It's no secret the technology sector of the stock market has been crushed this year. The Nasdaq 100 index, a widely followed benchmark for high-growth tech companies, has declined by 29% in 2022 so far.

But many individual stocks have been hit even harder, particularly those focused on serving consumers because it makes them more vulnerable to the broader economic slowdown. Interest rates have been rising because inflation recently topped a 40-year high, and that's placing a stranglehold on people's spending power.

Still, some consumer-centric companies have managed to maintain rapid growth rates in this difficult period. Innovative insurance company Lemonade (LMND 8.44%) is one of them. Its stock is down 85% from its all-time high, but its underlying business is arguably as strong as ever. Here's why it might be time to buy. 

Lemonade is breaking new ground

Turmoil in the stock market and a challenging economic climate haven't stopped Lemonade from pursuing its grand plans to disrupt the insurance industry. It's improving on the traditional model by using artificial intelligence (AI) to price premiums and, perhaps more importantly, it's revamping the customer experience. With Lemonade, policyholders are often paid out in seconds or minutes, not days or weeks,  also thanks to AI.

It's clearly resonating with consumers because the number of people holding a policy with Lemonade climbed to an all-time high of 1.57 million in the recent second quarter of 2022. The premium Lemonade earns per customer also marched higher as more people purchased multiple products. The company now operates in five insurance markets: renters, homeowners, life, pet, and car, and cross-sells and upsells accounted for 36% of all sales in Q2.

A chart of Lemonade's total customers and premium per customer.

Lemonade owes much of its recent success in this economy to AI, particularly its new Lifetime Value 6 model (LTV6). It's a highly advanced, data-driven AI that can calculate a customer's potential lifetime value by accounting for their likelihood of purchasing more than one policy, of switching insurers, and of making a claim. But it goes beyond that -- it can also identify Lemonade's overperforming and underperforming insurance markets, so the company can rapidly pivot and maximize its sales.

On Oct. 3, Lemonade announced it was further expanding beyond the U.S. and entering the United Kingdom. It will only offer contents insurance there for now, but it follows the company's previous launches in Germany, France, and the Netherlands.

It's all about in-force premium

In-force premium is one of the primary ways insurers measure their performance. It's simply the dollar value of all the premiums paid by customers for active policies. Naturally, since Lemonade is rapidly acquiring customers and they're each becoming more valuable over time, the company's in-force premium is soaring. 

A chart of Lemonade's in-force premium.

That raises the issue of Lemonade's gross loss ratio, which is the proportion of its premiums it pays out to fund claims. In the second quarter it came in at 86%, which remains elevated, although it's down from 96% at the end of 2021. However, thanks to the predictive ability of the LTV6 model, Lemonade believes the customers it has signed up most recently could have a long-term loss ratio of 68%, well below its target of 75%.

Until it gets there, though, Lemonade will likely struggle to be profitable. It's one reason it has lost $279 million over the last four quarters -- the other is continued investments in growth and expansion, which are excusable given how quickly customers are flocking to buy policies.

The good news is Lemonade believes it has enough money on hand to see it through to profitability, so it won't require another dilutive capital raise. That's a positive for investors.

Car insurance could be Lemonade's key opportunity

The insurance industry is enormous. Lemonade's newest segment is car insurance, which it entered with the help of its acquisition of MetroMile, another data-driven insurance platform. Lemonade received licenses for 49 U.S. states and $100 million of in-force premium as part of the deal, which rapidly accelerated its entry into the market.

Car insurance could be a $316 billion opportunity in 2022 alone in the U.S., and it already makes up about 20% of Lemonade's product mix. There are approximately 198 million policy-holding drivers across America, so the company has a significant runway for growth. 

With Lemonade stock down 85% from its all-time high, it could be a great bet for the long term.