Take everything you know about insurance – and throw it out of the window.
That is the aim of a new start-up insurer called Lemonade which is about to launch in New York with a home insurance product. The company, one of a group of peer-to-peer insurers, will donate any money not used to pay claims, to charity.
According to a Financial Times
report, the company will ask customers to select a charity of their choice when they pick-up a policy. The firm then pools the premiums from everyone that has chosen that charity and pay claims from that pool – with anything left at the end of the year going to charity. Of course, the company still has to make some money of its own – it will take a fixed 20% of premiums from the start - but says it would not stand to benefit by reducing payouts to customers.
Speaking to the publication, chief executive Daniel Schreiber commented “we’re inverting the business model” adding “we have no interest in delaying or denying claims.”
Part of his theory is that if an insurance firm is linked to charity then the chances are that customers will be less likely to place fraudulent claims. He believes part of the reason that people make fraudulent claims is that they feel as though they are “in conflict with the insurance company” and so they feel entitled to embellish.
From its outset, Lemonade will sell policies via an app and will include a list of 15 charities – but customers will also be able to nominate their own charities ranging from local churches and schools all the way to big charities like the Red Cross and UNICEF.
The company appears to have plenty of support – it has raised $13 million from the likes of XL Innovate and Sequoia and has secured reinsurance deals at Lloyd’s and with Berkshire Hathaway.
P2P insurer Lemonade to be reinsured by Berkshire Hathaway, XL Catlin