Could Lemonade's Life Insurance Business Still Be a Major Growth Driver?

Insurance technology company Lemonade (LMND -0.46%) makes the bulk of its money from renters and homeowners insurance, and it recently launched auto insurance as its next big growth market. However, the largest insurance market Lemonade operates in is life insurance, which makes up just 2% of its business right now. 

In this Fool Live video clip, recorded on Nov. 29, Lemonade's co-CEO and co-founder Daniel Schreiber discusses the life insurance progress so far, and where he sees this part of the business heading in the future.

Matt Frankel: I know the car insurance is probably the most exciting opportunity, but it's not the only other insurance vertical you've launched recently. Your life insurance launched, I want to say about a year ago, a little more than a year ago? It's only about 2% of your business right now. Why hasn't that caught on in the way that you hope Lemonade Car will?

Daniel Schreiber: It's a great question. I think they launched slightly under a year ago, but thereabouts, about 45 weeks ago, something like that. A couple of things to say about that. One is: By some yardsticks it's actually doing very well. Of course, our denominator is now pretty big, so to become 2% or something pretty big becomes increasingly difficult. If I just map out the growth rate of our first launched product, renters insurance, and I have this on the dashboard, its growth curve and the growth curve of life insurance since we launched it over the last 45 weeks, life insurance is actually 3x where renters was at this point.

That's just one point to bear in mind: The denominator can be confusing. When I strip that away and just look in absolute dollar terms, a life insurance is generating three times what our renters insurance, which is our bread and butter, was at the same stage. That said, and it's doing it at 90%-plus gross margins because we don't write on our own paper. We're not licensed to do life insurance on our own paper. We are reselling a insurance product that is on somebody else's paper, which means it is pure margin, which is also pretty interesting.

But having said that, life insurance is -- and we knew this to be the case, we even spoke about it a launched investor meeting, shareholder letter, a investor call -- life is a very tough business. The insurance techs that have tried to do well on a stand-alone basis just with life insurance have struggled. Their customer acquisition costs are very high. and this has been a market where we haven't seen pure-play digital players do all that well, with very few exceptions. For us, this was predominantly about rounding out the offering for our insureds, making sure that thesis about getting them young and then catering to their totality of their needs over time is fulfilled in full. Because it's not on our paper, because it's something that we are reselling, technically the experience is still pure Lemonade. But from an accounting or plumbing point-of-view, it's written on somebody else's paper, that also means that the work with the regulators is mediated by a third party, which makes it quite cumbersome.

For all of those reasons, we think it's doing exactly what it needed to do. It's growing faster than renters, customers are bundling, and I think that will remain the central way in which they buy life insurance, is they'll come in for renters or for home or for car, for something else, and they'll add on, as opposed to the more native buyers. So pet insurance is two-thirds new customers on-ramping. That's true for renters. That's, I think, going to be true over time for Car, and then we get cross-sells in all the directions. That's what we've seen in the other products and what I anticipate happening going forward as well.