Declaration of Independence signer Benjamin Franklin helped The Philadelphia Grants for Insurance of Houses against Fire Loss in 1752. It is America’s longest established property insurance company. It has stood the test of time, has a rich history and even a museum you can visit.
I also note some insurance concepts when researching this insurance company. First, its underwriting was interesting. From the beginning it did not allow houses built entirely of wood – I always think of the tale of the three pigs about straw, wood and brick when I read such guarantee criteria. Second, the company spent a lot of time surveying the properties it insured:
The early directors of The Philadelphia Contributionship adopted the English custom of inspecting and appraising a property to determine its value before accepting it for insurance. At the second meeting of the board, the trustees appointed two of their own members, Joseph Fox and Samuel Rhoads, as surveyors for the year, stipulating that at least one of them should survey every house proposed for insurance. The surveyor would make ̵6;a written report to the clerk’. These reports or surveys would then be discussed by the full board at its next meeting, which would determine the scope and rates of the insurance. As compensation, the board allowed the surveyor 2 shillings and 6 pence to ‘examine and report the condition of the buildings to be insured in an insurance.’1
There is much to be gained for the insurer, policyholder and society when loss guarantees and risk surveys are required. Unlike other products that are sold for the benefit of only the individual, insurance is a social product. Making safer and stronger structures is important to all of us. It has always been my opinion that we should encourage stronger buildings through more pre-loss risk analysis and loss mitigation risk. As shown above, this is not a new 21st century concept I am promoting.
Lemonade, the insurance company, is new. Its IPO was done with great fanfare. Its prospectus, which describes its business as a “Lemonade Stand” shows how different its methodology for insurance business promises to be, compared to The Philadelphia Contributionship:
Since the dawn of time, insurance has both driven progress and been revolutionized by it. Early humans intuitively pooled risk and claimed communal provisions in bad times by sharing their reward in good. The Agricultural Revolution transformed risk pooling from an adaptive instinct into an aspect of commerce, with “insurance” included in loan agreements in antiquity. A flurry of inventions in the 14th century sparked the Commercial Revolution, which saw moneylenders ousted from insurance and the inauguration of the first insurance companies. These flourished until the Scientific Revolution, when the discovery of probability theory signaled the overthrow of every insurance company that preceded it, and the rise of insurance dynasties that have reigned ever since.
A new revolution now threatens these hegemons.
The World Economic Forum called the changes we are experiencing today the Fourth Industrial Revolution, and with good reason. The pace and breadth of today’s innovations have no historical precedent, and they are spreading at an exponential rather than linear pace. As transformative as previous revolutions were for insurance, there is reason to believe today’s will be even more so. No part of the value chain is immune this time: distribution models, business models, statistical tools, management systems, cost structures, corporate structures, corporate culture, technology stacks, user experience, marketing channels, data sources, data usage, value propositions, human capital — all of these and more are being upgraded.
That’s why we founded Lemonade.
We would not know how to manage the incumbents through these momentous changes; Nor do we know of a technical solution to their innovator’s dilemma. Our analyzes led us to conclude that a new kind of insurance company, built from the ground up on a conflict-free business model and cutting-edge technology, will enjoy structural advantages that will prove increasingly powerful over time.
Lemonade strives to be such a company.
We recognize that this is a bold undertaking, and the journey will be long and bumpy. We are energized by David vs. The Goliath dynamic and enjoys building things from the ground up: brands, experiences, technologies, products, cultures, organizations. But Lemonade isn’t everyone’s cup of tea, which is why we wanted to outline our approach, hoping that investors who share our thinking will gravitate to Lemonade, while those who don’t will seek their fortunes elsewhere.
Things will never be the same. Old King George III had to live with rebellious Americans who were tired of having their complaints ignored. Possibly, the operational proven methods of old insurers cannot stand up to modern, cost-effective technologies advocated by those with new ideas. Time will tell.
There have been quite a few newly independent countries with allegedly better designed democracies and governments since our declaration of independence in 1776. It’s easy to come up with new ideas. It is much more difficult to make them work in practice for a long time.
The Constitution only gives people the right to pursue happiness. You have to catch it yourself.