{"id":23641,"date":"2026-03-02T14:00:00","date_gmt":"2026-03-02T14:00:00","guid":{"rendered":"https:\/\/www.lemonade.com\/blog\/?p=23641"},"modified":"2026-03-02T13:47:54","modified_gmt":"2026-03-02T13:47:54","slug":"why-incumbents-wont-catch-up","status":"publish","type":"post","link":"https:\/\/www.lemonade.com\/blog\/why-incumbents-wont-catch-up\/","title":{"rendered":"Why Incumbents Won\u2019t Catch Up"},"content":{"rendered":"\n
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On a wall in my home office hangs the May 1999 cover of Barron\u2019s<\/em> \u2014 the foremost financial weekly \u2014 emblazoned with the headline: AMAZON.BOMB.<\/strong> The article confidently assured readers that \u201conce Wal-Mart decides to go after Amazon, there\u2019s no contest.\u201d

Barron\u2019s got one thing right: there was, indeed, no contest. Amazon is now worth over a trillion dollars more than Walmart. And Walmart survived the retail apocalypse better than any other incumbent. Borders, Brooks Brothers, Circuit City, J.C. Penney, Kmart, Lord & Taylor, Neiman Marcus, RadioShack, Rite Aid, Saks Fifth Avenue, Sears, and Toys \u201cR\u201d Us all filed for bankruptcy.<\/p>\n\n\n\n

\"\"<\/figure>\n<\/div>\n\n\n\n

The AMAZON.BOMB fallacy is wired into our psychology. Kahneman called it WYSIATI \u2014 \u201cWhat You See Is All There Is\u201d. It leads us to focus on the visible feature (a behemoth retailer vs a mere website) while ignoring the submerged architecture of incentives, culture, and systems. WYSIATI explains why \u2014 overwhelming evidence to the contrary notwithstanding \u2014 the AMAZON.BOMB fallacy lives on. I encounter it almost daily in some variation of: \u201cI saw a press release saying State Farm is doing something interesting with OpenAI. Surely it\u2019s only a matter of time before Lemonade\u2019s lead disappears?\u201d<\/p>\n\n\n\n

No, it isn\u2019t.<\/p>\n\n\n\n

The Triceratops\u2019 Problem<\/h2>\n\n\n\n

Sears could launch a website. State Farm can license AI. But companies who slap technology on top of their legacy businesses are not changing their DNA: their incentives, capital allocation logic, talent mix, data architecture, distribution dependencies, brand promise, investor expectations, and legacy stacks. Those systems and processes co-evolved over many decades. They cannot be reengineered piecemeal; and untangling them is laborious and risky. <\/p>\n\n\n\n

Given enough time everything is possible. An amoeba can evolve into a Triceratops. A Finnish pulp mill can evolve into Nokia, the world\u2019s leading phone manufacturer. But when change arrives at meteoric speed, dinosaurs \u2014 literal or corporate \u2014 struggle to adapt. <\/p>\n\n\n\n

For these reasons market leadership has shifted every time a substrate changed.<\/p>\n\n\n\n

Industry<\/th>Incumbent<\/th>New Dominant<\/th><\/tr><\/thead>
Retail<\/td>Sears \/ Walmart<\/td>Amazon<\/td><\/tr>
Photography<\/td>Kodak<\/td>SanDisk<\/td><\/tr>
Mobile<\/td>Nokia \/ BlackBerry<\/td>Apple<\/td><\/tr>
Video<\/td>Blockbuster<\/td>Netflix<\/td><\/tr>
Music<\/td>Tower \/ HMV<\/td>Spotify<\/td><\/tr>
Taxis<\/td>City monopolies<\/td>Uber<\/td><\/tr>
Enterprise software<\/td>On-prem vendors<\/td>Salesforce<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

In each case, the technology was visible and accessible. Incumbents invested. Analysts cheered. Press releases said all the right things. And yet leadership reordered.<\/p>\n\n\n\n

It\u2019s not that incumbents were oblivious. It\u2019s that they were maladapted. <\/p>\n\n\n\n

And the speed of diffusion and scope of dislocation of all prior technology revolutions, pale next to what’s coming next.<\/p>\n\n\n\n

\"speed<\/figure>\n\n\n\n

Which brings us to insurance and AI.<\/p>\n\n\n\n

Optimized for Yesterday<\/h2>\n\n\n\n

Fourteen of the Fortune 100 are insurance companies. Their average age is over a century \u2014 far older than the Fortune 100 norm. No industry is more deeply optimized for the world as it was. And no prior technology revolution has matched AI\u2019s combination of speed and scope. The most entrenched industry is about to meet the fastest substrate shift in history.<\/p>\n\n\n\n

