Lemonade, Inc. (LMND) Q4 2021 Earnings Call Transcript

Lemonade, Inc. (LMND 1.89%)
Q4 2021 Earnings Call
Feb 24, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Lemonade Inc. fourth quarter and full year 2021 earnings conference call. [Operator instructions] Please note this event is being recorded. I would now like to turn the conference over to Yael Wissner-Levy, vice president of communications at Lemonade, please go ahead. 

Yael Wissner-Levy -- Vice President of Communications

Good morning, and welcome to Lemonade's fourth quarter and full year 2021 earnings call. My name is Yael Wissner-Levy and I'm the VP Communications at Lemonade. Joining me today to discuss our results are Daniel Schreiber, co-CEO and co-founder, Shai Wininger, the co-CEO and co-founder, and Tim Bixby, chief financial officer. A letter to shareholders covering the company's fourth quarter and full year 2021 financial results is available on our Investor Relations website, investor.lemonade.com. Before we begin, I would like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Form 10-K filed with the SEC on March 28, 2021 and our other filings with the SEC.

Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will be referring to certain non-GAAP financial measures on today's call, such as adjusted EBITDA and adjusted gross profit, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our letter to shareholders. Our letter to shareholders also includes information about our key operating metrics, including a definition of each metric, why it is useful to investors, and how we use each to monitor and manage our business. With that, I'll turn the call over to Daniel, who will begin with a few opening remarks. Daniel.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Good morning, and thanks for joining us this morning to our Q4 results, wrap up 2021 and share our plans for the year ahead. 2021 was a very productive year for us and we ended it materially larger, more diversified and strategically stronger than ever. The air kicked off with a substantial capital raise that set our business up for years of sustained growth. And indeed, we ended Q4 with 100% revenue growth and with over $1 billion in cash.

Simultaneously, we diversified our book by scaling a younger and higher premium products while using our expanded portfolio to increase bundling and upselling across the book. These resulted in our largest ever annual jump in premium per customer. We also began and completed the development of Lemonade Car, a monumental undertaking, as well as signing a deal to acquire Metro Mile and with the data, talent and technology needed to prepare a lemonade car forward. What a difference 12 months can make.

And now to 2022, this year will shift much of our firepower to the next phase of our growth. Long standing two pronged strategy has been to win with technology and to grow with our customers. That is to build a digital native company on the premise that an insurance company built on a technological foundation will be able to serve its customers and quantify risk with a degree of precision, another level of automation unavailable to incumbents. And secondly, to engage customers when they're young.

Delight them with a cocktail of values and fabulous experience, and then grow with them by offering them all the upgrades and coverages that they will naturally grow into as they go through predictable life cycle events. These two pillars, winning with technology and growing with customers have guided us since I inception, and I experienced to date has only served to strengthen our conviction that in choosing these pillars, we chose well. As we enter 2022, we find ourselves in an enviable position having launched pets life and car in the past 18 months. We believe we have achieved a critical mass in both our technology and our product portfolio.

Of course, we have ambitious plans for new products and new technologies for years to come. But for the first time, both pillars are now sufficiently complete to be built upon. This enables us to shift resources from making technology and products to harnessing our technology and products in new ways. That means leveraging that technology to lower our expense ratio through automation and our loss ratio to machine learning while growing our tax LTV ratio through cross-selling and bundling.

None of this is entirely new, we've been investing in graduation and automation and precision for years, but we're on the cusp of a changing degree that we expect will amount to a change in kind. When we were a monoline business, cross-selling and bundling perhaps the biggest LTV unlocks were not really available to us, and our technology investments were largely consumed by building products. The balance will now shift and we expect that over the coming quarters and years, this shift will take our business to new levels of efficiency, growth and profitability. One upside is that we project that 2022 will be a year of peak losses, with EBITDA improving in it's subsequent year.

All good strategies require focused investments in order to achieve true differentiation from the competition, and we believe that five years post-launch investments have yielded structural differences between us and the rest of the industry. This set us up very well for the next five years. Take our fellow insurer text on the one hand and first approximation every other insurance company in a single product business offering either car, or home, or life, or pet, or renter's insurance, where Lemonade uniquely offers all five on a unified platform. Well, specialization has its advantages and monoline strategy, increases concentration risk capital LTV precludes bundling, forcing customers to engage competitors, and generally it means that growth comes almost exclusively from adding customers rather than from growing with them.

In a highly competitive market, these strike us as strategic challenges. Incumbents, on the other hand, have complete insurance product suites, but lack the technological foundation needed to massively automate and to move on proxy based pricing to precision pricing. Well, the wheels of insurance move slowly, we believe our tech offered lemonade a strategic advantage that will manifest ever more with every turn of the flywheel. We expect this to express itself in loss ratio and expense ratio trend lines already in the second half of this year.

And for this advantage to compound in the years that followed. Of course, we risk both our fellow insurances and more established competitors as well. There's enough room for everyone, but for the reasons I outlined, we are increasingly concerned in our multi-product technology strategy. And with that, let me hand over to sign for some updates on our newest offering, Lemonade Car.

