A Dormant Industry Nearing Eruption

An Industry Shaking at its Foundations

Insurtech startups, insurance companies that use cutting-edge technology such as machine learning to maximize savings, efficiency, and user experience, have stormed to the forefront of the insurance industry, shaking it at its foundations.

When people hear the word “insurance,” it does not exactly evoke excitement. A field known for its convoluted jargon and mind-numbing abundance of paperwork, it does not inspire passionate customers or possess a glowing reputation. Moreover, as a $4.6 trillion industry in which most successful companies, such as Liberty Mutual, State Farm, and Allstate, are nearing or have surpassed their 100th year of existence, traditional insurance businesses are colossal, and the oligopolistic behemoths that dominate the industry have been at the top for decades. Considering this landscape, one may think innovation seeps into the industry as fast as glaciers move. However, in the past few years, insurtech startups, insurance companies that use cutting-edge technology such as machine learning to maximize savings, efficiency, and user experience, have stormed to the forefront of the insurance industry, shaking it at its foundations.

The Insurance Industry and its Inherent Conflict of Interest

Archetypes of insurtech companies that are disrupting the insurance business are Lemonade, a company founded in April 2015, which offers renters and homeowners insurance, and Oscar Health, a health insurance provider founded in December 2012. With the average age of homeowners’ insurance companies at around 104 years old, and that of the top five health insurance companies in terms of market share at around 80 years old, Lemonade and Oscar have a much more youthful glow than their elderly competitors. These two startups have a long way to go before they gain significant market share from industry strongholds throughout the country. However, their business models and structural foundations are much more strongly catered to consumer needs and preferences in the modern world than their competitors. When these startups gain traction and claim significant market share, the long-dormant insurance industry is likely to erupt in innovation. Existing companies may be able to innovate alongside these startups, but their long history and deeply entrenched structural foundations will put them at an extreme disadvantage, as innovation within these companies may require a complete overhaul of their structure and reputation.

According to Lemonade’s co-founder and CEO, Daniel Schreiber, the insurance business has an exceedingly unfavorable reputation, which ironically was one of the reasons why he wanted to enter the industry. A veteran in the tech world, Schreiber perceived the frustrating customer experience and bureaucratic labyrinth that characterizes the industry as an invitation to innovate and disrupt. “If you play the word association game with ‘insurance,’” Schreiber notes, “words like ‘paperwork,’ ‘hassle,’ and ‘fighting’ present a pretty abysmal picture of the industry.” The general public’s strong dislike of the insurance industry stems from the extensive length of time between filing a claim for an issue like damaged property and receiving money from the insurance company as a result of that claim. In theory, this time-consuming process discourages fraud, or policyholders filing fraudulent claims, but it also results in highly frustrated customers.

Furthermore, the insurance industry is largely considered an untrustworthy institution as there is an inherent conflict of interest between policyholders and insurance companies. Typically, around half of the revenue from monthly insurance premiums, or the amount a policy costs a customer, goes into a fund to pay customers’ claims, money to reimburse the cost of damages or hospital visits, and the company pockets the other half. However, as the percentage is not fixed, the lower the number of claims policyholders receive the more profit a company cashes in. As a result, customers see insurance companies’ interests as diametrically opposed to theirs, although many do consider insurance to be a necessary evil.

Lemonade and Oscar: Insurance that Excites

Oscar Health uses technology to make healthcare simpler, more user-friendly, and more engaging, bringing ownership over one’s healthcare back to the consumer.

Within this deeply-rooted, complex and mutually distrustful environment, Lemonade and Oscar Health provide a much-needed breath of fresh air. At both Lemonade and Oscar Health, the business is structured from the ground up, meaning they are not reliant on relationships with pre-existing companies to grow. In addition, both have leveraged technology platforms to create a more transparent, cost-effective and efficient system. Moreover, features of their business models appeal to younger, tech-savvy consumers, in part because they are transforming user experiences from frustrating and tedious to intuitive and enjoyable.  Consequently, they are achieving what few thought was possible: getting people excited about their insurance.


While Lemonade uses technology to turn renters’ and homeowners’ insurance from a necessary evil to a social good, Oscar Health uses technology to make healthcare simpler, more user-friendly, and more engaging, bringing ownership over one’s healthcare back to the consumer. Centered around a digital platform, Oscar offers comprehensible health insurance policies, using risk assessment algorithms to calculate the risk profiles of customers and subsequently the price of their insurance, and syncing with fitness monitors and offering discounts on premiums for getting a high step count. The insurance is also more efficient; as 91% of customers’ claims are paid automatically through algorithmic analysis, they typically pay claims in three to four days while traditional insurers take upwards of two weeks. Moreover, Oscar provides health care policies directly to individuals, families and small businesses, circumventing the complex policy of linking subsidized health insurance with employment, which about 155 million Americans currently have.

