The Lemonade Insurance Business Model – How Does Lemonade Insurance Work & Make Money?

The Urban Dictionary jokingly defines insurances as “a business that involves selling people promises to pay later that are never fulfilled.”

Evidently, a growing number of people are less satisfied with their insurance policies. Non-transparent fee structures and late or no pay-outs are just some of the pains customers experience with their insurance companies.

Younger generations, namely Gen Y and Z, are certainly fed up with the old establishment. According to a survey conducted by, 18-to 25-year-olds predominately buy their insurance online. For instance, almost 60% bought their health insurance online as opposed to seeking a broker in-store.

Into that picture comes Lemonade, a New York City based startup with a social-first approach to insurance.

This article covers the approach with which Lemonade tackles this century old industry, how the company came to be, and how it makes money.

How Does Lemonade Insurance Work?

On the surface, Lemonade just looks like any other insurance company. Headquartered in New York City, it offers renters and home insurance policies for your home, apartment, condominium, or shared flat.

Claims can be issued on damages for your personal property, personal liability, loss of use, or medical payments.

But how does a fairly young company compete with various industry giants, who have operated their business for sometimes centuries (just for reference, over twenty insurance companies are part of the Fortune 500 list)?

Lemonade has two interesting twists with which it attracts its predominantly young customer base.

Digital First

First, the company utilizes chat bots and machine learning to handle the signup and claims.  Upon signup, the user is prompted a set of questions to assess the monthly fee paid.

Those questions range from the location and type of building, whether there are roommates or pets in the apartment, or if there’s a fire alarm in the house. The fee structure changes based on the type of goods and events insured.

In a talk at TechCrunch Disrupt, CEO Daniel Schreiber added that “about a third of our claims are settled within about three or four seconds by a bot on your app.”

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.

Lastly, the app offers a complete digital experience, where all your bookings and claims are managed either through their website or mobile apps.

Behavioral Economics

Traditional insurance companies are for-profit organizations. In order to maximize profits, they are incentivized to hold onto claims as long as possible while minimizing the amount of payouts.

In the beginning of 2016, Lemonade hired Duke Professor Dan Ariely as their Chief Behavioral Officer. He was tasked with implementing an incentive system in which customers can trust their insurance again.

In a 2016 interview with TechCrunch he stated “people feel justified in trying to screw up an insurance company.”

Adding that “dishonesty is influenced a lot by our ability to justify it. If we are dealing with a party that we think is immoral itself than we [are immoral] and justify it. We think that everybody else cheats… it feels like a victimless crime.”

To combat this evil image, Lemonade only takes a flat fee on every insurance. Any of the surplus that is not claimed then goes to the charity of the customer’s choice.

Thereby, consumers don’t feel the need to trick their insurance as they would give away less money to the charity of their choice.

For the year of 2019, the company expects to donate $630,000 through its Giveback program.


What Does Lemonade Insurance Cover?

For now, Lemonade only covers renters, pet-, and homeowners insurance. As for now, no other insurance policies are to be introduced.

Currently, Lemonade focuses on expanding its product from 22 US states to over 50 in 2019. Furthermore, the company recently expanded into Europe with its launch in Germany.  

A Quick History Of Lemonade Insurance

Shai Wininger and Daniel Schreiber founded lemonade in 2015. CEO Schreiber earned his law degree at King’s College in London and went on to work on in Tel Aviv, Israel. At age 26, he quit the law to start an internet security company. While this endeavour did not lead to success, he moved on to work in various marketing and tech related positions.

COO Shai Wininger, on the other hand, has started four companies prior to Lemonade. Most notably, he was one of the co-founders at Fiverr, the freelance platform that recently listed on the New York Stock Exchange.

The pair met through a mutual friend in 2014 as Schreiber was looking to start a business again. Wininger’s successful track record and expertise in product design and IT infrastructure seemed to be the perfect match.

Since both founders didn’t possess any work experience within insurance, they hired industry veteran Ty Sagalow as their Chief Insurance Officer. Together, the trio made a bold decision:

Instead of selling insurance policies backed by established players, Lemonade would become a licensed carrier itself. This meant the company had to retain claim liability on its own balance sheet.

Luckily, they were quickly able to raise the necessary capital to provide the necessary securities. By December 2015, Lemonade raised $13 million from Sequoia Capital and Israeli VC Aleph.

The concept has proven to be appealing to their customers right from the start. After their official launch in 2016, the company managed to sign up over 14,000 customers within half a year.

Later that year, another $13 and $34 million in Series A and B funding respectively were injected into the company, proving the appeal of their business model.  

How Does Lemonade Insurance Make Money?

Lemonade makes money by offering and selling renters, pet-, and homeowners insurance. They sell those insurance policies within the US and, as of 2019, Germany.

Renters insurance starts at 5$ a month whereas homeowners pay at least 25$ a month. Insuring your furry friends starts at $12 per month.

Apart from its emphasis on technological expertise and social goodwill, Lemonade also prides itself in the transparency it offers to its customers. Therefore, they publicly communicate their fee structure to increase trust and transparency – two factors missing in the insurance industry.

Collected customer premium (the amount of money the customer pays for his or her insurance) is used by Lemonade in the following way:

  • 25% fixed fee for Lemonade; used to cover administrative costs with surplus being their profit
  • 75% used to fund claims, buy reinsurance, and cover taxes and fees; surplus goes to a charity of the customer’s choice

For comparison, traditional for-profit insurance companies collect 35% premium fees.

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.

Furthermore, Lemonade uses various behavioral tactics to minimize fraud (and thus cost). Firstly, as any claims surplus goes to the insurance of a customer’s choice, people are less incentivized to trick the system.

Another tactic Lemonade deploys is asking customers at the beginning (and not the end) of their claims process whether the information they gave is true.

Whether Lemonade will move into other insurance areas or change their fee structure has not been communicated yet.

Lemonade Insurance Mission & Vision Statement

Lemonade is registered as a public benefit corporation, and as such follows the mission of ‘making insurance simple again.’

Conversely, its greater vision is ‘transforming insurance from a necessary evil into a social good.’ Additionally, they set out to become a 24/7 insurance company that delights, and not irritates, customers.

Lemonade Insurance Valuation, Funding, Revenue & Future IPO

According to Crunchbase, Lemonade has raised $480 million in seven funding rounds. It’s latest Series D round valued the startup at $2 billion.

SoftBank led the round, with participation from German insurer Allianz, General Catalyst, Google Ventures, OurCrowd and Thrive Capital. Other major investors into the company include Sequoia Capital and Aleph. 

The company recently filed to go public with the target of raising another $100 million in its IPO. Meanwhile, Lemonade continues to loose money on an annual basis.

The insurance startup reported a net loss of $108.5 million in 2019, representing a 100 percent increase from the $52.9 million loss posted in 2018. Revenue, on the other side, increased three-fold from $21.2 million to $63.8 million.

Right now, the company still holds $304.0 million in cash and short-term investments (on top of the money it plans to raise in the IPO) and can thus weather the ongoing losses.

So why did the company decide to go public? In all likeliness, its majority investor SoftBank needed a public win to make up for some of the negative news it received for its WeWork disaster.


Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..