Shai.

Shai Wininger -- President, Chief Operating Officer, and Co-Founder

Thank you, Daniel. In the short time Lemonade Car was available to our customers in the fourth quarter. It brought in three times to sell lemonade packaged during the same period, following its launched in Illinois. We're also seeing encouraging bungling dynamics with a majority of Lemonade car customers bundling with at least one other lemonade policy.

I'm also happy to report that customers are loving Lemonade Car and we're tracking outstanding NPS for the product we crossed our customer experience gently. We believe the company's product is the most delightful, seamless and precise offering on the market. As a reminder, we used telematics to model driving behavior and warned safe drivers with better rates. We also monitor the CO2 emitted by our customers cars based on their year model in driving behavior and plant trees to help absorb that CO2 over time.

Turning to our acquisition of natural. We're working closely with regulators toward closing the transaction and still expect to do so in the second quarter. In the subsequent quarters, we focus on integrating metromile team systems and processes and also develop and launch a pay-per-mile car product to eliminate infrastructure that is compelling both for new and existing customers. And we've shared previously, we're confident this deal will collapse time, flap in risk and increase efficiencies for Lemonade car.

Shifting gears, I'd like to share some thoughts on our loss ratio. Our Q4 21 loss ratio was 96%, up from 77% in the third quarter of twenty one. A meaningful driver of this increase was a handful of older, large losses for which in retrospect, we unreserved. We have a strong record of cautious reserving, but preserving is an imprecise science and so adverse developments do happen every now and then.

Notably, there was no spike in our action quarter loss ratio during the same period, suggesting no underlying deterioration in the book. Nevertheless, we've seen a few quarters with elevated loss ratios. The underlying problem is the welcome and intentional shift in our business mix, with the US based reinsurers comprising less than half of the book today, compared to about two thirds a year ago. The line of business that have captured that share home and pet demonstrate higher loss ratios than are more mature, stable renters.

But we have projects across all of our new product lines to address underwriting profitability. And these are yielding steady improvement in lost ratios for both pet and home. These improvements have been outpaced by these products growth, meaning that our aggregate loss ratio has climbed even as a specific loss ratios improved. In time, the one should catch up with the other, to expect loss ratios of all Lemonade products to be below 75% in due course.

In the short term, though, our new products will likely be above this target even as they trend downwards. This is a natural contemporary cost of gaining a new business. And with that over to you, Tim. 

Tim Bixby -- Chief Financial Officer

Hey, thanks Shai. I'll give a bit more color on our Q4 results, as well as expectations for the first quarter and the full year 2022, and then we'll take your questions. We had another strong quarter of growth driven by additions of new customers, as well as a continued increase in premium per customer. In force premium grew 78% in Q4 as compared to the prior-year to $380 million.

We believe that this metric captures the full scope of our top line growth before the impact of reinsurance and regardless of the timing of customer acquisition during the quarter. Premium per customer increased 25% versus the prior-year to $266, this increase was driven by a combination of increased value of policies over time, as well as a continuing mix shift toward higher value homeowner and pet policies. And as in the prior quarter, about 80% of the growth in premium per customer in Q4 was driven by this mix shift, including cross sales and the remaining 20% from increased coverage levels and pricing. Gross earned premium in Q4, increased 79% as compared to the prior-year to $89 million, roughly in line with the increase in force premium.

Revenue in Q4 increased 100% from the prior-year to $41 million. We're now comparing to a prior-year that has a similar quota share approach to the growth rate is more in line with the overall growth of the business. Our gross loss ratio was 96% for Q4, 23-point-higher than 73% in Q4 a year ago. And as Shai noted, this is primarily driven by prior period adverse development.

Operating expenses, excluding loss and loss adjustment expense increased 89% in Q4 as compared to the prior-year. This is primarily driven by increased advertising spend in support of growth, increased personnel expense related to our recent car launch and expenses related to the Metro Mile acquisition. We also continue to add new Lemonade team members in all areas of the company support to customer and premium growth and both current and future product launches, and thus saw increases in each of the other expense lines. Global headcount grew by 97% versus the prior-year to 1,119 with a greater growth rate as in past quarters in customer facing departments and product development teams.

Our net loss was $70 million in Q4 as compared to the $34 million we reported in the fourth quarter of 2020. While our adjusted EBITDA loss was $51 million in Q4 as compared to $30 million in the fourth quarter of 2020. Our total cash, cash equivalents and investments ended the quarter at roughly $1.1 billion, reflecting primarily the net proceeds from our January follow on offering of approximately $640 million, partially offset by the use of cash for operations of $145 million since year end 2020. And with these goals and metrics in mind, I'll outline our specific financial expectations for the first quarter and for the full year 2022.

