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The Case For Starting From Scratch

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Lemonade, the industry disruptor touted as a game-changer for the insurance industry, has officially opened, with homeowners and renter’s products launched in New York.

Lemonade’s opening is significant for a number of reasons. First, Lemonade’s business model will donate unused premiums to a charity. This sounds like a great idea – and it deserves to work - but time will tell if it’s enough to deter fraud.

Second, is the Lemonade app.

The Lemonade app seems to be a killer in terms of functionality, usability, and its use of bots. Get insured in 90 seconds? Tick. Submit a claim and get paid in 3 minutes? Tick. The app is easy to use and has a slick UI – it’s the app every insurer wishes they had.

Which brings me to my point – could a traditional insurer create an app - and accompanying product offer - like Lemonade? Ever?

Could a traditional insurer create an app and accompanying product offer like Lemonade? Ever?

No. And here’s why.

First, traditional insurers are crippled by legacy systems - creaking green-screen pre-floppy behemoths that no amount of lipstick can overcome. They’re not capable of ever supporting a product offering like Lemonade’s.

Second, traditional insurers have global workforces that are personally invested in the industry status quo. Moving to a product offering like Lemonade would involve ripping up centuries of rules and embracing a lot uncomfortable (and job-threatening) change.

And third, Lemonade’s product offering has no place for intermediaries, who insurers depend on for the majority of their income. And as we know, once an insurer goes direct intermediaries will switch insurance companies, meaning bye-bye revenue.  

The only solution for traditional insurers wanting to compete with Lemonade is to start from scratch. In short, they need to create a new company or subsidiary unencumbered by legacy systems, workforce constraints, and intermediaries.

The only solution for traditional insurers wanting to compete with Lemonade is to start from scratch.

It’s been done before in other industries. The 1990s saw the advent of the low-cost airline. Traditional carriers, unable to compete with low-cost carriers, created low-cost subsidiaries of their own. These low-cost subsidiaries were not hamstrung by legacy systems, unionised workforces, or booking agents. They were free to innovate, create new cultures and products. While some have struggled, many have enjoyed success.

Now is the insurance industry’s low-cost airline moment. Transforming from within is proving to be a glacial and painful process for many traditional insurers. Starting from scratch may just be their best option.

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Michael Tempany
About: Michael Tempany

Michael Tempany is Director of SMS Management & Technology Asia. SMS supports insurers across Asia on major IT, business transformation, performance improvement and compliance projects. For more information contact Michael on +852 9605 9992 or email michael.tempany@smsmt.com.

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