Insurance disruptor Lemonade (LMND -0.68%) recently announced that it had finished 2020 with more than 1 million active customers. This is an impressive milestone, especially considering Lemonade did it in just over four years in business. It took most insurance heavyweights over two decades to break through the seven-figure threshold. In this Fool Live video clip, recorded on Feb. 8, Fool.com contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why so many people have chosen Lemonade for their insurance needs.
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Matt Frankel: Right now, so you're in your house, heaven forbid, if your house flooded and you had to file an insurance claim, would you readily know what to do?
Jason Moser: I mean, yeah, I would know to go straight to Progressive.com (PGR -0.06%) and log into my account and then click the file a claim button. I know that's where I would start, but I would have to actually go through the documents and parse that language to figure out exactly what's covered, what we're on the hook for.
Moser: Even then, it's not easy to fully understand.
Frankel: One thing I read, and this was a Tweet, so this is like hearsay. But, a customer who has pet insurance through Lemonade filed a claim, and guess how long it took the claim to be processed and paid.
Moser: Through Lemonade?
Moser: I'm hoping 24 hours.
Frankel: Six seconds. [laughs] This means that that customer knew exactly what was covered, exactly what was needed, knew exactly what documents they had to produce. It's just a really transparent process. One cool thing about Lemonade's business model is they take any reasons to deny claims out of the equation.
Frankel: With most insurance companies, it's not in their best interest to pay out claims. If you file a $50,000 claim to your homeowner's insurance, that $50,000 will come out of your insurer's pocket.
Moser: That's right.
Frankel: With Lemonade, they pretty much lay off all the risk with reinsurance policies, so there's no reason to deny claims. It's not in their best interest to do so. They take 75% of the premiums they collect, they buy reinsurance policies that will cover whatever claims come in, and the other 25% is their operating expenses and hopefully a profit. It's a really very consumer-friendly business model. Anything left out of that 75% doesn't go back to Lemonade, that gets donated to charity first of all, which really appeals to younger investors. It's not in any way in Lemonade's best interest to deny legitimate claims or to drag out the claims process. Because remember, insurance companies make money the longer they keep that money sitting in their investments.
Frankel: It's in Lemonade's best interest to get the money out the doors to their customers as quickly as possible.