Lemonade has settled on Germany for first expansion beyond the US

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Insurtech startup Lemonade has launched in Germany, marking its first expansion beyond the US, reports the Financial Times. In addition to offering contents and liability insurance in the country, Germany will be the first market in which the startup uses Policy 2.0 — a policy document that aims to make insurance coverage details more straightforward.

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Lemonade has yet to secure regulatory approval for the revamped policy document in the US. The startup, which uses AI to create personalized insurance policies, raised $300 million in April from investors including SoftBank and Allianz to power its European expansion. It’s also signed a multiyear reinsurance agreement with AXA Germany for the launch in the country.

Here’s what it means: European expansion is vital for Lemonade’s long-term success — but its decision to start in Germany should sound alarm bells for the UK.

The German market has merits on its own — but it will also serve as a crucial testing site for Lemonade’s wider European ambitions. Germany’s strong base of young, digital-savvy consumers was a key reason why Lemonade chose the country as its first overseas destination, according to the startup’s Chief Executive Daniel Schreiber, cited by the FT. And how it performs in Germany will likely inform Lemonade’s approach when it expands to more European markets. While the startup is beginning its European journey in Germany, it’s licensed and supervised in the Netherlands. This points to one of the reasons why Europe is such an attractive market: Passporting rules across the European Union means Lemonade can use its Dutch license to operate across the entire continent. In the US, the startup is only available in 24 states because regulations require state-by-state approval — a costly and laborious process for an upstart.
But Lemonade’s choice of Germany as a European launchpad and the Netherlands for authorization is bad news for the UK.One of the reasons Lemonade declined to make its European debut in the UK was continued uncertainty regarding the country’s exit from the EU. Brexit "gives us the heebie jeebies. It’s very uncertain," according to Schreiber cited by the FT. Despite this political uncertainty, the UK remains Europe’s fintech capital, with the country’s startups capturing 56% of the region’s total fintech investments in 2018, per Accenture. Yet, recently a lack of clarity around Brexit appears to be having material impacts on the UK fintech ecosystem: BBVA decided against taking up its option to acquire neobank Atom earlier this year, citing Brexit concerns, for example. That a major insurtech player has been dissuaded from the UK in this regard suggests that the so-far muted consequences of Brexit are beginning to manifest more seriously. And the longer this uncertainty continues, the more likely other players will be to jettison the UK in favor of other European countries.

The bigger picture: Success in Europe will be a major litmus test of Lemonade’s credentials as a genuine threat to incumbent insurers — but it won’t have it all its own way on the continent.

As Lemonade looks to achieve the scale necessary to sustain its business in the long run, markets like Europe will be vital.Lemonade’s raised $480 million from investors so far, evidencing its success in honing its product to fill a market gap. The next stage of growth for the startup — scaling up and proving its business model — is a sizable task as it needs to acquire huge numbers of customers. That consumers in European countries like Germany are open to data sharing for more personalized insurance services suggests that Lemonade has a sizable addressable market for its services on the continent. And with open banking regulations having only kicked in recently, we could see European attitudes toward data sharing for more personalized products and pricing increase — a boon for Lemonade. However, it’ll have stiff competition in its efforts to win European consumers, not just from incumbent insurers, but also upstarts like Germany-based Wefox.

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

"We are happy to see Lemonade entering the huge €1.2 trillion ($1.36 trillion) European insurance market. There already are players like Getsafe with a very similar, mobile insurance offering, that have more traction than Lemonade initially had in the US — so we are excited about the competition. Overall, we see two or three main insurtech players now competing for millennial insurance customers in Europe. Given the tremendous market opportunity, more than one will succeed." — Christian Wiens, CEO Getsafe

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