For the first quarter of 2022, we expect in force premium at March 31 of $405 to $410 billion. Gross earned premium of $92 to $94 million, revenue between $41 and $43 million, and an adjusted EBITDA loss of between $70 and $65 million. We also expect stock based compensation of expense of approximately $20 million and capital expenditures of approximately $2 million. And for the full year of 2022, please note that we expect the Metro Mile transaction will close during Q2 and that our total annual IFP will grow approximately 78% during 2022.

The guidance that follows, however, exclude the expected impact of the closing of the Metro Mile acquisition in force premium at December 31 of between %530 and $540 million, gross earned premium between $423 and $427 million, revenue between $202 and $205 million, and an adjusted EBITDA loss between $290 and $275 million. We also expect stock based compensation expense of approximately $80 million and capital expenditures of approximately $10 million. And if Daniel noted, we currently expect that 2022 will be our peak year of EBITDA losses. And with that, I'd like to turn the call back over to Daniel.

Daniel.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Thanks Tim. As is our practice, we will now turn to questions most upvoted by our shareholders through the same platform. And the first one comes from Darren. And Darren asked about instead of buying stock while the stock is low and whether not we have any plans for company buybacks of shares.

Well Darren, the market overall has clearly been very volatile these last few months, and growth tech companies across all sectors have seen the shares hit very hard. So Lemonades declines in that sense are fairly typical. And clearly, all of this has much more to do with macroeconomic trends like inflation and rate hikes and geopolitical concerns like what's happening in Russia and Ukraine. Then with the performance of these growth stocks, FSA of Lemonade in particular, we didn't know that this particular constellation was coming, but we knew that sooner or later something like this would and we addressed this prospectively, and I found a letter which we published in the IPO prospectus, and I'd like to read the main section from that because I think it applies here as well.

That we wrote that we see our job as value creation, not to share price maximization. We are not interested in our share price on the day to day, week to week or month to month basis. On these timescales, share prices fluctuate for a myriad of reasons, some correlated with long term value creation, others uncorrelated, yet others inversely correlated. Success will reflect itself in our share price in the fullness of time.

But short term price flutters on noise, and we will not credit them into signals. So that's what we wrote down. We stand by that still today. And the bottom line is that, as we've said from day one, Lemonade is all about a long term play and long term value creation.

And we will continue to work very hard to build Lemonade into a very large, very profitable and much loved company and one that will reward all our shareholders in the fullness of time. That certainly is what we're working toward and believe in. I won't speak about individuals buying or selling plans or patterns, but in terms of a company buyback, we have no current plans to initiate any kind of stock buyback. We have many excellent investment opportunities for our cash.

We believe there's tremendous opportunity to grow our customer base and optimize in ways that I've outlined. And stock buybacks tend to be more for companies that have excess cash and less investment opportunities of their own so I hope that addresses that question. The second question comes from Ann the Paper Bag, and it is about how Lemonade can sustain rapid growth with a high cash burn and for how many years and when profitability will come. And again, a great question.

Let me put our cash situation in perspective over the past six years since we founded, the company would raise about $1.5 billion, all told of which 1.1 remain in the bank. And in fact, the acquisition of Metro Mile brings with it not only great licenses and IFP and talented people and technology, but a fair amount of cash as well. So our cash position is going to receive something of a little boost in the coming months. So all told, we remain in a strong cash position and we certainly have access to more cash worthy to need it.

And for reasons that I outlined earlier, we think our phase of heavy investment in foundational products and foundational technologies is drawing to a close. We have built the largest TAM products and we have launched them. And we have created the technological infrastructure that we need for the next phase of growth. And that's why we're probably six to nine months away from our peak losses, and we expect to see our losses decline with every successive year and EBIDTA margin to be on a steady path of improvement in the years to come, and that will try to clear and steady path to profitability.

And the next question comes from Thaddeus, together with a Paper Bag again, actually, and that is, when do we expect a matrimonial deal to close and how quickly will Lemonade car be available in 49 states? Well, we're working closely with regulators, as we said, to close the transaction. We do expect it to close next quarter in Q2. That is, although it's never guaranteed and we are awaiting final approvals. I'm not sure when will hit 49 states.

By the way, I'm not sure why the questions about 49 states, we tend to think of the US as having 50 states plus Washington, D.C., so we tend to think of it as 51 jurisdictions. But be that as it may, we do expect that we're about a year away from being able to offer Lemonade car to the majority of Lemonade customers. And we will continue to expand rapidly after that as well to people who are not yet Lemonade customers. And as the formula of the question raised by Paper Bag anticipates, we absolutely will monitor our performance in terms of capital LTV as we charge the rollout.

So that will provide an important roadmap guardrails, if you like, for a nationwide rollout and we'll continue to monitor. So far, we're happy with the performance of Lemonade car in Illinois, and we've got a major year for Lemonade car with a Metro Mile deal closing. We'll see how all of that shakes out in the coming months. But as I said, we remain pretty bullish on our ability to rollout reasonably quickly over the course of the next 12, 18 months or so.

