Insurance technology company Lemonade (LMND 1.95%) has taken investors on a bit of a roller-coaster ride, but what about the long term? In this Fool Live video clip, recorded on Sept. 20, contributors Matt Frankel, CFP, and Jason Hall discuss why they plan to hold Lemonade shares in their portfolios for years to come. 

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Matt Frankel: That is Lemonade, a stock that I bought shortly after its IPO that has taken investors on a roller coaster ride. Hasn't it? Didn't it jump up to almost $200 a share at one point?

Jason Hall: That's funny you say that because I was very reticent of Lemonade as a $10 billion business, but as a four billion dollar business and also six months of me learning a lot more about their platform and how they think about risk, it's really interesting to me. Go ahead.

Frankel: Lemonade, it ranked number three (out of eight fintech stocks) in our rankings. This was my number four, your number two. I've been a shareholder for a while. I love Lemonade's long-term potential, I think insurance is just an industry that's begging to be disrupted. The insurance process is very clunky at best, especially some of the areas Lemonade is just starting to really get into. I'm not a Lemonade customer. The only thing. Do tell. What do you use them for?

Hall: It's interesting. This actually, it's funny because this is part of the discovery process for me that brought me to having the zeal of the newly converted here. With not sure about the business six months ago to now being such a big fan is so we're moving right. We sold our house, and there's about a month period where we're not homeowners, so we need to insure our stuff. Decided just to do a quick renter's insurance policy.

It was so easy. It was quick and it worked great, and there's more decided to because they offer homeowners insurance now too and a number of markets. I decided to get them to quote a homeowners policy for our new house, and they declined me. They said no. Of course, first, I was pissed, I'm like, "Come on, what are you doing?" But the fact that they declined me means that they actually are considering risks. They are actually looking at underwriting and they're thinking about underwriting, whether they are doing it or whether it's their reinsurance partners, that are helping guide it.

That's been my biggest concern with this company is how high-quality is their underwriting going to be, and the fact that they are saying no to some customers that other larger insurers are quoting competitive rates to was reassuring for me. I think that answered that question. But Matt, you were talking about the disruption and I think it's easy for people to not really understand the way that Lemonade's disrupting the insurance company.

They talk about their AI and their are fast quotes and their fast claim payments and all of that stuff, which is good. But the thing that drives it, the financial incentives among the different stakeholders. Taking a cut right off the top and it will work, but that's what they're doing right now. I think they take 15%, maybe it's a little more, I can't remember the exact number. But they take a percentage of premiums, right off the top, like, "This is our money. Everything that's left is insuring claims and we're going to use it to buy reinsurance." That's what they do with that extra money.

They've made their money right off the top. When you file a claim, it's not like other insurers that have this massive float. The incentive for them is to delay having to pay claims as long as possible so they can make some return. That's a really positive thing right off the bat as an insuree. Knowing that if I file a claim, I'm less likely to have to dance the corporate insurance company dance.

Frankel: Yeah, for sure. That's a big part of it. It's 25% they take off the top.

Hall: Twenty-five, OK.

Frankel: 75% they generally purchase reinsurance with most of it, really to just limit their risks if there's anything left over out of that 75%, they donate it.

Hall: Yeah, and that's the cool thing. Because their members pick a charity. That's the other part of the financial incentive. I'm less likely to lie about a claim because I'm stealing money from my charity that I love.

Frankel: Yeah. We know Jason is a great guy, wouldn't lie about a claim anyway.

Hall: So honest. That was $4,000 laptop, I promise.

Frankel: But having said that, I love a few things about their strategy here. Jason can probably tell you firsthand renter's insurance is cheap. It's a very cheap form of insurance.

Hall: Yeah.

Frankel: This is how Lemonade built their clientele up to one million in one-fifth of the time it took State Farm to do it. But this is renters skewed very young. These are customers that could be in their ecosystem for 50 years.