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Lemonade Logo
How do you like your Lemonade: tart or sweet? June 2020

As you probably have heard, the Insurtech Lemonade announced on Monday its intent to go public with a $100M offering. The current VC funding values Lemonade at ~$2B. There is not enough information in the S-1 to estimate market capitalization yet. Like another New York VC darling that flamed out, they were heavily funded by Softbank.

Lemonade’s announcement comes on the heels of Everquote and Selectquote’s successful IPOs.

Selectquote launched at the end of May at $20 and is trading around $27 now, reflecting a market cap of about $4.6B. In 2019, they were profitable and made $72.6M net income. Everquote launched in June 2018 at $18 and is now trading above $57, reflecting a market cap of $1.6B.

These launches come at a time where VC interest in Insurtechs in Q1 2020 has slowed down more than 50% to $750M from a year earlier at $1.7B. In addition, some well-funded Insurtechs have gone down the road of purchasing regulated Insurance carriers (Hippo buying Spinnaker Insurance who incidentally cede nearly all their premiums to reinsurers), Pie Insurance (workers comp) raising $127M to allow them to build or buy an insurance carrier, and Next Insurance forming their own carrier last year.

Is Lemonade sweet or tart?

Looking at Lemonade’s S1 filing there is enough to make everyone happy. The people who like sweet lemonade will be looking at the fact that premiums are over $115M/year and the Gross Loss Ratio has fallen to below 100% (79%). This premium reflects about 3% of the rental insurance market. Which should give them plenty of runway.

Lemonade financials

If you prefer tart lemonade, then there are lots of data points to support your views as well. Lemonade has never been profitable. Net losses have ballooned to $108.5M in 2019 while revenue was only $63.8M. When we compare Q1 2019 to Q1 2020, we see losses accelerating 70% from $11M on 1Q2019 to $36.5M in 1Q2020.

To generate the $115M in premium, Lemonade spent $76M in advertising (85% of their sales and marketing spend). That translates to $1.51 in premium for each dollar spent in advertising. That is not sustainable for most carriers. In addition, it will take significant resources to get to 10% market penetration, which will top out their revenue at about $350M.

Finally, their 1 and 2-year retention rates are hovering around 75%. If you add in company-initiated cancellations, that figure drops to an average retention rate of 67%. Vastly different from industry leading results.

Technology to the rescue

We also learn more about their technology stack, which they spend $9.8M annually on. One part they are touting is their acquisition bot AI-Maya:

“AI Maya typically asks only 13 questions before giving a bindable quote (compared to 20 – 50 for a traditional carrier) for home insurance, but the interaction generates close to 1,700 data points”.

I wonder what the usable added points of information might be. IP address? Time? Date? OS? Browser? The time you spend on one question? How many times you come back before you bind? etc.

Finally, they are targeting technology investors who believe legacy insurance is a cash cow with most carriers behaving like they are leisurely grazing out on the pasture. Take this quote about delightful cocktails:

“Lemonade’s cocktail of delightful experience, aligned values, and great prices enjoys broad appeal, while over indexing on younger and first-time buyers of insurance. As these customers progress through predictable lifecycle events, their insurance needs normally grow to encompass more and higher-value products: renters regularly acquire more property and frequently upgrade to successively larger homes; home buying often coincides with a growing household and a corresponding need for life or pet insurance, and so forth. These progressions can trigger orders-of-magnitude jumps in insurance premiums.”

What does this mean for you?

At minimum, I suspect your executives and Boards will be asking questions like:

  • What does this mean? If the IPO is successful, it means that VCs will pour far more money into carrier competitors who are going direct. More of your products will targeted. We are already seeing this in small commercial and workers compensation.
  • What does this mean for us? Lemonade will not be a threat for many more years to come unless they also crack the nut into selling homeowners and auto.  And their technology and reinsurance contracts hold up during a major claim event like a hurricane.
  • How can we compete with Lemonade? You need to improve your renter’s product and develop an approach where independent agents can profitably sell a renter’s policy, or experiment with selling the product direct or through partnerships. Without this, Lemonade will continue to dominate new insurance buyers and that will give them a potential advantage as renters transition to more insurance products.

    You should also explore leveraging technological advances coming out of the Insurtech space such as conversational AI, prefill, fraud detection, and others.  These advances will help you maximize your value to agents, policy holders, and staff.

Feel free to reach out if you want to discuss the pending Lemonade IPO in more depth, or if there is anything else you are wondering about.


About Insurtech Advisors
Insurtech Advisors is dedicated to helping regional insurance carriers and agencies identify and partner with Insurtechs enabling you to thrive and continue to meet the needs of your members and independent agents. We work closely with your team to identify opportunities and aspirations and then personally curate and introduce you to the best Insurtechs to pilot.

