Peer-to-Peer Personal Lines Insurer Lemonade Opens for Business in New York

September 21, 2016

  • September 21, 2016 at 1:21 pm
    mr opinion says:
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    “A P2P insurer invites users to form small groups of policyholders who pay premiums into a pool to pay claims, but members get any leftover funds at the end of the policy period.”

    How does this differ from a group captive? It sounds like they have a captive with segregated cells each consisting of small groups. I haven’t seen anything about how they will handle a short-fall. Obviously the re insurer’s step in, but legally, I think they have to retain some risk above premiums collected in order to qualify as an “insurer” (10% chance of 10% loss is, I believe still the guideline). Do participants have any liability if the pool is insufficient to cover losses?

    • September 22, 2016 at 3:19 pm
      CO_yeti says:
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      I read everything on their website. Sounds like just a rebranding of an underwriting service and wholesaler. I’m sure they will try and keep loss reserves as low as possible and offload the risk the reinsurers which to me says the reinsurers are really acting like investors which is why they are mention multiple times by name in the press releases and website. Can you think of any other insurance company that does that will the standard customer?

      • September 23, 2016 at 9:32 am
        Mr. Solvent says:
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        One only needs to look to Sawgrass Mutual in Florida to see this is a bad idea. While not exactly the same, the huge policy fee called “contribution to surplus” and a company started with a surplus note is an iffy situation at best.

    • October 18, 2016 at 9:45 am
      Deplorables says:
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      Perhaps the State of NY will cover them through a guarantee fund when they fail. It is not a matter of if, but when.

  • September 21, 2016 at 1:23 pm
    Jack says:
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    “Instead of making our money from denying claims, as is the norm within the industry”

    Really? I’m always amazed at the self-loathing articles published here on IJ. It makes me so want to be a part of the profession….of “journalism”.

    Maybe you should change the name from IJ to I HATE CAPITALISM?

    • September 22, 2016 at 10:00 am
      Deplorables says:
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      Jack, you may very well be right. We have all seen the articles slanted to the left on this blog. The Progressive left bloggers are allowed to get away with terrible insults to any Conservative and many have to be reported multiple times to get IJ’s attention and then they reluctantly remove ugly posts.

  • September 21, 2016 at 1:30 pm
    Danyell says:
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    This is similar model of a insurance mutual company….just sounds like they are looking to do it in smaller groups. I also question what they will do when the claims outweigh the money they are bringing in? And I definitely take exception to the comment that the norm is to deny claims…..claims are made and claims are paid as per their merits. As a consumer, I would be very worried to be involved in this model. As an insurance agent, I would not recommend it for the best interest of my customers and for my own creditability!

  • September 21, 2016 at 1:48 pm
    agent2 says:
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    And what agent takes days to process a policy today? apparently a few minutes isn’t fast enough?

    • September 23, 2016 at 9:33 am
      Mr. Solvent says:
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      A few minutes to a few hours to make sure the job is done right doesn’t seem like an inconvenience to me. Call me old fashioned.

      • September 23, 2016 at 12:25 pm
        Patticake says:
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        Old fashioned.

  • September 21, 2016 at 2:06 pm
    Mr. Integrity says:
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    I’m sure the models sound great on paper. Human behavior will invariably figure out how to game the system and the low premiums and leftover funds for charity that are being touted will become another case study for what could have been.

    Most folks have an inversion to purchasing and paying for insurance and with the new “sharing” economy, the whole mindset towards protecting one’s assets (what assets?) is declining accordingly.

    Lastly, to suggest customers are going to put any more effort into understanding this new model than they already do today in reading their existing insurance policy, is wishful thinking.

    My guess is their results/funding will hit the wall in 9 – 12 months.

    • September 21, 2016 at 2:27 pm
      Deplorables says:
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      Someone please tell me how much coverage you can get on a HO for $420 per year or $60 for a Renters policy in the State of NY?

      • September 23, 2016 at 9:32 am
        confused says:
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        you’re an agent, agent. figure it out yourself.

        • September 23, 2016 at 1:10 pm
          Deplorables says:
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          I am not an agent in NY, thank God. Can you be more insulting please? You have been falling behind UW for insults for a while. Bob has a big job trying to be nice to you.

          • September 23, 2016 at 2:08 pm
            confused says:
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            never said you were a NY agent, did i? no. i just said you were an agent and could figure that out for yourself if you wanted – you could call one of the carriers you write with and ask them or you could research rates online at carrier websites. these are all things you could do with your TX agency knowledge to get the information you seek.

            also, please do not invite me to be more insulting towards you. that is really easy to do and not the way i want to converse.