And final question is, again, from Darren, Darren ask if there's a quantifiable way to prove that our technology advantage exists since in practice, in terms of bottom line, we are still seeing opex that has been growing. That's a great question Darren. And certainly the GAAP accounting metrics and disclosures that we make do make it hard to tease out the puts and takes of our technology investment because in general, the cost of these investments hit our financials immediately, whereas the benefits materialize over time and it makes it hard to see the one for the other. Internally, we did track very closely the impact of every feature that we build and release.

We do AB testing and we've got a series of other dashboards that allows to track these things. So we do have a high degree of confidence that attack will deliver a transformative impact and in many ways is already doing so. In terms of what's public, I can reiterate some of the things that we've disclosed in the past. For example, these are renters business for the first two years of the company's life, renters was overwhelmingly dominant part of our business.

We did have some homeowners, but over 90% of our customers were renters. And you saw that loss ratio trajectory dropped from 300% down to a supporting 59% at the time of our IPO. So you saw record drops in loss ratio of the likes of which traditional insurance companies have not delivered in the past. So that is a stand out case of saying just us, used the data feedback loops to a very, very rapidly bring down loss ratio.

About two thirds of our customers have really no interaction with customer support. It's entirely self served and that is, I believe, pretty revolutionary and outstanding and, you know, attaches a zero cost to serve and to those customers. We've spoken about aging in different forums, and I believe we disclosed a couple of years ago that our aging bought handled the first notice of loss of about 96% of claims and handled them start to finish in about a third of claims. So you do see about a third of our claims handled without any human intervention and almost all our claims handled with some bot involvement.

So that obviously is a big driver of efficiency. And we've also disclosed that in terms of ongoing customer support, what we call CSAI. About a third of all customer inquiries are handled this way again without human intervention and that's been true even as we rollout new products and the CSAI has been able to adapt to the new needs of our customers and a pretty remarkable way. So, all told, our customer facing technologies, but AI MIA or AI GMO, they do tend to deliver a superior experience we have MPS.

That is, I believe, without equal in the insurance space. And we do that with a marginal cost that oftentimes is literally zero. So those are all, I think, indicative of the kind of transformation we're trying to bring about. And more broadly, for the reasons that I outlined and that I think will become clearer in the quarters and years ahead, a biggest investment as a percentage of our revenue at least are largely behind us or soon will be so that our peak losses is going to be a we expect in the coming quarters.

And that, as I intimated in my earlier comments, I do expect to be able to display trend lines for both expense ratios and loss ratios that begin to evidence the fourth and the five, what we've been building in for that manifest will be end of this year. And from this year onwards, I think it will reflect itself also in steadily improving EBITDA margins and charting a steady and fairly clear path to profitability. Hopefully, that answers your question. And with that, we will turn to address some of the questions from our friends on Wall Street.

Operator. Please open the mic for our first question. Thank you.

Questions & Answers:

Operator

[Operator instructions] Our first question will come from Michael Phillips of Morgan Stanley. Please go ahead.

Michael Phillips -- Morgan Stanley -- Analyst

OK, thank you. Good morning, everybody. First question, do you think about the long term vision for how you look at the Lemonade car, what's the mix of pay-per-mile versus traditional car insurance there?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Hey, Mike, good morning. We're not planning to do anything that would be called the traditional car insurance at all. Traditional car insurance uses broad proxies to bundle a diverse group of people and charge them as if they were uniform. Our products, whether pay-per-mile or not are telematics based constantly, not just during a trial period or pre-purchase, but are based on continuous monitoring of where you drive, how much you drive, how you drive and using that to be able to deliver to you a precise rate that really matches risk and rate in the way that traditional insurance policies cannot.

Even the full percent of policies in the US that already use telematics tend to have it turned off after a couple of weeks and even during that time. Insurers tend to underweight that signal because it would cannibalize the rest of their business. So I think in all cases, what we're offering is something that is pretty highly differentiated from existing incumbent based policies is using precision metrics rather than broad proxies, and therefore will have very little opportunity for adverse selection and a great deal of opportunity. For the opposite of that, as people who are cautious drivers or who drive less will be able to get a rate that's reflective of that and will be unattractive to people who drive a tremendous amount and drive very poorly because they will identify that and charge accordingly.

The difference between pay-per-mile version of that and non-pay-per-mile is really more to do with the comfort and convenience of how the customer wants to rebuild, whether they prefer that rates match their driving on a monthly basis and retroactive, which is what pay-per-mile tends to be, or whether they'd rather get to a point where they're being charged something that is commensurate with their usage but is predictable upfront. And we know what they're going to be charged. That's really much more to do with that aspect of the user experience. The underlying precision technology will be uniform across our product offerings and highly differentiated from what's out there today.

Michael Phillips -- Morgan Stanley -- Analyst

OK, yeah, thank you. I thought I should have been more specific. And he kind of got to in the last political of your answer. I was trying to get.

I understand, going to be different in terms of traditional. I should have said pay-per-mile versus non-pay-per-mile I guess. I feel like your customer base is more conducive to using pay-per-mile type, which other insurance companies might have. I'm not sure if that's something that do with enough, but I was going to get that how much pay-per-mile versus non-pay-per-mile as you have said it that way.

