Cloud Stocks: Lemonade And Root Disrupting The Insurance Industry

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Insurance is one of the largest industries in the world. Property, casualty, and life insurance premiums amount for nearly $5 trillion globally, and account for 11% of the GDP in the United States.

Given the regulations and the financial risks involved in the industry, most insurance players are large, enduring businesses. In the United States alone, 12 of the Fortune 100 companies are insurance companies, with an average age of about 125 years. But the industry is no longer immune to digital transformation. Lemonade (LMND) and Root (ROOT) are two InsureTech players that went public in 2020.

Lemonade’s Offerings

New York-based insurance tech company Lemonade was founded by Daniel Schreiber, Shai Wininger, and Ty Sagalow in 2015. The company was founded with the objective of making insurance a less morose and a more delightful, affordable, precise, and socially impactful process. Lemonade leverages data, AI, contemporary design, and behavioral economics to digitize insurance end-to-end.

Lemonade has been set up as a certified B-Corp. public benefit player. It works rather differently from traditional insurance players. Traditional insurance companies make money by retaining the amounts that they don’t pay out in claims with themselves. This makes it difficult for quick and full payment of claims.

Lemonade, on the other hand, treats premiums differently. It allows the consumer to return unclaimed remainders in the form of donation for causes the policyholders care about. The amount given back is known as ‘Giveback.'

Lemonade consolidates people who care about the same causes as virtual groups of ‘peers.' Premiums collected from each peer group are used to pay for the group’s claims, and any money leftover after claim settlement is donated to their common cause. This way, its customers enjoy insurance while conducting a social good.

By reimagining the traditional business model, Lemonade has minimized volatility while maximizing trust and social impact. The company currently offers insurance for homeowners, renters, and pet health insurance in a few states.

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This segment is a part in the series: Cloud Stocks.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations and risk appetite. This ...

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