Dan Ariely hopes his new approach upends an industry set in its ways. Dan Ariely hopes his new approach upends an industry set in its ways. Dan Ariely hopes his new approach upends an industry set in its ways. (Photo: Courtesy photo)

Wait, what?!? New insurance company gives leftover cash to charity

Two entrepreneurs and a world-famous behavioral economist turn the industry on its head.

When it comes to customer satisfaction, insurance companies often get as bad a rap as cable conglomerates. Anyone who's ever had an insurance claim knows that getting paid can often turn into a nightmare.

But three Israeli entrepreneurs hope to change that. Meet Lemonade (no, not the riveting new Beyoncé album). While other insurance companies make money when denying claims, Lemonade only takes one flat fee. In addition, they give all unclaimed money to the charity of your choice. Yes, you read that correctly.

What's more, your charity is pooled with other Lemonade customers who also want to give to that same charity – whether it's a big international non-profit or your local PTA. So the more leftover money from all of you, the more your charity gets. It's bringing a peer-to-peer model – like that of Uber and Airbnb – into the insurance business.

"That changes everything," says Dan Ariely, a Duke University professor and the Chief Behavioral Officer at Lemonade. "It allows you to bring the best side of human nature to the people. The upshot is greater trust. It's a virtuous cycle and that means everyone wins."

This reinvention of an entire industry from the ground up shouldn't come as a surprise to anyone who knows Ariely, a best-selling author who's been dubbed America's "most irrational man."

The Israeli-raised Ariely has become one of the world's leading experts in decision-making and he's hoping to bring his unique skill-set to Lemonade. "If you tried to create a system to bring out the worst in humans, it would look a lot like the insurance of today," says Ariely. "We've spent recent years deepening our understanding of honesty and trust, and our conclusion is that insurance is crying out for a makeover."

Adds Ariely: "Every dollar your insurer pays you is a dollar less for their profits. So when something bad happens to you, their interests are directly conflicted with yours. Your fighting over the same coin."

In addition to Ariely, the company's co-founders include Daniel Schreiber – the former president of Powermat, a device that can wirelessly charge your smartphone and Shai Wininger, the founder of the popular freelancer site Fiverr.com.

"Dan's extensive research on dishonesty showcases the leaps science has made in understanding what brings out the best and worst in each of us, and how people's behavior can be changed for the better," says Wininger. "We believe that behavioral economics, together with our unique technology, will help us decrease fraud, get rid of bureaucracy and lower costs for our customers."

Lemonade hope to harness the power of behavioral economics and the sharing economy, delivering to consumers an insurance experience that is quick and without conflicts of interest. For starters, you can do everything on an app, without the interference of a broker – from signing up for renters insurance to making a claim if your house gets flooded. "But it takes more than breakthrough technology," says Schreiber, a graduate of Hebrew University of Jerusalem. "It takes a new way of doing business, one that's less conflicted. Insurance that's a social good rather than just a necessary evil."

And with leftover money going to the charity of your choosing, it's a win-win. "Social impact isn't just marketing fluff; it's part of our legal mission and baked into our business model," Schreiber explains. "We're re-aligning incentives to bring out the best in us all." He calls the new system "downright delightful."

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