Tim Bixby is the CFO of Lemonade, an insurtech business that fuses a novel approach to insurance with a custom-built data platform and AI technology. In this episode of Opto Sessions, Tim discusses Lemonade’s path to profitability, the part that AI plays in this revolutionary business, and how Lemonade seeks to disrupt traditional approaches to insurance.
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Tim Bixby is chief financial officer (CFO) of Lemonade [LMND], a cutting-edge insurance technology company that's been revolutionising the industry with its comprehensive data platform and innovative use of artificial intelligence (AI).
In this conversation with Opto Sessions, Bixby provides his insights into the company's expected growth and path to profitability following its 2020 IPO. He also discusses Lemonade's Maya AI bot, the challenges of disrupting an industry, and innovations in the wider insurtech space.
Tim has also been serving as board director of Rent the Runway since 2021. Before Lemonade, he was CFO of Shutterstock from 2011 to 2015 and of LivePerson before that.
Lemonade offers personal insurance products—home, renter, pet, life, and car—using a “fully integrated, data-driven substrate” that the company itself has built from scratch, which allows consumers to find policies within minutes and, in many cases, allows claims to be paid in seconds.
As Daniel Schreiber, Lemonade’s co-founder and CEO, said at the company’s investor day in 2022, “Lemonade has been established as an AI doing insurance.” The ability of AI to analyse ever-more comprehensive data inputs at speed underpins Lemonade’s business model.
“That's the fundamental core of what insurance is,” Bixby told Opto Sessions. “How can you adapt to and ingest the most valuable tools, the most helpful data, and then translate that into the core of the product? Which is: how risky is this customer? And how much do you want to charge them? And how can you create a profitable relationship within that?”
Lemonade’s growth and path to profitability
Building a data infrastructure like Lemonade’s from scratch has not been easy. The capital inputs are a barrier to entry for other would-be competitors.
“We've been very successful at raising capital to fund and build and grow the business,” says Bixby. For any business of Lemonade’s size, however, monetising that investment is the key challenge. “Our focus is really about how do we leverage these tools, whether it's AI or otherwise, to build a customer base, get to scale and get to profitability?”
Bixby spoke about the metrics underpinning Lemonade’s five-year path to profitability that he first presented at last November’s Investor Day.
“Our focus on growth is to deploy capital in a way that enables us to grow and learn as quickly as we can, yet to moderate our burn rate such that we are not forced to go out into this market and raise more capital”.
The first variable is Lemonade’s growth rate which, Bixby explains, is in its own hands, thanks to the size of the market compared to the size of the company. “Our focus on growth,” he says, “is to deploy capital in a way that enables us to grow and learn as quickly as we can, yet to moderate our burn rate such that we are not forced to go out into this market and raise more capital.” The target CAGR is 20%.
The second variable is the loss ratio. This is an important metric for insurance businesses, representing the amount paid out in claims divided by the amount collected in premiums. Lemonade is targeting a 70% loss ratio by 2027; it is currently above this, though tracking downwards.
Finally, Lemonade is targeting a multi-line customer rate (the percentage of customers with more than one policy) of around 25%. Achieving these three input goals would put the company on course for profitability by 2027.
Helping Lemonade on that pathway to profitability are its in-house AI tools and bots.
The company’s engineering teams use an automated assistant called Cooper. This AI-driven tool provides nudges to internal teams when routine tasks require completion, and can complete many itself.
Cooper’s external equivalent is Maya, which helps Lemonade sell policies to customers. Distinct from the stereotypical, dehumanising conception of automated service, Bixby believes Maya offers customers a more individualised experience.
“What's interesting”, says Bixby, is that “it's not a single approach to every customer. In many ways, it's a uniquely customised approach for every customer. There are tens of thousands of different pathways that each customer can take that adjust in real time, based on their responses.”
Technology is not the only means by which Lemonade is disrupting its industry. It also leverages ethics, by inviting customers to select a charity from a list of pre-approved organisations. Part of the profits from premiums are donated to the selected charities, which is “also good from a financial standpoint”.
“What's interesting is that it's not a single approach to every customer. In many ways, it's a uniquely customised approach for every customer. There are tens of thousands of different pathways that each customer can take that adjust in real time, based on their responses”.
“If a customer, when they're filing a claim, is thinking not ‘how do I get more money from this insurance company?’ but ‘I don't really want to take money away from this charity,’ [they will] hopefully claim what's appropriate.”
While Lemonade doesn’t have sufficient data to reliably test this hypothesis at present, the anecdotal evidence to date is supportive.
“We've had customers after the fact say, ‘Oh, I found a laptop that I thought was stolen. Here's a check for $1,000.’
“A key reason for that, almost inevitably, is [that] the charity is in their head”, says Bixby, emphasising that many of Lemonade’s employees are veterans of the insurance industry. “[It’s] a pretty uncommon practice that someone would give money back to an insurance company, [but] it’s happened over and over and over again.”
More of the same
Surprisingly for a company with disruptive innovation at its core, the future for Lemonade may well be “more of the same”.
This is one of the most distinctive characteristics of Lemonade. According to Bixby, “if you look at our vision, and customer promise and strategic view today [compared to] what it was seven years ago, when the company was founded, the similarity is extraordinary.”
In a world where most technology start-ups take multiple pivots as they grow, staying true to its guns has helped Lemonade achieve its success to date.
“The same is something that we've consistently espoused for a very long time. It’s just that now we have the tools to really execute on it.”
As AI leaps into a new era of efficiency and reliability, and Lemonade’s customer and data bases expand, its offering and capabilities will continue to improve and evolve.
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