But how does a fairly young company compete with various industry giants, who have operated their business for sometimes centuries.
Lemonade has two interesting twists with which it attracts its predominantly young customer base.
- Digital First - The company utilizes chat bots and machine learning to handle the signup and claims. And due to their chat bots, Lemonade is able to gather over 100 times more data points on its customers compared to its established competitors. Due to the vast amount of data Lemonade is able to collect, its algorithms can accurately predict the appropriate level of insurance one has to pay.
- Traditional insurance companies are for-profit organizations who are incentivized to hold onto claims as long as possible while minimizing the payouts. Lemonade hired a Chief Behavioral Officer who was tasked with implementing an incentive system in which customers can trust their insurance again.
Collected customer premium (the amount of money the customer pays for their insurance) is used by Lemonade in the following way:
- fixed fee for Lemonade to cover administrative costs with surplus being their profit (for comparison, traditional for-profit insurance companies collect 35% premium fees).
- used to fund claims, buy reinsurance, and cover taxes and fees (surplus goes to a charity of the customer’s choice).
which measures how likely customers are to recommend a business to a friend, of 70. That compares to an industry average of under 20 (NET(net)’s NPS is 78!).
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