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A home-insurance industry disrupter is also disrupting capital markets: Last month, Lemonade Insurance secured a $120 million funding in a Series C round led by SoftBank, one of the world’s biggest technology firms.
It’s the largest venture investment to date in a benefit corporation and another marker of the coming fundamental shift in our capital markets as investors and committed entrepreneurs recognize that the old way of doing business will not satisfy workers and consumers in the 21st century.
Lemonade is a New York- and Israel-based startup that launched less than two years ago. The firm charges a flat fee to its customers: “We use artificial intelligence and chatbots to deliver insurance and handle claims,” says Yael Wissner-Levy, head of communications and content at Lemonade, a Delaware benefit corporation and a certified B Corp.
Benefit corporations must balance the interests of all their stakeholders, rather than operating with the sole purpose of earning profits and driving share value. In 2017, the markets saw the first IPO of a benefit corporation, Laureate Education, and the creation of the world’s biggest benefit corporation, DanoneWave, comprising all of Danone’s North American operations.
Insurance innovation
This governance model lines up with Lemonade’s values: “Beyond the technology, we’ve baked the values of honesty, fairness and transparency right into the core of our business model. Whereas most insurance companies profit from the money they don’t pay out in claims, Lemonade takes a flat fee of 20% of the customer’s premium,” says Wissner-Levy.
The use of AI and bots minimizes paperwork and speeds up the claims process for renters and homeowners. Lemonade raised $60 million in a prior round, bringing total invested capital to $180 million. Previous backers included General Catalyst, Alphabet Inc.’s GV and Sequoia Capital.
The new funds will be used to expand into global markets in the new year. Headcount will increase slightly from its current 60 employees. The funding will also help Lemonade expand its positive social impact.
Lemonade treats premiums as if they were still the policyholders’ money and, after paying claims, uses remainders for an annual “Giveback.” The Giveback, in which leftover premium money is donated to causes policyholders care about, is unique.
Last year, during Lemonade’s first Giveback, the company gave $53,174 to 14 different charities. Lemonade says its Giveback amounted to 10.2% of revenue , compared to 0.08% of revenue given to charities each year by Fortune 100 companies. Among the causes are a home for the Quitéño family in El Salvador, delivering 592 meals to elderly New Yorkers, helping veterans become teachers in our nation’s neediest classrooms, supporting a coding school for girls in Afghanistan and rehabilitating a water well for an entire community in Malawi, Wissner-Levy says. “We created the Transparency Chronicles: a series on the Lemonade blog that exposes our ongoing business metrics, insurance data, and statistics on our Giveback program.”
Legal status
Lemonade’s legal status as a benefit corporation means the activities and policies that benefit employees, customers and the broader community are permanent parts of the company. They will be protected from short-term market pressures as the company grows, possibly enters the public markets or goes through other exit transactions.
“Being a benefit corporation means the mandate to act responsibly and sustainably is part of your legal operating system and not just a marketing ploy or a tactic to build reputation. These companies — and their forward-thinking investors — are the real deal,” says Rick Alexander, B Lab’s head of legal policy. “By committing capital to enterprises that create shareholder value through means that benefit all stakeholders, they are building a future in which the planet and all the people on it can thrive alongside investors.”
“By becoming part of the B Corp community, rebuilding insurance as a social good rather than a necessary evil is now part of our mission,” says Wissner-Levy. “An insurance company that goes the extra mile to receive B Corp status is almost unheard of, and we’re proud to pave the way for other financial services to think about the greater good and incorporate it into their day-to-day operations.”
Lemonade is part of the community of Certified B Corporations. Read more stories of people using business as a force for good in B the Change, or sign up to receive the B the Change Weekly newsletter for more stories like the one above, delivered straight to your inbox.
