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Lemonade Sees AI Drive Efficiency as Insurance Goes Digital-First

Digital insurance platform Lemonade said its AI investments continue to bear fruit.

The company’s latest shareholder letter — while reporting a 25% increase in total revenues and a $47 million net loss, an improvement of 28% — also examines the way artificial intelligence (AI) and automation technology has impacted its loss adjustment expense (LAE) ratio.

As co-founder Shai Winiger noted during a Wednesday (May 1) earnings call, it’s a little-discussed insurance industry metric, one the company said measures the operational overhead of managing claims. 

“LAE is an essential piece of the loss ratio and for large insurers who enjoy the benefits of scale, it tends to run around 10%,” he said. “I’m happy to report that after years of technology-driven improvements in our claims automation and operations, with nearly 50% improvement in the last two years alone, we ended Q1 at an impressive 7.6 percent LAE ratio.

Beyond that, CEO Daniel Schreiber spent part of the call discussing how this technology helps on the customer service side of the business.

“We have a lot of documents that are inbound, whether it’s receipts or more complicated documents, health reports from vets, the state of a building, from surveyors … verbose 50-page technical documents that need to be reviewed in some detail, and then you will have to generate responses based on them,” Schreiber said. “And we’ve been able to harness these very, very rapidly…when everything is built digitally, we’re able to harness these capabilities.”

Lemonade is “AI native,” Chief Financial Officer Tim Bixby said in an interview with PYMNTS late last year, noting also that the firm’s “real advantage lies in the depth of data that we collect about each customer when we onboard them and when they get a quote and a policy.”

The company’s progress comes — as PYMNTS wrote Wednesday — at a time when the insurance sector is undergoing a digital transformation.

While it has historically depended on agents for product sales, the industry is seeing a gradual move away from this model, Andrea Heger, senior vice president of insurance services at Franklin Madison, told PYMNTS in an interview.

This has left consumers with fewer resources to navigate insurance options. Because of this gap, companies like Franklin Madison, which offers insurance products and marketing services to financial institutions, are stressing digital engagement to meet consumer needs. 

“One of the most important strategies is the ability to meet the customer in their home with insurance education and insurance product offers through the digital channels and devices that they frequently use,” Heger said.