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Lemonade Is Driving Forward With Auto Insurance

By Brian Withers and Brian Stoffel - Updated Jun 23, 2021 at 9:24AM

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It could become a massive source of premiums in the coming years.

Lemonade (LMND 1.36%) is still a small company, but it has big dreams of disrupting the long-standing insurance industry. Its latest move is an announcement that it will start offering auto insurance to its suite of insurance products. On a Motley Fool Live episode recorded on May 12, Fool contributors Brian Stoffel and Brian Withers discuss what this could mean for this insurtech company in the coming year.

Brian Stoffel: I did a deep dive on Lemonade, and I thought the way that they're approaching this, of getting a 20-something [year-old] hooked in with the renters insurance and then building and building and building from there, is really smart, and adding auto is a great part of it.

I'm wondering. So this auto, I think, it didn't get as much attention as I think it should have. Maybe because people assumed it was coming. But what kind of trajectory are you hoping to see with the car insurance? They said there's nothing that they're factoring into their outlook from auto for the full year. So when will we start seeing an effect from that?

Brian Withers: Yeah, they've announced it, but it's still in the planning phase. They're putting the [finishing] touches on all of the connections that they need, and I imagine we could see the first customers by the end of the calendar year. Given its growth, it's got about 1.1 million customers today. By the end of the year, it could have close to 1.5 million customers, and all of a sudden, all of those customers could instantly switch if they wanted to once the auto insurance policies are available in your state.

But because of the higher premiums and the strong customer loyalty and the great customer satisfaction scores that they have, I'm going to make a wild guess that the auto business could be a quarter of its premiums collected by the end of 2022.

Brian Stoffel: Wow.

Brian Withers: Yeah, I'm going big or going home on this one. But they really are approaching this the same way they do everything else: with a digital substrate. And they know that connected cars and self-driving cars are going to be the future, but there's no reason for them not to jump in today with all the data that's available, and the GPS device that we carry everywhere with us will help monitor the people as they drive around.

Brian Stoffel has no position in any of the stocks mentioned. Brian Withers owns shares of Lemonade, Inc. The Motley Fool owns shares of and recommends Lemonade, Inc. The Motley Fool has a disclosure policy.

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