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Insurtech Lemonade LMND today announced its results for the first quarter of 2021. Like Colonial Pipeline’s Cyber carrier of record, Axa XL and Beazley, all will report a significant impact from cat losses. Lemonade from the Texas winter freeze, and Colonial’s carriers from this incident.


Juicing the numbers

Lemonade saw a 10% increase in customer numbers to only about 1.1 million from the end of 2020, driven by Pet, Home, and Life Insurance, where they recorded approximately $500 million in commissions likely to come from the sale of term policies. Ongoing premiums rose to $252 million and premiums per customer rose to $229.

For the first time, they reported a retention scale: Annual Retained Premium, which has increased from 67% to 81% in the last two years. Although this is a significant improvement, there is still considerable scope for growth. As an example, I spoke today with the CEO of a large regional mutual carrier and he mentioned that their retention rates are in the very high 90s… even higher than USAAs! So technology does not always trump good old-fashioned values, business processes, and agent relationships!

The Texas winter storm hit Lemonade extremely hard. Their gross loss ratio increased by 50 percentage points to 121%, contributing to a widening net loss of $49 million, a 45% increase from the end of 2020. This underscores their commitment to specific markets that many of us have not recognized. If they do not see a full-scale geographic expansion, similar natural or other disasters could further strain their performance and ultimately their re-insurance treaties.


Insurtech Lemonade Results

Lemonade continues to invest heavily in marketing and advertising and technology, spending $29.1 million on marketing and another $7.1 million on technology in the first quarter. In other words, they spent $7 per single customer on technology in the quarter alone. How does that compare to you? The effectiveness of their marketing spending led to high net new customer acquisition costs. This figure is likely to be lower than the effective cost, as much of its growth is due to a mix of pet and homeowner owners who have stated in the past that they are largely sold to existing customers. Their net acquisition costs for the first quarter of 2021 have declined from 2020 onwards, but are still above $300 per customer. Due to their sharp decline in gross profit margin to 8% this quarter, new customers this quarter are expected to have an expected lifetime value of just over $90, meaning that Lemonade is likely to lose money on every two of these three new customers.


Insurtech Lemonade Results


Competing with Lemonade

The first question you really need to ask yourself is: do I have to? Surprisingly, the answer varies greatly depending on your current customer base, the mix of urban, suburban, and rural populations in your market area, and your future growth prospects.

Secondly, you should ask yourself: Can I afford to give up young people with pets because I know I can convert them if they become home buyers and have children? At this point, I would suggest two things: It is increasingly difficult to attract a customer from another carrier than it is the first time; and when most of you are engaged in your agency channel, you must help them maintain their relevance with a demographic that aims to do everything online. If you can solve this last point, you will gain an even greater share of the broker’s business as it will value you higher than any other carrier relationship.

Feel free to contact me if you would like to discuss or brainstorm any of the above ideas.

Now back to the way Texan disasters are befalling the continent if you haven’t dealt with cyber products in the past. Now is definitely the right time to start doing so to ensure your relevance to your brokers and clients.


Are you really ready for cyber threats?

I am sure you have been following the news that the Colonial Pipeline was damaged by a cyberattack on May 7, resulting in the closure of the pipeline that supplies about 45% of all refined fuels along the US East Coast between Texas and New York. Did you know that Atlanta’s Hartsfield Airport is served by this pipeline? There have been numerous reports in the news that gas stations have already started running out of gas. Have you begun to model your potential exposure to business disruptions as a result of this disaster?

A few years ago, I spoke to an Insurance executive about cyber claims. He asked me what I thought was the biggest claim of the year. I said the Equifax breach. His answer, a commercial bakery in Germany, was their biggest single claim. He explained that all their ovens were computer-controlled and the company had suffered a similar breach to Colonial, and they had been down for almost a month.

It turns out that manufacturers are the sector that is most targeted by cyberattackers. The graph shows the number of attacks in 2019 by sector Verizon 2020. And the estimated average cost of a single data breach approaches $10 million.


Cyber targets by sector

Are your policyholders sufficiently insured for their potential cyber exposure? Do they think they have a cover they might not have? Are you giving them access to the tools needed to identify and mitigate potential cyber vulnerabilities? These and other questions are crucial for you to maintain your trustworthy relationship with your policyholders and their brokers.

Click through to learn more about the burgeoning cyber insurance scene.

VC interest is very high. Sonr has tracked nearly $2.5B from the more than 50 cyber start-ups that VCs have been pursuing.


What does this mean for you and your insured?

Given the increase in reported cyberattacks that we are seeing everywhere, you have to ask yourself the following question:


  • Have we looked at the potential risks to our policyholders from the shutdown of the colonial pipeline? Have we proactively reached out to potentially affected companies? Like the local gas station!
  • Is the insurance cover we offer to our insured enough?
  • Would our clients and/or brokers believe that we would cover certain claims if we could not? Do we need to be proactive towards them?
  • Does our product offer what our customers need and will demand?
  • Do we need to find another partner? Would some of these newer Insurtech providers have a stronger product for our customers?
  • Are there segments of our customer base where there are particularly strong potential vulnerabilities?


Deloitte published a study in the summer of 2019 which found that 15% of US middle-market companies had no cyber coverage at all. These companies are now a market bonanza!  In addition, 30% had standard policy coverage, but no stand-alone cyber policy. This means that almost half of the market could be approached with a very valuable offering – to strengthen their risk positions. And this only for middle-market companies. Think how much greater the opportunities are for SMEs and private customers.

I look forward to continuing the dialogue!

Insurtech Advisors helps regional carriers and agencies to work with the best Insurtechs that will enable you to succeed and continue to meet the needs of your members, employees, and independent agents. We know your business and the landscape of Insurtech. We save you countless hours of wasted time and false starts. Furthermore, we work closely with your team to identify opportunities and goals, then introduce you personally and to the best Insurtechs pilot.


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