Oscar does not stop at providing more comprehensible health insurance; Oscar also walks customers through every interaction they have with the healthcare system, thereby making the entire healthcare industry less complicated and more user-friendly. For one, they provide customers with a six-person concierge team who can consult customers on their policies and advise them on the right doctors to contact for a certain problem. In addition, they have a 24-hour system of doctors on-call with whom you can set up a free 15-minute appointment. Helping diagnose and prescribe medication for issues from the flu to skin conditions, the telemedicine service can reduce the cost of an episode of care for a condition like pink eye from $200 to $40 or $50, as the cost of in-person appointments is eliminated. Additionally, as Oscar possesses the customer’s medical history and constantly updates the profiles of customers when they interact with the service, it has an incredible wealth of data on its customers, much more so than other insurance providers. With an exorbitant amount of customer data, the service can better understand the customer’s profile and can continue to make more refined policies and recommendations, which then creates a positive feedback cycle in which the customer wants to engage more with the service.


At Lemonade, the mission is to provide insurance that serves as a social good rather than just a necessary evil. While other insurance companies profit when they deny their customers’ claims, Lemonade pockets a flat fee: it takes 20% of customers’ insurance premiums, and allocates the other 80% to a peer-to-peer claims fund. In other words, groups of customers have a fund that amounts to 80% of the cost of all insurance policies that the customers purchased to be able to pay for their claims. Rather than selecting groups randomly, customers are grouped into claims funds based on a charity they support, and at the end of the year, in the event of unclaimed cash in the claims fund, the money is sent to the charity that those customers selected. Moreover, it takes place on a user-friendly app, and through use of AI rather than brokers to calculate the price of a policy and the value of a claim, it eliminates the hassle and cost of traditional insurers.

This model is groundbreaking on several fronts. First, taking a flat fee removes the conflict of interest in most insurance companies, and it establishes transparency and trust between the company and the policyholder. In addition, as unclaimed cash within the claims fund is donated to a charity of the policyholder’s choice and not put back in the insurance company’s pocket, it disincentivizes fraudulent claims, as it harms the charity that policyholders care about rather than the insurance company’s pocketbooks. Third, the use of AI instead of brokers has been the main driver for renters’ insurance costing as low as $5 a month and homeowners’ insurance around $25 a month. Moreover, it has cut the time needed to calculate the cost of a policy to an average of 90 seconds, and the time to file a claim to around three minutes. These innovations have combined to form an effective, altruistic, and intuitive company that wants to form a symbiotic relationship with its customers and the community.

The Future of Insurance

What does the future hold for the insurance industry? Is this just a fad that has a fleeting resonance with young, technologically-inclined millennials, or does it have the potential to truly disrupt the industry as we know it? According to a PwC survey on the future of the insurance industry, only 20% of respondents, all of whom were insurance company CEOs, believed that the traditional model and established players will continue to have a dominant presence in the industry. Meanwhile, 35% believed the players will change significantly in the next 5 to 10 years but the industry landscape will stay the same, and 44% believed the business model and players in the industry will change dramatically. Thus, insurance veterans are cognizant that the industry is changing, and many are wary that insurtech companies and other startups are going to take their place.

Lemonade and Oscar also do not appear to be losing steam anytime soon. In a market of 723,000 people with renters’ insurance in NYC, Lemonade captured 4.2% of the market just over two years after it was founded. Additionally, their market share among first time buyers is over 27%, showing that as more millennials and later those of Gen Z purchase renters’ insurance for the first time, Lemonade will increasingly take market share from traditional insurers. Moreover, Lemonade has expanded to 19 different states and the District of Columbia, and it sold $10 million in policies in 2017 alone. Lemonade has not only expanded its market share but also its purse: since its founding, it has secured $180 million in funding, with venture giants such as Sequoia Capital as key investors. Similarly, Oscar Health now has 250,000 members, including individuals and small businesses, with the most customers in the 26 to 35 age-bracket. It is also generously backed by venture funds and has secured a total of $1.3 billion in funding, with Google’s parent company Alphabet investing $375 million in August 2018.

Within a handful of years, both Oscar Health and Lemonade have made waves in a stagnant industry. Lemonade has established itself as an insurance company that fosters a symbiotic relationship with the consumer. It is an intuitive, cost effective, and time efficient service, and it strives for social good, just as the altruistic, purposeful millennials that form the bulk of its customer base. Oscar, meanwhile, has used technology to become a one-stop-shop for all facets of the healthcare industry. Providing customers with comprehensible health insurance and collecting data on customers through their interactions with doctors on-call and the concierge team, Oscar is able to provide increasingly better solutions, which has made its customers more engaged in the service as a result. With unconventional business models and prioritization of enjoyable user experiences, these insurtech startups are challenging long-standing industry giants to innovate and leave their stacks of paperwork behind them.