          • September 23, 2016 at 2:38 pm
            Deplorables says:
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            Are you even in the insurance business or just the insulting business as a serial leftist troller. If Bob ever comes back on this blog, I will tell him to stop being so nice to you.

            By the way, I don’t have the time like you apparently do to call up a company writing business in NY and ask them about their rating up there. The first question they would ask is – why do you, as a Texas agent want to know what rates in NY are for HO? It is none of your business and I agree. Silly me, I thought there might actually be some NY agents on this blog who might answer a simple question. You are obviously not it and now I am through with you.

          • September 23, 2016 at 2:55 pm
            confused says:
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            i don’t think you understand the meaning of the word “insult” as nowhere in my reply did i insult you.

  • September 21, 2016 at 2:45 pm
    Whaaat says:
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    If insurance was easy, there would not be E&O claims.

  • September 21, 2016 at 2:50 pm
    Underwriter says:
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    New York is the first state in which (_________) is approved to conduct business.

    … said no filing ever.

  • September 21, 2016 at 3:34 pm
    Bob Bichen says:
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    These people know nothing about how insurance really works. Insurers do not make money from denying claims. They generally make money (1) from earning investment returns on premiums (float, basically) and (2) by setting prices high enough that actual claims experience comes within forecast expectations (loss ratio) accounting also for claim administration expenses (expense ratio). Removing the profit margin would effectively make an entity like a credit union, with perhaps a 5% to 15% operating advantage. But to suggest that this “model” somehow can completely change the nature of insurance is a farce when the industry typically runs a 95% to 98% combined ratio (or worse) on standard lines admitted such as homeowners or personal auto. What is more likely is that they will underprice business and get pulverized as to operating results and prior year reserve/loss development in the coming years, being driven to be re-capitalized and/or into receivership by the guarantee fund (assuming they are allowed to participate as an admitted carrier). My opinions, yours may differ.

    • September 22, 2016 at 7:07 am
      Jonathan Walker says:
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      Normally I would agree with your sentiment Bob. But … although Lemonade have kept details of their business model under wraps, take a look at the quality of the people involved and VC and reinsurance providers – these guys aren’t lemons. Of course there must be permanent underwriting capital – presumably some of the surplus is retained to fund growth – but they are starting with short tail lines and probably holding onto as little risk as required. Their edge will come from low distribution and administration costs (viral digital marketing/admin) and lower claims experience (the ‘moral’ aspect of charity being the beneficiary of reserve surplus – but I suspect more importantly the tech element of policyholders video-communicating their claims – harder to lie when speaking than writing and perhaps some hi-tech AI software to detect facial give-aways when lying is suspected)

      • September 23, 2016 at 9:35 am
        Mr. Solvent says:
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        Ah yes, give me as many AIG executives as you can muster. They’re certainly quality people with a stellar reputation of solvency and growth…

        • September 23, 2016 at 1:11 pm
          Deplorables says:
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          Was it $182 Billion on the solvency issue or am I wrong?

          • September 23, 2016 at 2:12 pm
            Rosenblatt says:
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            You’re not wrong, but you aren’t providing full context again.

            Yes, AIG got a $182B bailout. Yes, that’s a lot. No, I don’t think my money should’ve been given to them. However…

            CONTEXT AHEAD!!!

            AIG paid back the $182B and paid back an extra $23 billion from the profits they made off the $182B

            So really, the gov’t made $23B when they gave AIG $182B

          • September 23, 2016 at 2:44 pm
            Deplorables says:
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            There you go again Rosenblatt. AIG proved themselves untrustworthy and actually dishonest and were rewarded with a bailout. You should check their recent record. They are not doing well under the out of place CEO and continue to sell assets, lay off employees and post losses. Had they been honest to start with and stayed out of the sub-prime mess, they might have avoided having to get the bail out, but they were as greedy as many others, got in a terrible bind and the taxpayers once again were asked to rescue them with the help of the Progressive Democrats.

          • September 23, 2016 at 2:59 pm
            Rosenblatt says:
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            Agent – I already agreed that AIG shouldn’t have been bailed out. Are you able to agree that AIG’s paid back the bailout in full AND an additional $23B?

