This month, US insurtech Lemonade made its UK debut in partnership with Aviva. The launch marked it fourth European entrance, with the business active in France, Germany, and the Netherlands.
In its early days, now seven-year-old Lemonade was a self-styled disruptor on a mission to change the insurance experience – including through its giveback initiative – and at times butted heads with US giants like GEICO, All State, and Progressive. Its partnership with 325-year-old Aviva, then, heralds somewhat of a step change.
Labelled the “worst kept secret” in UK general insurance by one source, others less close to the machinations of the UK insurance industry have reacted with surprise to the deal.
“It’s fair to say on the face of it that it might be a bit of an unlikely partnership,” Jon Marsh (pictured), Aviva partnerships and transformation director, acknowledged. “You take the 325-year-old insurer and the new disrupter, but when we scratched beneath the surface it really made a lot of sense for us.”
Aviva effectively acts as Lemonade’s reinsurer – “we see ourselves first and foremost as a partner”, Marsh said – and Lemonade has full ownership of the claims handling piece.
For Aviva, the arrangement will give it the opportunity to tackle the “underserved” renters market.
“Working with someone that’s going to bring a really fresh mindset that’s had some success with that in other territories is exciting,” Marsh said.
The partnership also brings Lemonade’s technology to the UK’s table; the business uses artificial intelligence to speed up the onboarding and claims processes.
“We’ve talked a lot in the past about the market moving and the importance of data and digital in the success of the business going forward,” Marsh said. “What an opportunity to work with someone at the cutting edge of that and see what see what we can learn and take from that as well.”
As for what Lemonade gains from the deal, besides an established reinsurance provider, Marsh highlighted Aviva’s expertise across multiple product lines and its partnership history.
“One of the things that I’m really proud of in our partnership businesses is that we partner with people for the long term; we’ve been with the majority of our partners for 15 years,” Marsh said.
“They get somebody that wants to partner for the long term, who is not going to dip in and out, so that’s something I think is really important.”
The insurer has been on a mission in recent years to shrink its personal lines product portfolio, and during the first half of this year alone it cut 68 products and 12 IT applications. The Lemonade link up to some extent goes “hand in hand” with this element of the insurer’s personal lines strategy, Marsh said.
“Simplifying our products isn’t just about numbers, it’s also about the way we talk to our customers, simplify our documentation, simplifying our processes, and that links into Lemonade,” Marsh commented.
“If you think about the simplicity of their journeys, the way they approach their processes, their business, their customer communications, in some ways I see the partnership as an opportunity for us to learn from that and almost inspire us in that next step of how we need to simplify what we do for our customers beyond the number of products and what those might look like.”
In the US, eyes have been trained on Lemonade’s loss ratio, which stood at 90% net in the third quarter, well above the 40% to 60% that might be seen as typically acceptable for a more established insurer.
“Lemonade entering the UK market – they are a startup business in the UK market and that comes with the startup nature of any business,” Marsh said.
“One of the things that we will work really closely on with them, as their partner, is to bring some of our expertise to make sure that the performance of that business is sustainable, if for nothing else [to ensure] that they can serve their customers, which is really important.”
Historically, not all incumbent and insurtech partnerships have gone on to succeed. Last year, Marshmallow was taken to court by former underwriting partner Mulsanne after the insurtech struck out alone. Mulsanne was ordered to pay a chunk of Marshmallow’s costs in the suit, though the judge ruled that Marshmallow had misused some confidential information.
Quizzed on whether he had any concerns around the Lemonade partnership given the Mulsanne/Marshmallow events, and how Aviva had thought about any potential falling out risk, Marsh pointed to due diligence and common values.
“We have been speaking to Lemonade for some time now, and we’ve got to a place where we’re very selective about who we work with – that lays the foundations as you go into it,” Marsh said.
“There’s real motivation in being able to have a combined interest and motivation to better support consumers, particularly at that underserved or lower end of the renters’ market who we aren’t insuring as much now.”
Marsh would not be drawn on whether more products were forthcoming – Lemonade also offers pet, homeowners’, life and auto insurance in the US – with the focus very much on getting started with renters’.
“One of the things that can be a distraction for anyone when starting up a business is starting to think about what your fourth and fifth product could look like before you’ve got into your second month, as your first one is being launched,” Marsh said.
“Our conversations with them are absolutely focused in on how we make launching right now with them successful, and we’ll see where the partnership could go if that can flourish and really find its feet, but that’s what we’re focused on.”
The insurer may be treading new ground, but Aviva personal lines brokers have nothing to fear, according to Marsh.
“Personal lines broker is a critical and core segment of our business,” Marsh said.
“You’ve seen that with the appointment of Jon Santer as our personal lines broker MD, coming in at the start of the year, we’ve also signed new partnerships this year with Pen Underwriting and Right Choice, so we’re continuing to work with the right people to grow and develop in that segment.”
