US insurtech opens for business in third ‘milestone’ state following New York and Illinois

Lemonade launches in California

Lemonade, the full-stack startup home insurer, has launched in California, its third market and key milestone in the company’s expansion.

California is the USA’s most populous state with around 40m people. Insurance Times had previously reported that the insurer was targeting the West Coast last month after the company launched in Illinois and revealed that Allianz had taken in a strategic stake in the business. 

Insurance Times has also learned that Sound Ventures, co-founded by celebrity Ashton Kutcher, has become an investor. The investment is understood to have been made some time ago. The company has taken stakes in 30 businesses – including Zenefits, the second best-funded insurtech of all time, with $583m in capital. Sound Ventures has made nine other investments in the past year, most recently in January with security platform SentinelOne.

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

In a statement Lemonade said home insurance for renters and owners would be made available to customers in the Golden State. The company submitted its regulatory filing in November last year. 

“Expanding to California is a key milestone on Lemonade’s journey,” said Shai Wininger, president and cofounder of the company.

“The tech capital of the world deserves insurance powered by AI, and the people of California deserve to see insurance underwriting profits funding their nonprofits.

“Most Americans view insurance as a necessary evil, rather than a social good. That’s something Lemonade is determined to change,” Wininger added. 

Lemonade has acquired licences to operate in 47 of the USA’s 50 states. Now it is live in the first, third and fifth most populous regions, it seems likely it will pursue markets including Texas, Florida, Pennsylvania and Ohio, ranked second, fourth, sixth and seventh, respectively. The three states where the company has not applied for a licence – Mississippi, Washington and Wyoming – are beyond scope due to regulatory complexity, the company has previously said.

After Allianz’s move last month, speculation increased that the insurer would look to rapidly scale its global expansion. Talking to the Insurance Times in February, Lemonade suggested it could also launch in the UK, adding the only obstacle would be “underwriting according to vicinity”. 

In a statement Lemonade emphasized the impact of fraud on the current insurance business model – stated as 38% of total value in the system – and claimed its behavioural sience and artificial intelligence platforms were providing a “blueprint for building a new kind of insurance carrier,” combined with its giveback model, which effectively redestributes a share of profits to charitable causes. 

Mass market digital distribution insurtechs, augmented with artificial intelligence or machine learning capabilities have attracted much interest in the past year. The technology benefits customers by speeding up policy sales or claims resolution (Lemonade initially shot to fame when it made public its 3-second claim resolution in January) while scalable, low-cost technology platforms reduce the barrier to entry to new markets.

Lemonade’s positioning as a complete insurance business with underwriting capabilities – it has both underwriting and agency entities according to a regulatory filing – together with integration of artificial intelligence in its modelling has propelled the business to the forefront of the insurtech scene. It also says its premiums are up to 80% cheaper than other insurers

Before accounting for the latest investments, Lemonade has raised $60m, including $34m Series B round in December. It is backed by a number of blue chip investors including Sequoia Partners, Google Ventures and XL Innovate, part of XL Catlin, who owned a 10% stake as of September last year.

Regulatory complexity
In broad terms, entering the UK market would be simpler than the US, where insurers must have rates and policy wordings approved by state departments of insurance. Lemonade would need to apply for a licence from both the FCA and the PRA to deliver its current model, although it could sidestep this requirement by broking its business. 

90% of Lemonade’s customers are renters, but its homeowner book accounts for 47% of premiums, according to its website.

The company would not disclose its latest figures, but it has previously said its loss ratios stood at 20%, due in part to to 42% of its being classified as ‘excellent’ risk profiles. Its last published figures from January showed the company had increased its customer base 84% month on month to 2,230.