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Here's Why Lemonade Has an Advantage Over Insurtech Competitors

By Matthew Frankel, CFP® and Trevor Jennewine – Oct 6, 2021 at 7:47AM

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There are several promising insurance disruptors, but this one is still the most promising.

There has certainly been no shortage of insurance technology, or "insurtech," disruptors that have completed IPOs over the past year or so. However, in this Fool Live video clip, recorded on Sept. 23, Fool.com contributors Matt Frankel, CFP, and Trevor Jennewine discuss why Lemonade (LMND -1.62%) has such a big advantage over all of them. 

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Matt Frankel: Sherway says, "Why is Lemonade better than so many other new insurance tech companies?" And they're right, they're are a lot.

Trevor Jennewine: I mean, if you just Google, like, insurtech or insurance tech companies, you'll see things like 30 new insurance tech companies listed, there's an incredible number of these companies.

First, this industry is enormous at the multitrillion-dollar industry, there's plenty of room for lots of winners, and like you mentioned that it's right for disruption. I do think Lemonade has an edge in certain instances though, another you mentioned the strong balance sheet, and Lemonade does have about a billion dollars in cash and no long-term debt. That's something, but Lemonade also been around for a little bit longer in some of these other companies, and that's given it time to scale its business a little bit more, so where I think Hippo (HIPO 2.20%) is focused primarily on homeowners insurance and Root (ROOT -8.87%) is auto insurance. Lemonade has a few different products already. They have renters, homeowners, pet insurance, and term life, and they are moving into auto insurance.

Also, I think they may have a data advantage by being around longer and that data is the cornerstone of the AI. But if I had to point to one thing in particular to set Lemonade apart is that it's grown as customer rates quickly. It took just over four years for Lemonade reached 1 million customers. That's much faster than some of these legacy players. I think it took State Farm two decades to do the same things. Lemonade's growing quickly and it was recently recognized as the top ranked insurance provider for homeowners and renters policies in terms of customer satisfaction.

Its business model is really resonating with customers and I think you shouldn't underestimate how important that is. That would be my big bullet point for why Lemonade maybe has an edge over some of these other insurance tech companies. It's really resonating with its customer base. Matt, you have anything to add to that?

Frankel: Yeah. I'll add if my dog will be quiet long enough for me to talk. He's a character or the show, everybody knows who watches every week. Lemonade got the land and extend business model down really well. Lemonade, if you're not familiar, they have about 1.1 million customers. They got to that number in one-fifth the time it took State Farm to do it. The reason they got their customer count up that quick is because they focus on low-cost, cheap renters insurance. The average renters insurance policy is $15 a month. Focusing on that low price point product really enabled them to build a big database of customers. The more customers they have, the more they can cross-sell other products too. You mentioned Root is the big auto insurance player. I would often top of my head how many customers I have, but I can guarantee you it's not a billion, not even close. Lemonade has a million customers, most of whom are drivers that are already very satisfied with their product that they can cross-sell to. The fact that they've got to that one million customer base before any of the other insurtech companies is a big advantage when it comes to their AI platform.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Lemonade, Inc. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Lemonade, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Lemonade Stock Quote
Lemonade
LMND
$17.93 (-1.62%) $0.29
Alphabet Stock Quote
Alphabet
GOOGL
$96.66 (-2.83%) $-2.82
Alphabet Stock Quote
Alphabet
GOOG
$97.00 (-2.87%) $-2.87
Root, Inc. Stock Quote
Root, Inc.
ROOT
$6.37 (-8.87%) $0.62
Hippo Holdings Inc. Stock Quote
Hippo Holdings Inc.
HIPO
$14.18 (2.20%) $0.30

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