Briefing: When life gives you lemons – Lemonade does generative AI

’When life gives you lemons, make lemonade’ – it’s an expression that describes a positive, can-do attitude in the face of adversity. No phrase could be truer of US insurtech Lemonade.

Market critics have been debating whether Lemonade had lost its fizz after it shelved Initial Public Offering (IPO) plans in November 2019. This followed the insurtech reporting a $15.8m (£13.7m) underwriting loss for its full-year accounts in 2017, as well as a $1.5m (£1.3m) underwriting loss in the first three months of 2018.

However, 2022 marks a different trajectory for Lemonade. In October 2022, for example, the insurtech partnered with insurer Aviva to launch in the UK.

Furthermore, within its Q3 financial results, published in November 2022, Lemonade had seemingly performed a U-turn.

Its top and bottom lines were ahead of its expectations, in-force premiums had improved 76% year-on-year to reach $609m (£529m) and gross earned premium had also grown 71% when compared to 2021’s Q3, amounting to $136m (£118m).

Losses also grew, however - it posted a net loss of $91.4m (£71.4m) for 2022’s third quarter, compared to $66.4m (£57.7m) in Q3 last year. Lemonade attributed its loss result to its acquisition of pay-per-mile car insurer Metromile - the deal completed in July 2022.

This October also saw Lemonade join insurer trade association the ABI. Lemonade’s UK country manager, Sarvesh Ramachandran, said that joining the ABI was an “exciting milestone” for the insurtech.

These fast-paced changes and resultant growth is why the digital insurance firm has long been regarded as the darling of the insurtech world.

True power of AI 

On 15 November 2022, when Lemonade revealed its Q3 results, the insurtech also held its first investor day presentation.

This sought to demonstrate three key points to the audience – that Lemonade has a technological advantage, the ability to acquire new market entrants and a business model with a clear path to profitability.

Listening to Lemonade’s chief executive Daniel Schreiber during this presentation made me reflect on just how far the insurtech has come since it was founded in 2015, as well as consider how far artificial intelligence (AI) usage has accelerated in insurance. 

“As we have stated from our founding day, Lemonade has been established as AI doing insurance – that is the foundation on which our company is built, Schreiber said.

“It wasn’t until 10 years ago that AI started to get to the levels of applicability that affected all of us - really big machines were met by really big data and suddenly old, theoretical frameworks like machine and deep learning revealed their true power.” 

An example of this type of AI is Google being able to translate any language to another without having been taught, Schreiber explained. He called this the third generation of AI, also known as generative AI, which is trained using huge data sets.

“What’s amazing is that [generative AI] has emergent intelligence – [it is doing] things that nobody taught [it] to do, that [it was not] even intended to be able to do,” he added.

In my view, generative AI can completely transform insurance processes and Lemonade is now in a prime position to bring its innovation and successes from the States to the UK - with the help of Aviva and the ABI. I can’t wait to see how Lemonade’s expansion unfolds. 

• Insurance Times has converted dollar amounts into pounds using an exchange rate of £1 = $1.15, which was correct as of 1 November 2022.