Lemonade (LMND 1.44%) burst onto the scene when it went public in July 2020 thanks to its innovative approach to insurance and a commitment to social good. However, the stock price has experienced large fluctuations, and it's going through growing pains in a less-than-favorable market. In the past year, the market has been tough on rapidly growing yet unprofitable companies such as Lemonade. While Lemonade's long-term growth potential is appealing, it has work to do to become profitable.

Before buying Lemonade stock today, you should consider another insurer instead -- Progressive (PGR -1.00%). Progressive has been writing policies for decades, achieving impressive profitability in the process. Here's why Progressive is a better investment today and what I want to see from Lemonade as we advance.

The two insurers were founded 78 years apart

Progressive and Lemonade are two companies from entirely different eras. Progressive was founded in 1937 and is the third largest insurer in the U.S., trailing only State Farm and Berkshire Hathaway Insurance. Meanwhile, Daniel Schreiber and Shai Wininger founded Lemonade in April 2015.

The property and casualty insurance industry is highly competitive, and those companies with the best pricing models and data are the ones that win. Progressive has been at it for decades. It was one of the first insurers to use driver data (telematics) to price its policies, which it rolled out on a wide scale in 2011. Its use of driver data is just one reason the company has achieved stellar profitability going back at least two decades.

On the other hand, Lemonade is a new entrant into the insurance industry and has been quickly adding product lines to its business. Lemonade first began offering renters insurance. Its goal was to target a younger demographic and turn them into lifetime customers for its other products. It has since expanded its offerings to homeowners, pet, life, and car insurance. Last year was the first full year Lemonade had this suite of products, and it's gone through some growing pains along the way.

A head-to-head comparison of the insurers' profitability

In the fourth quarter, Lemonade posted a net loss of $63.7 million. One way we can further analyze its results is by looking at its loss ratio. Lemonade measures its loss ratio as the ratio of losses plus loss adjustment expense, minus amounts ceded to reinsurers, to net earned premiums. This metric is important because it tells you if a company's premiums collected are enough to cover its losses.

Management at Lemonade has set a goal to achieve a 75% net loss ratio or better. Last year, with its variety of insurance offerings, Lemonade posted a 97% net loss ratio. The year before that, its net loss ratio was 93%. By comparison, Progressive's loss ratio was 77% last year and 76% the year before. 

One is a good buy today, while the other has some work to do

Lemonade is a growing insurance technology company leveraging artificial intelligence (AI) to streamline the insurance process, from buying policies to filing claims. The company has been growing its customer base rapidly in recent years. In the fourth quarter, the insurer's customer count was up 27%, while its premium collected per customer grew 31%. 

Lemonade can be a good stock for aggressive investors willing to wait it out as the company works through growing pains. However, it still has work to do to improve the profitability of its policies, which is why I haven't decided on buying the shares quite yet.

When it comes to writing profitable policies, few do it better than Progressive. Thanks to its advanced pricing models and data advantage, the company has had impressive, industry-beating profitability for more than 20 years. For this reason, I believe Progressive is a better stock to buy today, especially for more conservative investors looking for steady, less volatile returns.