Lemonade, the newest kid on the American home insurers block, is currently insuring almost 15,000 homes.

It is beating its own business plan and forecast and, particularly considering it’s only been around since 2015, it has already had a profound effect on the insurance industry.

The reasons Lemonade could spell a tsunami of change for the still rather resolutely incumbent, analogue insurance sector are several. The first and most obvious is its use of digital technology. Claims can be made from a smart phone using a process that relies on algorithmic artificial intelligence. This means it can make more decisions on claims, more quickly at a lower cost.

The second reason leads out of the first: the kind of people employed by Lemonade are engineers and product experts rather than insurance professionals. Daniel Schreiber, CEO and co-founder of Lemonade, recently said of his company, ‘We have bots instead of brokers, and an app instead of paperwork. You can get insured in seconds, and get your claims paid in minutes. Insurance shouldn’t be more difficult than that.’

The third reason Lemonade stands out as a leader in this industry is its financial management and anti-fraud incentives. Rather than relying on increasing policy costs for customers and minimizing compensation payouts, Lemonade pre-agrees its profits, donating any surplus to non-profit organizations. At sign-up, new customers are asked to pick a charity. At the end of each year, if enough supporters of the same charity don’t make too many claims, Lemonade donates some money to that said charity in its ‘Giveback’ process.

Finally, driven to put the needs and preferences of its customers first, Lemonade has hired Dan Ariely, professor of psychology and behavioral economics at Duke University to remove negativity from its customer relationships. At the heart of this model lies digital technology.

Digital is the new black: insurers that don’t go digital will lose out

So, what does this all mean, in real terms, for the insurance sector as a whole? In a word, it means change. Digital is not a fashion, it’s the future. Insurers who cling to analogue processes will, in the not-so-long term, suffer.

We’re not suggesting that all insurers will want to move to a model identical to Lemonade’s. For a start, they only offer home insurance policies. That said, other new companies have sprung up hot on their heels, also offering unique services.

Gaggel allows people to put aside cash in case their loved-ones damage or lose their mobile phones, for instance. While Berkshire Hathaway has created AirCare, flight insurance that covers you for cancellations, delays and baggage loss. Then there’s Trov for personal items and Slice for AirBnB home sharers … the list grows every month.

What unites these new businesses is the digitization of the claims process and the transparency it offers customers, while costs saved in manual labour, fraud reduction and claim lifecycle are all reflected in an attractive policy price. All of these newcomers are thriving because their businesses are built on digital technology.

Amazon is largely responsible for changing our attitude to customer service. Thanks to the online retail giant, we all have different expectations now when it comes to how we want to be treated by businesses we deal with.

This ‘Amazon Effect’ is compounded by the emergence of Millenials as consumers – the digital natives who are now coming into their thirties and will soon be running everything. Millenials have never known a world where personal digital devices didn’t exist. They don’t only want to run their lives from their smartphones; they expect to.

What can you do to get on board with digital?

To ignore digital transformation today is to ignore the future. Digitisation is already happening and customers everywhere, in every sector, are opting for digital processes over analogue ones.

Digital processes save time, paperwork and costs. They offer transparency and reduce the line of communication to user and device; they hand control to customers who are used to being in control.

It’s a fallacy that digital transformation has to be difficult, disruptive or expensive. There are options now for pay-as-you-go services that don’t require integration with existing systems and don’t cause disruption to everyday business operations.

In just a few short years, we will all be so accustomed to digital insurance claims processes that any other option will seem archaic. For insurers getting on board now, there are only more gains to be made.

 To learn more about transforming the customer experience with digital claims, download our eBook below.