Lemonade said on last week it had paid out US$1.9 million to policyholders’ non-profits of choice in its annual giveback 2022, representing a slide on 2021’s US$2.3 million. This is despite gross written premium growing 75% to US$375.7 million on a yearly basis.
NYSE listed Lemonade’s giveback is intended to be a “distinctive” feature of the insurtech, and it has used the model since launch in 2016.
“Transform insurance from a necessary evil into a social good,” is the strapline of the Certified B Corp’s giveback USP.
Overall, the self-styled disruptor has dished out US$6.2 million through giveback since 2017, when the first set of donations totalled US$53,174.
Policyholders select a cause of choice and are bucketed into cohorts based on their selection. Premium is pooled into several pots based on these groupings and, where claims have not exhausted this at the end of the year and subject to financial ratio tests, the excess amount is given to the charitable cause of each cohort’s choice.
This means that the individual policyholders in groups that make fewer, or less valuable, claims overall will see more excess premium – or up to 40% of it, as Lemonade has previously said – go to the group’s chosen charity. Those groups with loss ratios above 40% “usually will not receive a giveback,” the insurtech said.
The setup is intended to cut down on fraud in the hope that socially conscious millennial policyholders will feel less inclined to sting their insurer if there are donations on the line.
Just how key this feature has been to Lemonade in selling its brand is illustrated in its latest annual report, in which it said that if it were forced to change or remove the feature then this could “undermine its business model”. The insurtech also warned of a “material adverse result” on operations and its financial condition in the event.
Growth vs claims
Premium grew and customer numbers at the insurtech shot up by around 400,000 year-on-year into 2021, at 1.4 million – and you might expect to see its giveback donations rise as a result. So just why have they fallen?
Lemonade has not yet hit profitability and reported a growing net loss of US$241.3 million for 2021, nearly double 2020’s loss of US$122.3 million.
However, the real answer lies in claims performance, to which the giveback is linked. Lemonade is dependent on the “good luck and good behavior of our customers”, a Lemonade spokesperson told Insurance Business. Catastrophic weather events and inflation can both lead to a shrinking giveback pot.
In Texas and Oklahoma, Lemonade took an US$6.9 million hit from Winter Storm Uri, while it booked US$800,000 in losses for California’s wildfires and other large losses with “unfavourable prior period development” during the last quarter of last year.
The insurtech’s overall loss ratio was 93% for 2021, an increase from 71% the previous year, meaning some of the individual giveback pots will have outperformed the business at large – and, shedding some light on why, despite skyrocketing premium, there may have been less excess to go round.
While the numbers might not quite stack in an upwards direction, this does not appear to have taken the fizz out of the initiative for charities.
Top receivers included Charity: Water, which got US$134,909 to support water projects in Mali; Direct Relief, which received US$133,955 to provide emergency medical backpacks to Ukrainian refugees; and “climate justice” non-profit 350.Org, which was given US$118,443.
The biggest beneficiaries overall in terms of donation increases were environmental causes, according to figures shared with Insurance Business by Lemonade - up 72% on last year and bagging just over US$492,000 in donations. Civil rights causes also saw growth, picking up US$272,331 – an increase of 52%.
Healthcare-related non-profits also saw an 18% increase, swooping for US$379,320, while LGBTQ+ organizations picked up US$154,649 – representing growth of 11%.
Charities – including Women In Need, National Breast Cancer Foundation, and the American Red Cross Greater New York – took to social media to share the news and thank the provider.
Policyholders, too, were provided with templates to share on social media detailing their charity of choice and how their premiums had contributed, with the insurtech’s hashtag (#LemonadeGiveback) included.
“How cool is that!” the widely shared message ended.
The result is a viral campaign, with the hashtag used more than 400 times with a reach of nearing 960,000 in the seven days prior to writing, according to tracker Brand Mentions.
Donations may be down, then, but Lemonade’s play – which may seem a drop in the ocean compared to American insurance industry-wide giving of between US$560 million and US$600 million per year, according to a McKinsey 2020 analysis – appears to have continued resonating with its target market.