  • September 21, 2016 at 6:22 pm
    Shawna says:
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    It does seem that like any pool, the water’s going to get pretty mucked up pretty fast….but….they have some smart people putting in a ton of money. It makes me wonder what they know about this that we don’t.

    • September 22, 2016 at 8:22 am
      Jonathan Walker says:
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      I just applied for cover online. Very smooth and easy process. The pricing is quite cheap but the cover is straightforward – essentially almost entirely short tail with cat excluded (flood). The initial launch is a real life test pilot – it should be very low risk (high level of reinsurance in any case). Where it goes depends on take up and marketing strategy

  • September 22, 2016 at 3:26 pm
    CO_yeti says:
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    Look you can’t reinvent the insurance wheel, its too heavily regulated. This looks like what Esurance is selling. Technology based processes and slick marketing meant for a specific type of customer. The smart play is to show this is what customers want and then sell yourself to a big guy that based on their size is unable to efficiently change their distribution.

  • September 23, 2016 at 12:25 pm
    vox sanitus says:
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    “Make money from denying claims”? No, not really. Rule number one is that you make money from good underwriting, from the agent or broker all the way up to the CEO. Rule number two is that the claims department cannot change rule number one. Anyway, a company which never denies claims is doomed.

    This scheme sounds like a reciprocal to me. There used to be a lot of reciprocals. They’re trying to resurrect the recip. model.
    Best of luck to them but when and if they get big they’ll have to start operating like the rest of us.

    • January 24, 2017 at 3:01 pm
      charles says:
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      That was my first thought too and I am trying to track down their filing to see. Haven’t seen an assessable reciprocal in many years mostly because it proved unworkable over time. The unregulated health plan I hear about that shares claims payment works a lot like an assessable reciprocal plan and it would scare me pretty much to put my confidence in that. The currant major companies that are reciprocal are not assessable and that is safer in large part because they have large size now and operate much like the mutual and corporate companies. Every insurance company I have seen that comes into a new state underprices they product compared to the competition and because of the tail on claims it takes more than two years to catch up with them (the currant Obama care is a good example) The per to per insurance like Lemonade is a flawed system and while it may survive it will have to comply with reality.

  • September 24, 2016 at 2:30 pm
    KSNJ says:
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    Does anyone know how much capital they have or what the terms are of the reinsurance? How secure are they really?

  • September 26, 2016 at 2:20 pm
    cmarti says:
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    Disparaging comments toward a long-standing industry that clearly show a disregard for honesty. Insurance companies do not “make money from denying claims…”. Insurance is based on a contract and companies pay claims based on what is covered under the contract. Traditionally a very thin margin industry that looks to make a small profit off of investment income.

  • September 26, 2016 at 4:32 pm
    MGB says:
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    I really expected more of insurance journal then to promote a company like this in the form of a “News Article”. This is an advertisement pure and simple. There is nothing on claims payout, claims responsiveness, consumer experience so far, cash on hand to pay claims, how much insurance experience the company brings to the market with the leadership team, and it says nothing about the coverage… I think even at one point it uses an internal graph to compare prices with major insurers… come on.

  • September 26, 2016 at 4:37 pm
    StevO says:
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    No pricing based on actuarial data? And they plan on beating out a standard carriers pricing who base premium on loss trends and statistics. Is there a way to “short” or bet against this? 100% chance of collapse.

  • October 3, 2016 at 10:25 am
    Steve Agent says:
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    Let’s not beat up on I J for reporting the emergence of a new way of buying insurance. Lemonade may be a complete failure, but I still want to be aware, and warn clients who may be tempted. Separate the message from the messenger.

  • October 3, 2016 at 12:27 pm
    David says:
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    I am curious on the model – they will make small pods of people that working together to insure each other – and that in itself will prevent fraud… hmm… and if there is overage above claims loss ratio and this party taking out their executive fees… then a return to the pod or contribution to charity… but where are their reserves then? For when the pod gets destroyed by large losses in a given year – do they come back for an assessment? I am sure this is discussed somewhere in their model but I am only reading the – article/advertisement. Really frustrating when we work so hard at our image but you have parties like this stating how bad the industry is (trying NOT to pay claims) or liberty mutual ads talking about how insurance carriers screw you – but oh – we are different.. Proud of what I do – hate when others make us look like and sound pathetic

  • October 17, 2016 at 11:01 am
    Rick Longueira says:
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    Maybe they can get the Rapper Ice-T to be their spokesperson.
    Oh, wait a minute…he’s already in a GEICO commercial.



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