Do you see your auto book? I know you're going to be more telematics and constantly using that. But I was going to get that from a different spot. Does that make sense?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Yeah. Of course, it makes sense, I'm sorry, I was asking and answering a question you didn't ask. I think the answer, honestly, is that this is a customer choice and it will be driven by our customers. So we want to offer them both models in as many places as we can, as quickly as we can and customers will choose.

And we're all working on more creative model, and ways to bridge the two year expenses, which will rollout and disclose kind of the focus of time. But as in all things in our products, we are really looking for the customer to have the best possible experience and to opt into something that makes sense for them. So I don't know what that would look like, and at least at first approximation, we're indifferent. We will make sure that we match rate and and risk in either model and therefore customers will make the choices of which one they prefer.

Michael Phillips -- Morgan Stanley -- Analyst

OK. That's all thank you, thank you for preparation. Second question, then would be on your own, your pressure that you've talked about on a wall ratio, which makes sense, you know your pet, your home, higher traditional loss ratios in general, but they're also growing pressure there. But let's take that same analogy to how you think about what that might look like in the early phases of Lemonade car.

Do you think that is, I guess, as a side comment, you know, it's no surprise that there are some companies that have new rolled-up products that want to grow quickly and have significant pressure on the Wall Street Journal. So let's take that to you guys. And if we look at the first couple of years of Lemonade car, are we talking about a point? I'm not looking for specific numbers, but is it a point or two pressure or is it more like that 75 goes into the 85 the 90s when we look back a year or two from today? And how much pressure does lemonade produce on a loss ratio?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

And that's a fair question. And I don't know that we can tie it down to that level of precision, our core product has been in market for such a short period of time and the data that we have, haven't even gone through a single renewal cycle. And we do know that most ratios change very dramatically in the first few months and just haven't been there. So we are data driven and the data just in able to say anything with precision.

We will be having the book that Metro Mile has. We've got a better grasp of what they've been doing this for 10 years and many billions of miles. So we have a better sense of their loss ratios, which in recent quarters has been somewhere in the 70s and with LAE it's made it into the low 90s trending. I think you mentioned good direction.

So we will see that. Well, I should add one other perspective, which is that the entire industry and car from, you know, progressive on down have been seeing a lot of pressure due to inflation. So these are unusual times and unpredictable times just because it's early in the game. But I think that over time, this is a place where we expect frankly to shine and to be able to outperform incumbents.

And just because of that answer that I gave to the question you asked, which is about precision pricing and the ability to monitor and that price is that much greater speed and precision. So I do think that we'll be in a very strong place to get to a good loss ratio for car remembering that the pressure's on the new launch are not merely the ones that you spoke about, which is growth oftentimes inversely correlates with loss ratio, but that first year policies are always higher. Even companies like progressive have been doing this for decades and are perceived as being the industry leaders. They don't break out their first year policies, but if they did, you would see much higher rates there as well.

So you just have to take all of that into account.

Michael Phillips -- Morgan Stanley -- Analyst

OK, thank you. Yeah, that's why I kind of said, is it a point or two or is it more like 10 or 20 points? Well, let's hope it's not the other. Last question, quick question Sorry. How do you classify loans losses for you guys? Can you give any details of kind of what those were? You say loans losses that contribute to adverse development?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Yes, there was a bit more adverse development in the quarter, which is not unexpected generally, but it's not something we see very often. I think looking back over 8 or 10 quarters, there may have been one other quarter with that kind of development. We've also had quite a few quarters with this favorable development in this particular quarter. The adverse development was maturity was driven within the home area and within home, larger losses.

And I would think of that. We don't have a sort of a hard number that we disclosed, but I would think of, you know, an entire loss of a home that could be a million dollars short of a claim that would certainly be squarely in that large loss category. And given our rate of gross and premium, you know, one or two large losses of that nature can clearly move the loss ratio pretty significantly. So that was the primary cause in the quarter.

The couple almost entire losses of houses and a few of those. Yeah, that was the most significant driver. Other other lesser impacts, but that was the majority of the impact in the quarter. 

Michael Phillips -- Morgan Stanley -- Analyst

OK, thanks. I'll get back for another. 

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Thank you.

Operator

Our next question comes from Jason Helfstein, Oppenheimer. Please go ahead.

Jason Helfstein -- Oppenheimer and Company -- Analyst

Good morning. I want to actually get last that was helpful for our model because we're thinking about 22 and kind of bridging to your EBITDA guidance. You know, how should we think about like the impact and loss ratio versus marketing efficiency? So I think we've seen sales and marketing improve as a percent of gross and premium this year, last year or whatever 2020 and 21. So just maybe just help us understand a little bit about that.

