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Paul Zimmerman
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Buying Insurance? There's an App for That

Lemonade, an insurance startup offering renters, condominium, and homeowners insurance, has recently expanded to offer policies in California and Illinois, after launching in New York last year. The company hopes to market insurance to millennials by borrowing marketing strategies that have served other industries well in reaching that demographic: a charitable element, along with app-based service and purchasing.

Non-insurance companies such as TOMS and Warby Parker have managed to excite millennial consumers by including philanthropy in their business model. Lemonade has brought this concept to the insurance industry by committing to donate its underwriting profits in an annual “Giveback.” In addition to attracting consumers, Lemonade hopes this model will cut down on excessive claims by encouraging policyholders to view claims as money taken away from charities.

Make no mistake: while Lemonade does not intend to profit from its insurance company, Lemonade Insurance Company, it very much intends to be paid in the form of commissions consumers pay to Lemonade’s brokerage firm, Lemonade Insurance Agency, LLC. Further, Lemonade Insurance Company is reliant on costly reinsurance. So, while Lemonade’s charitable element certainly may shake up the insurance industry, it is not a fundamental reinvention of existing models.

According to Lemonade 90% of its consumers are first-time buyers of renters or homeowners insurance. No doubt this is, at least in part, attributable to its app-based service and purchasing. Although apps are nothing new to retail, the insurance industry has lagged behind in this area, despite the fact that consumers increasingly shy away from conducting business over the phone, let alone face-to-face. Whether or not Lemonade’s charitable model takes hold, the insurance industry would be wise to embrace, or at the very least contemplate, the expanding role of app-based insurance.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.