Backed By Ashton Kutcher Lemonade Lands In California

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Backed By Ashton Kutcher, Lemonade Lands In California

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Ashton Kutcher, Sound Ventures (Photo by Kevin Winter/Getty Images )

Eight months after launching in New York and 6 weeks after launching Illinois, Lemonade, the insurance company powered by AI and behavioral economics, launched across California.

It’s pretty fitting for the insurance disruptor to count California, the tech capital of the world, as its third state to be licensed in. Backed by VCs such as Sequoia, GV, General Catalyst and Ashton Kutcher’s Sound Ventures, Lemonade was founded by two techies themselves: Daniel Schreiber, the former president of Powermat, and Shai Wininger, a co-founder of Fiverr. In fact, the two describe Lemonade as a “tech company doing insurance, not an insurance company doing an app.”

This is not a trivial distinction. Insuretech has been billed the hottest sector in tech, and swarms of startups have sprung up in this past year. From 2011 and until 2017, overall insuretech venture funding grew by 31% annually, according to Venture Scanner. Often, "insurtech" companies are digital brokers that provide a snazzy facade for traditional insurance incumbents.

Shai Wininger (left) and Daniel Schreiber, cofounders of Lemonade

With the $60 million raised, Schreiber and Wininger built an insurance carrier (as opposed to an insurance broker), writing policies and paying claims instantly, in a user experience that is deeply different. But the business model is what stands out: Lemonade takes a flat 20% fee and gives underwriting profits to nonprofits. This removes the adversarial relationship incumbents have when they pay claims: every dollar they pay out in claims is a dollar less in profit.

In a reversal of the traditional insurance model, Lemonade treats premiums as if they were still the property of the insured, returning unclaimed money during its annual "Giveback." Cause-selection creates virtual groups of like-minded people, or "peers." Lemonade uses premiums from each grouping to pay the claims of those individuals, giving back leftover money to their common cause.

"It's not our money," says Schreiber, CEO and co-founder of Lemonade.  "We repeat that sentence like a mantra, and have it emblazoned on our office walls.  We never want to be in conflict with our customers.  We never want to make money by denying claims. And that means giving back underwriting profits."

Giveback funds nonprofits, but benefits everyone. Fraud consumes as much as 38% of all the money in the traditional insurance system, inflating premiums by $1,300 and making the claims process protracted and unpleasant. While the industry shrugs this off as a cost of doing business, behavioral scientists have mapped the underlying drivers, providing Lemonade with a blueprint for building a new kind of insurance carrier. Giveback is a part of the solution.

Ashton Kutcher, for example, promotes Thorn, a charity he co-founded that fights child trafficking through technology, as a Giveback cause.

“The amazing tech and social impact of Lemonade was the reason we joined the company as investors," says Kutcher, co-founder of Sound Ventures. “I think Californians will find Lemonade’s unique combination of value, values and simplicity hard to resist. I know I did.”

Business

via Forbes - Entrepreneurs http://ift.tt/dTEDZf

May 10, 2017 at 02:00AM