Lemonade (LMND 1.52%) stock attracted lots of attention from enthusiastic investors when it went public. After closing at about $69 when it had its initial public offering in July 2020, the stock rose as high as $188 in early 2021. Lemonade's stock price got ahead of itself, though, and has since fallen more than 90%.

The steep decline in the share price makes the insurance technology company look much more appealing. It's adding customers and premium growth is rapid, but one crucial aspect of the business must improve for the stock to blast off from here. Here are two charts to consider if you're thinking about investing in Lemonade today.

Leveraging AI and chatbots to revolutionize insurance

Lemonade's mission is to flip the insurance industry on its head. One way to do this is by leveraging artificial intelligence (AI) and chatbots to streamline the buying and claims process. AI has been all the rage since the release of ChatGPT, and investors see colossal growth potential stemming from this technology.

Lemonade has made AI a core part of its business. For example, its AI Maya chatbot helps customers get policies by asking 13 questions. From these questions, it aggregates 1,700 data points based on a customer's interaction with its website.

It can instantly personalize coverage and create quotes, dramatically reducing customer onboarding times. Another chatbot, AI Jim, automates up to one-third of customer claims while forwarding more complex claims to human claims experts. 

Growth in the key areas has been impressive

Lemonade has quickly expanded its product offerings. The company first sold renters' insurance, intending to turn young individuals into customers for life. It has since expanded to home, pet, life, and car insurance, with last year being its first full year with all of these offerings.

Expanding its offerings has driven strong growth in Lemonade's customer base and premiums. In the fourth quarter the insurer's customer count topped 1.8 million, up 27% from the year prior. Its premium per customer has grown 31% from last year, while its in-force premium, or aggregate annualized premiums from existing customers, increased 64% to $625 million.

A chart shows customers and premium per customer over the last nine quarters.

Data source: Lemonade regulatory filings. Chart by author.

This premium growth illustrates that Lemonade is doing a solid job cross-selling its newer insurance products to existing customers. Next year management sees in-force premium growing by another 12% on the high end of its forecast. 

Lemonade is searching for profitability

Lemonade has done a solid job leveraging AI and growing its customer base. However, its rapid expansion hasn't been without some growing pains.

In the fourth quarter Lemonade posted a net loss of $63.7 million. While this improved from its $70.3 million loss the year before, the company has a lot of room for improvement. 

One way we can look at this is through the net loss ratio. Lemonade measures this ratio as the ratio of losses and loss adjustment expense, minus amounts ceded to reinsurers, to net earned premium. This metric is helpful because it tells you if an insurer is covering its losses with the policies it is writing.

Lemonade's long-term goal is to get this ratio below 75%. In the fourth quarter Lemonade's net loss ratio was 97%; over the last four quarters, it has averaged over 95%. 

A chart shows Lemonade's net loss ratio over the last nine quarters.

Data source: Lemonade regulatory filings. Chart by author.

Should you buy Lemonade?

Lemonade is working on integrating multiple insurance products into its pricing model, and the elevated loss ratio shows it has plenty of room for improvement.

One thing the insurer had to do last year was increase its premiums on customers to cover rising claims costs due to inflation. Its model will also improve as it gets more data inputs over time. Because it's a younger company, Lemonade doesn't have a trove of data like more established companies. Building a more expansive database will help improve its models, pushing the loss ratio closer to management's goal.

Lemonade has done a solid job of increasing its customer base and adding to its product offerings. Now it must dial in its pricing models to improve its profit margins and deliver net income -- making this stock suitable for long-term-minded growth investors willing to withstand near-term volatility.