Shares of AI-powered insurer Lemonade (LMND +12.52%) are up 23% this week as of 1 p.m. ET on Thursday following news of a first-of-its-kind deal with Tesla. Lemonade offers renters, pet, homeowners, and life insurance, but this week's move is ties to its car insurance unit. On Wednesday, the digital insurer announced the launch of Lemonade Autonomous Car insurance. The new unit's first customer will be Tesla, and owners using the company's full self-driving (FSD) capabilities.
Image source: Lemonade.
Why this could be a big deal for Lemonade
This collaboration will see Lemonade provide a 50% drop in per-mile rates while Tesla owners have FSD engaged. Lemonade will gather data on this FSD usage, which it can plug into its models to compare risk differences between autonomous driving and human drivers. This collaboration makes Lemonade the first insurer to try to tackle the notion of insuring autonomous driving. Tesla's latest FSD safety report shows that when FSD is engaged, accidents are seven times less likely than the U.S. average for a human driver. The partnership is a bet that these lower accident rates will not only boost profits up front, but also likely improve profitability over time as Tesla updates its technology, giving Lemonade a valuable head start in the burgeoning niche.
Is Lemonade a buy after rising sevenfold in three years?
Following this week's rise, Lemonade is now up over 600% since 2023.
NYSE: LMND
Key Data Points
However, despite this incredible run, there is still a lot to like about the stock. Lemonade:
- grew premiums by 30% in the third quarter, nearly doubling its premiums from Q3 2022
- delivered eight consecutive quarters of accelerating premium growth
- reached 2.9 million customers, an increase of 24% in Q3
- more than doubled its gross profit margin from 19% in Q3 2023 to 41% today
- lowered its gross loss ratio from 88% in Q3 2023 to 67% today
Lemonade now trades at 13 times sales, which is a steep premium over traditional insurers. However, its accelerating premium growth and improving efficiencies prove its AI-powered vision remains on track to reimagine the insurance industry.