2019: Insurtech in Review

Happy “National Science Fiction Day” to all of you that enjoy reading a great SciFi book or had a chance to see the latest Star Wars entrant.  I hope you had a great holiday season with family and friends.  As I reflect on 2019, I’ve been blessed to work and interact with amazing people like yourself.  I am forever grateful for this.  Here’s to the next year and decade together.  May it be filled with only great things, health, success, and happiness for you and your family.

2019:  Insurtechs take hold (but will they hold?)

In last year’s email, I started off with the fact the Everquote had gone public in 2018 and was down 80% since its IPO.  What a difference a year makes.  As of the end of 2019, Everquote was up 700% YTD.  Too bad I didn’t invest Jan 1st 2019!  They are just one example of where Insurtechs and start-ups have started to gain traction.

Personal Auto

It’s much easier to track the growth of the Insurtechs within the personal auto sector.  Four Insurtechs: MetromileRootClearcover, and Noblr have collectively raised $875M and they have created traditional full-stack insurance carriers as compared to acting as an MGA.  Thru the 3rd quarter in 2019, they had written over $450M in combined premium.  Root itself, in 2018, was the 107th largest private auto writer in the country.  Not bad for a few years in business!  One entrant, HiRoad which was founded by Statefarm and only writes in Rhode Island has written just under $20M in their first year.

An interesting fact: in 2018, HiRoad wrote $12M in coverage while their parent Statefarm only wrote $18M in Rhode Island

While these carriers have seen significant premium growth, they all struggle when looking at their combined ratio (and especially their loss ratio).  I found it ironic that HiRoad had the highest combined ratio, given its roots in Statefarm.

Renters and Home

In the Renters/Home-owner spaceLemonade wrote $97M in premium in the first 9 months of 2019.  Hippo Insurance (which is an MGA and doesn’t report directly) wrote close to $170M in premium.  Lemonade has certainly tamed their loss ratio however; they are still just above a 100 combined ratio.

Another niche Insurtech is TypTap which sells flood insurance online.  In the first 9 months of 2019, they wrote about $37M in premium with a combined ratio of 96%.

Small Commercial

In the small commercial spaceNext Insurance continues to expand and has formally created a full-stack insurance carrier.  While it has only reported $1k in premium through 3Q19, they have probably written over $40M YTD.  Intrepid Insurance (which is part of WR Berkley) is a startup focused on selling directly to niche small business categories such as franchises and auto repair shops.  They have written $13.7M through 3Q19.  Pie Insurance, which sells workers compensation insurance online as written about $27 (through Sirius America Insurance).  This doesn’t include the likes of HiscoxbiBerk, and Chubb’s small business marketplace to name a few of the legacy carriers upping their focus on small business.

A Natural (and low) Ceiling

We all read and followed the collapse of the WeWork dream.  It was a dream.  Billions of dollars poured in with little evidence of a workable business model.  The Insurtech world suffered much of the same.  Many companies were funded without a clear vision for profitability.  Coverager just published a report on ~175 of these inactive startups.

Will this change.  Not a chance.  There is too much investable money out there.  With T-bills at historic lows and some European countries with negative interest rates, Investors are chasing any potential return.  What will change though is the exit strategy for the Insurtechs.  They will have to have a profitable product or provide something of value to a Carrier (who would then acquire them).

Another barrier to growth is brand recognition.  Whether you are B2B or B2C, you need brand recognition to grow.  For the Insurtech carriers (and MGAs) to truly grow they will have to start to spend advertising dollars that most likely exceed their raised capital.  The top 10 Insurance advertisers spend just under $5B annually.  Will Hippo, Lemonade, or Next spend 10s of millions on advertising?  Unlikely, but it’s anyone’s guess.  WeWork did some crazy illogical things.

Source AdAge 2019

2020: To Enable or Not?

Perhaps the area that I see of greatest potential is around Insurtechs providing a service to the legacy Carrier community.  Rather than treat Insurtechs as just a new type of vendor, successful Carriers collaborate with or even acquire the Insurtechs.  This allows the legacy carrier to quickly benefit from the entrepreneurial culture and technical creativity of Insurtechs, while the founders at the Insurtechs benefit from the industry’s market expertise, capital, and brand recognition.  It’s a win-win!

We surveyed Insurance Carrier CEOs this past summer as to what Insurtech areas they were exploring, and what POCs they ran and what was successful.  The highlights are below.  If you want to learn more, please reach out!

There are plenty of enabling Insurtechs to discuss, but I’ll leave that for another post.

Happy New Years and I very much look forward to staying in touch.

About Insurtech Advisors

Insurtech Advisors is dedicated to helping regional insurance carriers plan for the future today.  We help you identify and partner with Insurtechs.  This enables you to thrive and continue to meet the needs of your members, employees, and independent agents.

