonade has raised $300 million in a Series D funding round led by SoftBank Group, with other participants including Allianz and General Catalyst, per TechCrunch.

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This brings its valuation to over $2 billion, according to a source cited by Forbes. Its prior capital increase was completed at the end of 2017, when its valuation stood at around $600 million. Lemonade uses an AI bot to create personalized renters and homeowners insurance policies, starting from $5 and $25, respectively.

Here’s what it means: The new funding round, its largest to date, highlights Lemonade’s sustainability, continued reach, and focused growth.

The insurtech will be able to expand successfully across geographies. In December 2018, Lemonade announced plans to launch in Europe, but didn’t provide a timeline; with the latest raise, it seems that the firm will be able to do so faster than we expected. The continent provides a good playing ground for the insurtech, as it can easily passport its services between countries. We therefore expect it to establish itself broadly within Europe, while it also said it will use the funds to increase its presence in the US.
It’ll hire new people who will help it keep up with its fast growth. According to Lemonade’s cofounder and CEO, the startup will look to add staff across the organization, including within customer support and engineering. The startup, which launched in September 2016 and had sold over 200,000 policies by June 2018, has now sold more than 500,000 policies. The additional hires will help it manage its speedy growth efficiently. As seen by N26’s recent news that German regulator Bafin identified a number of shortcomings that could have been related to its fast expansion, managing growth isn’t always easy for startups.
The significant investor backing acts as a testament to the success of Lemonade’s unique business model. The insurtech has been donating leftover money from those set aside for claims (after taking as revenue a fixed rate from the premiums) to charities of its customers’ choice. In doing so, it has also managed to reduce fraud incentive among its users and prove its business model: Last year, it generated $57 million in revenue, while this year it’s on track to hit $100 million. And since younger generations are placing corporate culture under the spotlight — nearly 70% of US millennials take company values under consideration before committing to a purchase, per Forrester data — Lemonade should be able to attract new clients from this segment, as millennials’ purchasing power and homebuying activity continues to increase.

The bigger picture: Lemonade continues to shake up the insurance industry, and as it grows in size and value, it’s high time insurers took a leaf out of its book.

To protect their market share, large insurance companies should look at Lemonade as a model for solutions that remove customer pain points. Lemonade’s been tackling issues that often bring friction between insurers and their customers since day one, including with its seamless onboarding, fast claims processing, “live” policies, and the removal of insurance deductibles.

Its new funding will probably enable it to get rid of more customer pain points, while growing its reach across geographies and products. To safeguard their position, insurers should step up their game to make signing up for policies and making claims as seamless and efficient as possible. Further, reevaluating their corporate cultures and values could get them closer to their existing and potential new customers.

Here’s an industry opinion, as told to Business Insider Intelligence:

“If the industry ever needed proof that the insurtech world is much more than a fad, then here it is. The multiple significant raises in the US and Europe over the last few weeks, not to mention the scale and pace of what is going on in China and India, further validate this sector means business. I expect more to follow with larger war chests to expand into new propositions and geographies." — Nigel Walsh, Deloitte partner

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Source: Business Insider – edigalaki@businessinsider.com (Eleni Digalaki)