And then, you know, when we think about pay-per-mile, I think if you've looked at, you know, the the legacy operators and when you're buying, they generally don't operate in bigger states. I don't think it's available in New York or hasn't been available in California. How do you think about that and what do you think is the impediment to you being able to offer kind of pay-per-mile More broadly than it's offered today? Thanks.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

So I'll take the first one first. The question on marketing improvements, so you are correct, we have seen historically quite significant marketing efficiency improvements on the order of doubling of efficiency over the past two to three years. Those are really ceased during 2021. And I think we saw with many customer companies that are reliant in in some way on online acquisition have seen prices actually increase.

And so while our marketing efficiency is not currently showing as dramatic as we saw in the earlier years, when you're really optimizing and building that capability, things are not deteriorating much with the second half of last year, we saw some increases in overall pricing similar to other companies in this market. Our modeling going forward in our guidance expects that the current rate of efficiency will continue. We're not modeling tremendous gains and improvements are marching orders internally to our growth team is we expect to see continuous gains and improvements, but we're not modeling that into the guidance until we start to see any of those impacts in the real data. And then on the other thing.

I'll come to that one. Let me just add one tail comment to Tim's comment, which is, In terms of the marketing efficiencies for new customer acquisition, Tim addressed that and both historically and forward-looking, the other area that we roughly not in a letter as well is that we do expect to see a great deal more cross-selling and up selling from existing customers. So we now have close to one and a half million customers. And as we see with new products, we've already seen this with Car and elsewhere.

The opportunity to cross-sell and unlock a tremendous amount of LTV is extraordinary. And we do see a big jump that we reported the largest jump in premium customer who has ever seen just in the last period. But going forward, we expect to beat that record again and again because of that behavior. So while I think your question was focused on acquiring new customers in terms of acquiring a new premium, we have a growing pool of people from whom we can, to whom we can sell more products without the associated cash.

So we will see the capital LTV and continuously improve as best we can model and expands in terms of the telematics question. I think I take issue with your premise or at least with elements of it. So Metro Mile largest state is California, and California is absolutely fine with tracking mileage and charging accordingly. They have restrictions on behavior tracking and charging, but you do see that there are ways to implement telematics just fine with the state of California.

And as I say, indeed, a large portion of the Metro Mile business is California based, and New York in recent months has actually also changed its posture on telematics and is becoming much more open to that. So I think that the trend line is very much in that direction. Larger states, like you said, like New York, like California, are going in the right direction in that regard, largely because it's perceived as increasing fairness and charging people at a rate that's commensurate with the driving rather than using credit score or gender or other profession or marital status. All things that are traditionally used in the insurance world, which I think regulators correctly understand are less farther than the telematics approach. 

Jason Helfstein -- Oppenheimer and Company -- Analyst

Thank you.

Operator

The next question comes from Josh Schenker of Bank of America. Please go ahead.

Josh Schenker -- Bank of America Merrill Lynch -- Analyst

Hi there. Just doing some quick math of the loss for share up by about 19% on 22, 21 and you said that most of the favorable development on 19 on your premium, that's not $17 million of losses, are you said $1 or $2 million homes? There's still a huge GAAP in the stable development between losing just $1 or $2 million homes. And the second time, my question is, of course, you touch your AI Queen's management as the best in class. How do you lose a whole home in the quarter? Not lots of important.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

So a couple answers to a couple of your questions there, so the bridge that you did a roughly 20 points, a little bit more than half of that to happen two thirds of the way caused by this adverse development and the remainder caused by mix shift. So as we've seen in past quarters, as renters, as a proportion of the book declines, it's now less than 50 percent. That is continuing to have an impact as it has in prior quarters and pushing the last issue up. So absent any adverse development, the larger issue would have been up versus the prior-year in the prior quarter in terms of the large losses.

My answer was intended to give an example of the kinds of claims that can drive large loss impact. And so specifically, we can have a reserve put up on a large loss, but turns out to be insufficient. And then we have to correct that in the same way we can see the opposite happened. 

Josh Schenker -- Bank of America Merrill Lynch -- Analyst

This is pretty standard, but it had a greater impact in this quarter than we've seen in many of the prior quarters.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Yeah, it just adds Josh. So sorry, just in his we saw some major current events. And what generally just happens, but oftentimes the reporting comes in later. So oftentimes the claims on to be recorded.

This isn't the kind of thing that I handled. Anyway, this is handled by and by humans, by professionals. And oftentimes, we kind of already intimated we tend to be conservative with many, many more quarters of positive development and adverse development. But when you have a relatively small book, a few homes can swing things one way or another, particularly in taxes.

And then that's what happened to us this time.

Josh Schenker -- Bank of America Merrill Lynch -- Analyst

And so I'm not wrong saying that half the increase in the loss ratio was due to attritional increases because your business was going up. So maybe the new loss ratio would dominate, not as close to the modern, maybe.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

I think there would only be true if we weren't seeing and planning for improvements in the overall mass ratio for the newer products. So as we saw quite consistently with renters over a number of years, an improving loss ratio from a couple of 100% to well below our current overall loss ratio, we'll expect to see for our newer products. Home is relatively it's not new in terms of time, but it's new in terms of its magnitude and pet, certainly, which is now a fairly significant part of our book, heading toward 20%. Those have higher loss ratios currently, but we don't expect those loss ratios.

