CEO Daniel Schreiber and partner Shai Wininger
Aleph, Sequoia, GV, Allianz, General Catalyst, XL Catlin, Thrive Capital, Tusk Ventures, Sound Ventures
In order to understand the idea behind startup Lemonade, start with the company's refreshing name. "The name chose us," explains Lemonade cofounding partner Shai Wininger. "It comes from the saying, 'If life gives you lemons, make lemonade.' In our case, it means that we might not be able to prevent your house from burning down, but we can sweeten the experience." Lemonade, he explains, is "an insurance company based on artificial intelligence and behavioral economics."
Wininger (44) and CEO Daniel Schreiber (45) are experienced technology entrepreneurs. Wininger was a cofounder of Fiverr.com, while Schreiber was a senior executive at SanDisk Corporation. Prof. Dan Ariely, who joined in early 2016, is responsible for behavioral economics in the company.
"In late 2014, I decided that I wanted to build something bigger," Wininger says. "I was attracted to the financial sector, and I began as an investor. Many people do that, but few really understand the mechanics of financial investment. I took a year off and studied the subject seriously. I didn't even know what I was going to do with it all, but I found myself drawn in. I'm very involved in the local technology community and meet many entrepreneurs in my daily life. I suddenly realized that the financial industry is one of the most important industries and holds most of the world's money, but there isn't much innovation in it."
Wininger : Almost none. If you look back three years, you won't find many fintech companies, and even those that were in the market didn't replace a single financial institution. I thought that entrepreneurs like me could raise a substantial amount of money and build a significant company. You can even call it historic responsibility – to leave the comfort zone of just developing another nice app."
Wininger received help from Eden Shochat and Michael Eisenberg, partners in the Aleph venture capital fund. "They know me, and they also knew Daniel Schreiber, who already had ideas in his head. It was a match made in heaven. We spent a lot of time just thinking about the right thing to develop. We decided to go for insurance, because it's an industry we didn't like."
Why didn't you like it?
"Insurance is one of the most hated subjects. It wasn't an obvious choice. And in fact we vacillated quite a bit over the choice, but we realized that the dislike was an opportunity in such an unromantic, ponderous, and hated industry. It's easier to do this in insurance than in dating, for example, because everyone does that. The dating sector is a red ocean.
"We chose insurance both because it's disliked and because of its enormous size. Insurance turnover in the US is more than 7% of GDP. It's a trillion-dollar industry. If you're an entrepreneur who has already done a few things in your life, you have to be realistic – a successful company may perhaps achieve a 1-2% market share. When you operate in a small market, you realize that the potential isn't huge. In a trillion-dollar industry, however, a small percentage amounts to billions."
Did you already know what you wanted to do? Did you have an idea?
"There was a general direction, and it's not exactly what we have now. Our message was P2P insurance, but at any rate, we went to work. We tried to understand why so many people hate the insurance industry. We came to the realization – something that might be obvious to people in insurance, but which tends to be ignored – that it's almost the only industry in which the customer and the industry are fighting over the same money. When you pay an agent a premium - and incidentally, words like 'premium' aren't really needed, and are designed to complicate things - you're paying the company. The money goes into a big pot that at the end of the year, after payment to the agents and r insurance payouts, is the company's profit. Therefore, every time you need the insurance company, it will do everything to pay you less. We realized that a new insurance experience is not a matter of a new user experience. The hatred will be the same hatred. We therefore built a business model that eliminates the factor of not paying claims. We actually changed everything. We said that we would take 20% from the customer, a little more than an average broker. This is a monthly payment – out of every dollar, 20 cents goes to us, and all the rest, 80%, will never be ours.
"In good years, the policyholders have an option of what to do with this money, and to choose to whom they wish to donate it. That's how we also make the world a better place. This year, for example, we donated 10% of the revenue. We also made sure that the company managers will not be able to change this in the future."
Wininger cites another advantage of the system - rapid handling of claims. "Since we have no pressure to pay or not to pay claims, handling is quick, and of course is conducted online through the app. This year, we paid claims in less than three second," Wininger says proudly.
How do you check the claims? Many people try to cheat insurance companies.
"That's what's smart about our IP. We're able to analyze the policyholders and build a profile of them using artificial intelligence and actuaries whom we employ. We might refuse to insure some customers, because their profile is unsuitable."
Do you operate only in the US at present?
"The US market is right one for us. We're an insurance company, not an agency, so to found something like this is a little like starting a bank; it's very complicated. It's a process that takes lobbying and effort. We got a license in the US within a year, and that's considered very fast. This year was phenomenal for us. The US insurance companies have existed for an average of a hundred years, but today's millennial generation is looking for companies that were founded while they were consumers. For them, being long established is not a consideration. Especially since the economic crisis, there is even a feeling in the US of being averse to the big companies' greed and corruption. Our brand explicitly appeals to the millennial generation."
"When we started this year, we set an ambitious target of 13,000 insured households. We already have 42,000, and we have licenses to operate in more than 50% of the US market."
"How are the conventional insurance companies responding?"
"It's interesting. All in all, the reception was amazing. At the beginning, we didn't believe that we would grow the way we have. Everyone's talking about us now. Not long ago, we recruited someone who said that she had worked at an insurance company on a team called Lemonade, whose job it was to keep track of us and learn from us."
Is it like what happened in the taxi market with Gett and Uber?
"It's different. We see ourselves as Robin Hood fighting the bad guys. We're also not aggressive; we don't get into confrontations, and don't do things like Uber."