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Here's Why Lemonade Stock Is Soaring Today

By Matt Frankel – Nov 3, 2021 at 10:06AM

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The insurance technology company just gave investors some great news.

What happened

The stock market was little changed shortly after the opening bell on Wednesday, but insurance technology company Lemonade (LMND 0.67%) was a big exception. As of 9:45 a.m. EDT, Lemonade shares were higher by more than 12%.

So what

Although we're in earnings season, we haven't heard Lemonade's latest results yet. Instead, investors are cheering the launch of Lemonade Car, the company's much-anticipated auto insurance platform.

Glass of Lemonade splashing.

Image source: Getty Images.

After giving a vague timeline in its latest quarterly report, Lemonade announced on Wednesday morning that Lemonade Car has officially launched. At first, the new auto insurance product will be available to Illinois drivers, but the company plans to roll it out nationwide. Tennessee will be the next state to add Lemonade Car, followed later by other states.

Now what

Lemonade has well over 1 million customers, but most of its revenue comes from low-cost types of insurance, particularly renters insurance, where the average policy costs around $15 per month. Auto insurance premiums average about 10 times this amount, and the company estimates that its current customer base spends more than $1 billion annually on auto insurance. With an extremely high rate of customer satisfaction, it has a big opportunity to quickly scale up this new business.

What's more, auto insurance in general is a much larger market than Lemonade's core business. In the U.S. alone, auto insurance is a $288 billion market, as compared with about $4 billion for renters insurance. With most auto insurers still providing a clunky (at best) claims process, Lemonade has a unique opportunity to disrupt the space.

Matthew Frankel, CFP® 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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