Lemonade Insurance: How Category Creators Talk, And Why They Sound So Different From The Competition

Do you hear that?

Dear Friend, Subscriber, and fellow Category Pirate,

Every company talks about themselves to multiple audiences via several functions:

  • Talking to current and prospective customers (e.g., marketing)

  • Retaining current and recruiting future employees (e.g., human resources)

  • Informing current and reaching new investors (e.g., investor relations). 

  • Communicating with your ecosystem of suppliers and partners (e.g., partner marketing)

All four audiences are critically important for a company. 

With the advent of marketing mix modeling and multi-touch attribution, marketing is the furthest along in terms of using analytics to optimize its return on investment. But having studied investor relations content for the Fortune 100 fastest-growing companies, our sense is investor relations is the weakest of the four.

Too many companies treat investor relations (IR) as a financial function whose job is to communicate numbers. While that of course matters, growth investors do pay for prior performance. They invest in category potential. Savvy investors know that growth can only happen in high growth categories. They further understand that one company earns the vast majority of the value created in the category. Category potential is part of why Apple is worth two trillion dollars and counting, and Dell is worth $56 billion. 

Which is why we want to call out what Lemonade, the potential category queen of insurance, is doing with their shareholder letter and investor video combination. They use a classic narrative structure of ‘garden of Eden’, ‘the fall’ & ‘redemption,’ which is how #categorycreators talk: the category as the main character, with competitors & their brand as supporting actors.

Take a look at the 1st paragraph of the letter from the co-founders of Lemonade. It is a love letter to the insurance industry (e.g., the ‘garden of eden’ chapter). 

Since the dawn of time, insurance has both propelled progress and been revolutionized by it. Early humans risk-pooled intuitively, earning a claim on communal provisions in bad times by sharing their bounty in good ones. The Agricultural Revolution transformed risk pooling from an adaptive instinct to a facet of trade, with ‘assurance’ included in loan agreements throughout antiquity. A slew of inventions in the 14th century triggered the Commercial Revolution, which saw the ousting of lenders from insurance, and the inauguration of the first insurance companies. These thrived until the Scientific Revolution, when the discovery of probability theory signaled the toppling of every insurance company that predated it, and the emergence of the insurance dynasties that have reigned ever since. 

This is an incredibly beautiful expression of what insurance is and can be in its more glorious state. 

Lemonade is evangelizing their category. Not their brand.

They are reminding us that life without insurance would actually be terrible. Homeownership would decrease dramatically. Driving would become as dangerous as walking around in public while holding tens of thousands of dollars in your hands, fearful that if you accidently bump into someone, all your money will fall and fly away. So much of basic society would cease to function without insurance. 

Yet, we bet if you asked the average consumer if they could wave a magic wand and have insurance companies disappear, many would choose YES…and many would regret it after the fact

Legacy insurance companies stopped making the case for why the insurance category is legendary. They fell into the competition trap. 

Lemonade is now leading the insurance parade.

In fact, this is what the first 1st minute of this Lemonade investor video shows. They are putting a spotlight on hate mail for insurance. They have consumers say insurance is boring, overwhelming, a rip-off, and evil. 

This is the ‘fall’ chapter. 

All this corresponds with data we’ve seen from the insurance category. 

  1. In 2018, the insurance industry collectively spent $6.7 billion in advertising. If insurance advertising spend was a company, it would make the Fortune 500 list. 

  2. Insurance advertising is not about creating awareness. Everyone knows all of the big insurance companies. It is about switching…. AKA competing.

  3. This is because they know consumers hate insurance and have no loyalty to companies they don’t believe have their interests at heart. Per a study we conducted in 2019, we found the following:

    1. 51% of US consumers with auto insurance are willing to switch to another company. Two thirds have previously switched. 

    2. 45% of US consumers with homeowners insurance are willing to switch to another company. The same percentage have previously switched

Category neglect, coupled with endless price/feature competition, devalued the category. And every brand in it. 

This combination is what creates a massive death spiral: consumers hate insurance, and insurance companies market to their hate to get them to “switch” to the lesser of two evils. In the end, no one does anything to fix the underlying category problems because insurance is a massive industry. And as long as you get your competitive share enough to hit your annual target, who cares. Right?

And yet, 29% to 60% of insurance customers are willing to buy insurance from a company outside the insurance industry! This is what happens when an entire category takes its eye off the ball. The category is the single point of failure. 

No market category, no demand, no revenue.

And allowing the perception of your category to go to shit is a sign of a massive industry leadership failure. It also creates an extraordinary opportunity for innovation and startups.

The above letter & video explain why Lemonade is a category designer, on its way to becoming a Category Queen. 

Not just because of its tech that enables a better customer experience, but because of its business model that rebuilds trust with consumers. 

This is the ‘redemption’ chapter.

Most insurance companies agree insurance is a necessary evil and just market that they can do it faster/cheaper. They are like apes fighting over a limited number of bananas. 

Meanwhile, category designers plant more banana trees. That is to say, they lead and grow the category.  

In Lemonade’s case, they are taking over. They are leading, acknowledging the current category paradigm sucks and proclaiming, as all category designers do, “There has got to be a different way!” They are asserting what consumers secretly hate and secretly love about the category. And presenting a solution that is radically different and radically generous. 

Lemonade is the quintessential example of what it means to redesign a category.


Category Pirates

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