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New York-based Lemonade Insurance Co. prides itself on trying to change the game in the insurance industry, so it was perhaps no surprise that the insurtech company became the first U.S. insurer to commit to not invest in or underwrite coal assets. Daniel Schreiber, Lemonade’s CEO, discussed the drivers behind the decision as Hurricane Florence battered the southeastern United States as well as the challenges of navigating the U.S. state-based system of insurance regulation, the company’s expansion plans and the potential for technology to further disrupt the insurance sector in an interview with Business Insurance Deputy Editor Gloria Gonzalez. Edited excerpts follow.
Q: Why did you decide that Lemonade should be the first U.S. insurer to commit to not investing in or underwriting coal?
A: This is true worldwide, but it’s particularly true in the U.S.: People regard insurance as a necessary evil rather than a social good. We found it a little bit odd because insurance is a fundamental social good. It’s helping people in their hour of need, and yet the perception couldn’t be more remote from that if you tried. We’ve been trying from day one to understand what it is about the way insurance operates that engenders that perception and what we can do to try and change the perception … and bring trust back in the sector.
A few months ago, we took a position after a mass shooting in (Las) Vegas about insuring guns. It’s a very sensitive issue and a controversial one, but one that we felt as an insurer who was insuring people, we’re actually insuring people’s guns and we’re insuring them against lawsuits for misuse of their guns, and therefore it’s legitimate for us to have a position on what is the right attitude towards firearms and where do we want to draw the line? When coal came up as an issue, we felt that was again one that it’s pretty natural for an insurance company to take a position on. Once we started studying this topic, we were a little bit shocked by the prevalence of insurance premiums being invested in coal and other seriously polluting industries. And it became a little bit shocking to us to see that this was something that no U.S. insurer had taken a position on.
Lemonade has a marginal impact (more than $100 million in investments — none in fossil fuels), but our sector has half a trillion dollars invested in coal. So we felt it was very important for all those reasons to take a position. In none of our positions do we see ourselves taking a position that is selfless. It is for the good of our company and for the good of our industry. To be on the one hand paying for the damages of wildfires, hurricanes, floods, etc., and on the other hand funding the very industries that are responsible for some of the worst of those damages, it just doesn’t make sense to us.
Q: As you watch the devastation wreaked by Florence, the relationship between these worsening catastrophic events and climate change must come to even greater perspective.
A: That’s true, and there’s been a slew of these, hasn’t there? Insurers paid more money in 2017 for hurricane and other weather-related and climate-related damages than in the history of insurance. We just saw a report a couple of weeks ago about just how many people died in Puerto Rico (from Hurricane Maria) and it wasn’t 60-something. It was almost 3,000. And in the U.S., to my mind remarkably, this is a highly politicized issue. If you just neutralize all of the political nonsense and you take a data-driven perspective on this, and you realize that 17 of the hottest 18 years on record happened since the year 2000, no sensible insurance company … would be oblivious to that kind of thing.
Q: Was it difficult to make this decision given that political context?
A: The short answer is no. What it meant is that we braced for a backlash, which hasn’t materialized, so I’m relieved. When we announced our opposition on guns, we got some very nasty responses, including one person writing that he hopes that the next mass shooting takes place in our offices. I didn’t know whether our opposition on coal would engender similar responses, and thankfully it has not.
Q: Have you gotten any feedback from some of your counterparts in the sector, whether it’s the newer companies or some of the more traditional insurers?
A: We have not. There’s been an eerie silence.
Q: What’s your company’s relationship and interaction with regulators like?
A: It’s excellent. We got licensed by the State of New York two years ago on the 21st of September. And at the time, I think regulators were understandably a little bit leery of this kind of new-fangled idea for insurance. But to their credit, they took a bet on us. I think that regulators are feeling vindicated by taking that gamble. We’re paying claims really, really quickly. Customer satisfaction is very high. The affordability that we’re introducing to the market is pretty much without parallel.
Q: The U.S. has a very different system of insurance regulation than other countries, given that it’s regulated on a state level. Dealing with the different regulators of the different states — how has that process gone for you?
A: It’s intense. It’s very demanding. It’s not the way you would want a regulatory framework to be set up. But we knew that’s what we were signing up for, and we’re equipped to do it, and two years on we’re live in states that comprise almost two-thirds of the U.S. population.
Q: What are the next steps for your company?
A: We haven’t quite completed our U.S. rollout, but we are also looking at international expansion, and that will be forthcoming in the coming months. We’ve got a lot of growing to do. We’ve got over a quarter million customers but less than 100 employees. It’s about using technology to do stuff that humans would otherwise be doing so that as we scale our company, there’s continuously innovation and processes that we try to automate both to collapse time and the hassle for customers and to collapse cost concurrently.
Q: Where do you see the greatest potential to use data and technology to improve the way things have been done in the insurance industry?
A: We are already now beginning to get to the point where the data that we’re seeing from those digital interactions, those delightful apps .. they don’t just allow consumers to lower cost, they generate mountains and mountains of rich, textured and actionable data that is unavailable to legacy insurance companies. And that means that, ultimately, you can start using that data to become better at the core of insurance, which is pricing risk. There’s a paucity of data when you’re a startup, and our own underwriting results have reflected that, but it doesn’t take you 100 years to catch up because we’re generating something in the order of 100-fold more data per customer than a traditional insurance company, which means that pretty quickly, once you have enough claims coming in … you reach parity. I think we’re about 18 months away from parity. And thereafter, you are at a distinct advantage. Not only are you delighting consumers by lowering costs, but you’re actually doing the business of insurance using algorithms and data sets that hitherto were unavailable to the industry.