Those current lacerations have been fully optimized and over time we expect the net overall of the book to be around that 75% more so low.

Josh Schenker -- Bank of America Merrill Lynch -- Analyst

Thank you for the answers.

Operator

The next question comes from Yaron Kinar of Jefferies. Please go ahead.

Yaron Kinar -- Jefferies -- Analyst

Thank you, good morning. First question on the 2022 growth guidance for insurance premiums in force so clearly still differentiated and seeing very strong growth there. But nonetheless, I think it's nearly half of the growth rate we've seen achieved over the last couple of years, and that's even as we see the traction in increases in premiums for customer. So could you be elaborate a little bit on why we would see some slowdown there? Is it more from the customer side, more from the premium per customer side and why that is?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Hi Yaron. Good morning. Make a thousand things of return, I positively say and I want to add the way we think about our performance and this is slightly different, mean it's really all around the Metro Mile acquisition. So when we spoke about the Metro Mile acquisition in the on the day that we announced it, and I think in all our communication things, including this morning, we've spoken about it as being something that will flatten the risk and collapse time, but not as a new bolt on business.We've never thought about it as a stand-alone disease or something that is additive in terms of its benefits replacement.

And it's true in terms of expenses, largely so a lot of the investments that we would be making right now in terms of state launches and future build out and tallentire and marketing spend, we want to do some of those things because we will view them through the vehicle of Metro Mile once we acquire it, or we will effectively hire the Metro Mile people and acquire the Metro Mile technology, etc. So in our operational plans, we don't think of Metro Mile as being a bolt on or an addition that being organic and being part of our car launch plans. I say that because that gives you our perspective on the year, which is that we're going to see a 70% year growth based on the guidance that we're providing in this year with a 78% year growth. So it's very much in line with the kind of growth that we saw in 21 will see a similar rate of growth in 22, all be it with substituting some of the things that we would have built in-house and from the investments that we would have made on our own with investments that we are acquiring and markets, markets and product that we're acquiring through Metro Mile.

But we do intend to keep up the pace of growth, and I think it's 2022 will be very similar in terms of its top line and other metrics of growth. 21. Only thing I would add is that in terms of our addressable market and our view of long term growth, we've never been more bullish. I think with ranchers, I think it's fair to say that our market share, particularly in new ventures to the market, is has gone from zero to fairly significant over the past few years.

But when you layer on home, pet, car and life and beyond, those are extremely large markets, many multiples of the size of the ventures market. We're just sort of scratching the surface on those and so are our growth rate is something we're quite focused on, but balanced growth, optimize growth, integrating Metro Mile, getting getting car, moving out. Those are those are almost as equally important as the overall growth rate is. And the TAM is something that is we think it's important to keep our eye on.

Yaron Kinar -- Jefferies -- Analyst

Understood. And then my second question regarding your comments on 2022 being a peak loss here with improving trends, I think in the second half of 22, I just want to be clear, even hold true with my own. Or is it really for the existing book of business that you have?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

I think it's fair to say it largely holds true with Metro Mile, with a couple of exceptions, so obviously with the integration of two companies, there will be a step change that is will create a different curve to the year in terms of spending growth and expenses. And we would see without that. But absent that sort of step change, I would expect to see a consistent pattern with what we've seen in prior years. And that is true, I think, for losses as well.

So with Metro Mile, there will be some bit of positive investment that comes with it, but as importantly, a significant amount of in force premium. They reported just shy, of $150 million as of the last quarter, and we expect a substantial proportion of that to come across as well as some cash. And so despite that, StepChange, there's lots of, you know, there's benefits that come with it. The other note, I think, is if you look at our pattern of investment over the course of the prior-year, you'll see a fairly consistent pattern with Q3 as the most substantial investment quarter and the most substantial growth quarter, with a little modest, more modest impact in Q2 and Q4.

Well, we're not getting to the specific quarters of this year. I would expect that pattern to persist, it's somewhat mitigated because more of our book of business is is less seasonal and more so as we move into the seasonal impact tends to be driven more by renters and homeowners. But it's a good view of what you might expect to see you'd find by looking back at the the prior-year pattern of investment over the course of the quarter.

Yaron Kinar -- Jefferies -- Analyst

Got it. Got that super helpful. And there may be one last, very quick numbers question. You offer the distribution of in force premiums on product, as you've done in the past.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

That's not in disclosed materials. And I think our prior numbers sort of reiterate ownership simultaneously at heading toward 20% renters just shy of 50% and homeowners making up the difference. Cars, clearly nascent at this point. And then Metro Mile will move that needle considerably $100 million plus. 

Yaron Kinar -- Jefferies -- Analyst

Thank you very much.

Operator

And next question will come from Andrew Kligerman of Credit Suisse. Please go ahead.