Labor Day Weekend and Insurance — Smart Tires to the Rescue

I recently wrote an article on Coverager about Smart Tires and the potential benefits and risks for Insurance Carriers. Click here to read the entire article. A short video is below.

Insurance agents should partner with Insurtechs
Could InsurTech Startups Be Friends—Not Foes for the Insurance Agent?

FacebooktwitterlinkedinmailI recently wrote an article about how Insurance Agents can benefit from the Insurtech Ecosystem.  The Insurance agent or broker should look to partner with appropriate Insurtechs, thus bringing their insurance industry enhancements into their Agency and giving them a competitive advantage.

You can read more @IndAgent:  Could insurtech startups be friends not foes?

Insurtech Advisors helps connect small and mid-sized insurance carriers and agents to the advances occurring in the Insurtech space.  We do this by working individually with each partner to help them understand how to innovate and implement some of these external Insurtech ecosystem advances into their current processes in a cost and resource efficient way.  Additionally, we strategically invest in early stage Insurtech startups, where their offerings can benefit our member insurance carriers or agents.  For more information, please contact us at: info@insurtechadvisors.com or +1.929.282.2031.

3 Reasons Why Smaller Insurance Carriers Need to Leverage Insurtech Advances

FacebooktwitterlinkedinmailInsurtechs can help improve efficiency

Effective customer relationship management (CRM) is key to successful business, especially when it comes to smaller insurance carriers where the focus is on the client relationship. No matter the carrier size, speed, efficiency and effective delivery are the keys to running a successful insurance business. However, in reality, the smaller insurance carriers are falling behind on the efficiency and speed spectrum, and the innovative digital and larger insurance carriers who employ the latest tools and techniques, ranging from utilizing new data sources, robotic process automation (RPA), advanced data analytics such as machine learning and cognitive computing, to IoT (Internet of Things), are gaining market share.

These tools and techniques are increasing the digital and larger carrier’s speed, underwriting prowess and efficiency.  For instance, in one area alone, their speed in delivery of quotes (whether Personal or Commercial Lines) can be real-time and they allow binding and paying online.  Although small and mid-sized traditional insurance carriers are still in existence, to stay market relevant, and increase their growth and profitability, they need to partner with new start-ups also known as Insurtechs and firms providing technological infrastructure to insurance firms. Here are three reasons why this is necessary:

  1. Competitive-Edge:

Insurtechs have a natural competitive edge over traditional insurance carriers, because of their lack of legacy systems and typically narrow focus.  This leads to a much quicker service delivery model. What customers have expected traditional insurance carriers to deliver in weeks; Insurtechs are now delivering in minutes or hours.  So, in order to reduce the efficiency gap in service delivery models, insurance carriers can partner with Insurtech startups to yield innovation and overall total efficiency.

  1. Internal Efficiency

Legacy insurance carriers are slow in execution because the internal processes are slow, i.e. the long cycle between brokers, carriers, underwriters and customers, and lack of digitization of customers’ requirements or customer files.  If all the file work is still actually on paper and not digital or in the cloud, then it means searching for and acting on information does not take seconds but takes minutes or even hours. Thus, in this scenario the larger and more digitized carriers win again.  The small and mid-sized insurance carriers can overcome this gap by strategically partnering with Insurtechs in a very cost-effective manner.

  1. Effective and Improved Service Delivery

To compete with Insurtech and key insurance players in the industry, the smaller insurance carriers need to have an effective service delivery model, which reduces the dependence on long communication channels, and is completely customer oriented. In order to do that, and to compete with digitized larger carriers and Insurtech startups, traditional smaller carriers need to show a willingness to adapt and innovate.

Insurance service delivery models are changing, and to deliver per the changing environment, smaller insurance carriers need to start by identifying and then partnering with start-ups who are providing services to help insurance carriers adapt and work on improving their service delivery model.


Small and medium sized insurance companies should start to track investments and advances that are emerging within the Insurtech community and consider partnering with Insurtechs. Partnering with Insurtechs and other digital service providers will enable these carriers to transition from a traditional service delivery model to an innovative customer-centric and technologically enabled model. Partnering with Insurtechs will not only jump-start the carriers’ digital transformation but will prove to be a mutually beneficial alliance for both sides — the carrier will benefit from new techniques and digital infrastructure such as cloud based services in a very cost efficient manner thus improving their speed to market, while the Insurtech will benefit from the carriers’ legacy customer base and industry knowledge which will ultimately improve profitability/Return-on Investment for both partners.

Insurtech Advisors helps connect small and mid-sized insurance carriers to the advances occurring in the Insurtech space.  We do this by working individually with each member carrier to help them understand how to innovate and implement some of these external advances into their current processes in a cost and resource efficient way.  Additionally, we strategically invest in early stage Insurtech startups, where their offerings can benefit our member insurance carriers.  For more information, please contact us at: info@insurtechadvisors.com or +1.929.282.2031