Lemonade did not begin as an insurance company that adopted AI. We began as an AI-native company that entered insurance. That distinction shaped every layer of our architecture \u2014 from data to expenses to talent.<\/p>\n\n\n\n

The result is a different cost structure. A faster clock speed. A compounding feedback loop that continuously improves underwriting, customer experience, and efficiency.<\/p>\n\n\n\n

The question, then, is not whether incumbents can \u201cuse AI.\u201d Of course they can. And they should. The question is whether they can re-architect themselves to close the gap to Lemonade. <\/p>\n\n\n\n

That seems unlikely.<\/p>\n\n\n\n

For one, it\u2019s not clear that they particularly want to. At Berkshire Hathaway\u2019s annual meeting this year, Ajit Jain \u2014 who oversees Berkshire\u2019s insurance operations, including GEICO \u2014 described their approach to AI as \u201cwait and see.\u201d The individual operations \u201cdabble\u201d with AI, he said, but there has been no \u201cconscious big-time effort.\u201d<\/p>\n\n\n\n

State Farm went so far as to run a national, star-studded, TV campaign mocking claims bots, and apparently Lemonade specifically.<\/p>\n\n\n

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\"TV<\/a><\/figure>\n<\/div>\n\n\n
<\/div>\n\n\n\n

And these attitudes are not unusual. A Munich Re survey of global P&C executives found that most are holding back meaningful AI investment \u201cuntil the ROI is clearer.\u201d<\/p>\n\n\n\n

That is the Triceratops speaking \u2014 not from the outside looking in, but from the corner office looking out.<\/p>\n\n\n\n

Even once insurance CEOs start singing a different tune \u2014 and some already are \u2014 incumbents remain inherently encumbered. Adoption of new technologies is constrained by channel conflicts, cultural inertia, legacy systems, and existing commitments. Beyond ambivalence lie some hard truths: GEICO \u2014 according to Jain \u2014 operates \u201cmore than 600 legacy systems that don\u2019t really talk to each other.\u201d<\/p>\n\n\n\n

But here\u2019s the really crazy thing: even if they could magically transform every system, person, contract, and cultural norm in their industrial complex \u2014 and nothing short of magic would suffice \u2014 the gap between us and them would still<\/em> widen rather than collapse.<\/p>\n\n\n\n

It\u2019s physics.<\/p>\n\n\n\n

If two objects accelerate at the same rate<\/em> but one began earlier, the leader\u2019s lead does not shrink over time \u2014 it grows<\/em>.<\/p>\n\n\n\n

AI vs BS <\/h2>\n\n\n\n
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Hoverflies have evolved to mimic wasps. They wear the same yellow-and-black livery, adopt the same silhouette, even imitate the same darting flight. But beneath the surface, their anatomy is entirely different and they have no sting.<\/p>\n\n\n\n

\"\"<\/figure>\n<\/div>\n\n\n\n

This is Batesian mimicry. It works because it exploits the WYSIATI fallacy. When a harmless species signals, \u201cI\u2019m a wasp \u2014 look at my stripes,\u201d much of the ecosystem goes along. What you see is all there is.<\/p>\n\n\n\n

In nature, the predators who thrive are the ones able to look beyond the stripes. In markets, it\u2019s the investors who look beyond the press releases. The difference between AI and BS is not found in the rhetoric. It\u2019s reflected in the numbers.<\/p>\n\n\n\n

Whether or not AI is truly powering an insurer’s operations shows up in three unhidable ways \u2014 all measurable from public filings. (Though definitions are not consistent across carriers, they are consistent across years, so trends are unambiguous.) <\/p>\n\n\n\n

The first two measure whether AI is doing the work. The third measures whether the work is getting smarter. Any one result, in isolation, can be explained away \u2014 by line mix, market cycles, or cost-cutting. But when all three move in concert, the alibis cancel out. The signal is structural.<\/p>\n\n\n\n

1. The Scaling Quotient<\/h3>\n\n\n\n

This tests whether the company can grow without adding people:<\/p>\n\n\n\n

Customer (or Policy-in-Force) Growth \u00f7 Headcount Growth<\/em><\/p>\n\n\n\n

From FY2022 \u2014 the last full year before generative AI entered the mainstream \u2014 to FY2025:<\/p>\n\n\n\n