Andrew Kligerman -- Credit Suisse -- Analyst

Thanks for taking the question this morning. I just want to get a better understanding on sales and marketing, it looked like sequentially went from $42 million in sales and marketing expense to $37, while revenue went up from $36 to$41. So we said is a good move. Could you give a little color around that decline?

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Yeah, so there's a couple of things happening there. It's a typical seasonal impact, so again, because of the scope of the home and renters book, we do see significant growth, but less so in the fourth quarter than in the third quarter. And that's a pattern I think that will will persist as home and renters is a majority of the book. We did see a leveling off of cost increases in terms of how many dollars we deployed to grow the customer base.

We keep a close eye on the ratio of lifetime value to the acquisition cost and new premium coming in relative the acquisition cost. And so we do limit our spend, especially if it goes way beyond what we think is economical to providing long term value will or will not spend too much money beyond that that line. But we did see consistent kind of marketing gains. We're seeing a greater number of dollars of premium coming in per customer.

And so even though the number of customers added was very much in line with the pattern of the prior period, we added more customers in the quarter in the fourth quarter in the prior year and added significantly more dollars per customer. So the combination of those three things starting it.

Andrew Kligerman -- Credit Suisse -- Analyst

Got it, and maybe just in general, the customer acquisition cost for new business, what we've seen seeing sequentially in the fourth quarter and maybe the beginning of this year in terms of customer acquisition cost ad spending here.

Yael Wissner-Levy -- Vice President of Communications

Fairly consistent. So we did see some increases. Excuse me, over the course of Q2, Q3 heading into Q4 was fairly persistent at those levels. So not a dramatic change.

We are reallocating to some extent because we're seeing good, good progress in the growth of the pet product. So that has a somewhat different, different dynamic. And we're also taking into account which channels are more and less effective and there's a constant reallocation that's happening. But overall, I think we saw sort of a consistent view.

We've always spoken for a number of quarters of a of a ratio between two and three in terms of the lifetime value that we drive. That's not a hard limit, but in some ways that's kind of managed by us in terms of how much capital willing to put on growth. And over time, as Daniel mentioned, I think it's important to note that there's there's a real or certainly a growing potential there with our ability to cross-sell and bundle where the cost of that incremental fee is significantly lower, in some cases zero. And so that's where we'll start to see what I think is a declining reliance on direct customer acquisition and an improving balance between growing existing customers and bringing in new customers.

Andrew Kligerman -- Credit Suisse -- Analyst

Very helpful. And and lastly, I just wanted a little bit more clarity around the prior year development, so did I understand it right in that the homeowners claims because they were larger? You mentioned $2 million, Tim. That's why it was just sort of a timing issue with just maybe a little color on and why these prior year developments came about. So he should tell type of business.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Yes. We should clarify. Not not necessary prior year, but prior period development. Right? Yeah.

And so it's the nature of both our book of business and the and the insurance generally where a small number of large plans can have a much greater volatility. So you don't see the risk of this as being nearly as significant because you get a large number of relatively small claims. And so the puts and takes tend to even themselves out. You can still see either adverse or favorable development.

But there's a greater probability, just sort of law of large numbers that that's mitigated somewhat with home and particularly with the relatively smaller proportion still of our book of business being home. Just a small number of claims can have a significant impact on the overall loss ratio. So it's sort of a, you know, the quantity versus impact issue.

Andrew Kligerman -- Credit Suisse -- Analyst

Makes sense. Thanks so much.

Operator

And next question comes from Katie Sakys of Autonomous Research. Please go ahead.  

Katie Sakys -- Autonomous Research -- Analyst

Good morning, this is Mrs. Sakys from Autonomous. I've got a question on share based comp and how drug abuse next year is the guided $80 million for executive compensation only or intended to be used to recruit talent.

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Our stock based compensation includes all equity issued at the company, both historically, which is the most significant part of it, as well as for new hires, not just executives, every nominated employee across the business at every level of responsibility has equity. And we have a pretty significant refresh program that we want to have in place to continue to have retention impact on those employees across the entire company. We will be and planned to be competitive with the market. It is part of compensation for employees, and so that's something we have factored in.

There is an impact that is the reality of having a historically volatile stock price, and I think you'll see this across other companies that had a higher price a year or two go, will leave with expenses until all of that equity invested. It's not just an a new grant with impact that number and to that we except normalize over time.

Katie Sakys -- Autonomous Research -- Analyst

Got it, thank you so much

Operator

[Operator Signoff]

Duration: 70 minutes

Call participants:

Yael Wissner-Levy -- Vice President of Communications

Daniel Schreiber -- Chief Executive Officer and Co-Founder

Shai Wininger -- President, Chief Operating Officer, and Co-Founder

Tim Bixby -- Chief Financial Officer

Michael Phillips -- Morgan Stanley -- Analyst

Jason Helfstein -- Oppenheimer and Company -- Analyst

Josh Schenker -- Bank of America Merrill Lynch -- Analyst

Yaron Kinar -- Jefferies -- Analyst

Andrew Kligerman -- Credit Suisse -- Analyst

Katie Sakys -- Autonomous Research -- Analyst

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