Hip and millennial-friendly tech company Lemonade (NYSE:LMND) is making the archaic industry of insurance cool once again. LMND stock helped in revitalizing the market for insurance, making it one of the most lucrative and largest in the world, generating an annual revenue of $5 trillion. However, insurance brokers have faced a number of underlying issues- most notably a lack of trust and information.
Lemonade is tackling these issues head-on with a fresh new approach to buying insurance. As a major player in a market that’s ripe for disruption, LMND stock has a long runway for growth.
LMND Stock: Insurance Goes Digital
Lemonade appeals to a younger demographic with a user-friendly app and a hot-pink color wave. But at its core, the company hopes to debunk the myths associated with the 100-year-old insurance industry. It does this with the seamless digitization of the insurance-buying process while offering transparency at every step. Tools such as big data and artificial intelligence make this possible.
Using artificial intelligence to power its app offers two main advantages. One, unlike traditional insurance brokers, AI chatbots can underwrite policies and interact with the customers. Not only does this increase efficiency but it also allows Lemonade to benefit from greater economies of scale. In congruence with this, big data collects information on customers which can help with better risk assessment when underwriting policies.
The ability to use technology to transform the traditional insurance industry will allow the company to target various segments of the market. From first-time insurance buyers to people looking for a better alternative, Lemonade’s potential for growth is vast. It currently serves 941,000 customers which is up 67% from a year ago. In terms of its services, the company has a niche offering. This includes renters, homeowners and more recently, pet insurance.
Lemonade’s digital prowess will be its winning ticket to disrupt the insurance industry. Although the company only controls a minor slice of the sector, the potential for growth makes LMND stock a good bet.
Lemonade Has A Lot Going For It
Lemonade’s millennial-friendly business model and savvy app are a gamechanger in the world of insurance. And this new take on the sector has translated to some lucrative gains for the company since going public. Gross profit in its previous quarter increased by 83% while net losses fell to $30.9 million from $31.1 million. The loss ratio which is a measure of success for insurance companies fell from 78% to 72% in a year-over-year comparison.
In addition to its current offering, Lemonade also stated that it will include term-life insurance to its product portfolio. The new service will not be underwritten by the company but will be included in the app. This results in a relatively low cost for Lemonade with the potential for earning higher revenue. The company can also make its mark in the $800 billion term life insurance market.
Lemonade’s plans for expansion is a step in the right direction for the novel insurance provider. As mentioned earlier, Lemonade still controls a small share of the insurance industry despite its disruptive business model. However, the company’s reinsurance strategy which lowers its exposure to risk will keep this business in the limelight for years to come. LMND stock is a worthy buy at its current price for long-term returns.
The Bottom Line
Lemonade is worth watching but an investment in this company comes with an element of risk and a waiting period. This is because the company’s business model is so novel that its future is hard to predict. However, if you are willing to bet on a company that wants to challenge the status quo, LMND stock is a great addition to your portfolio.
The company is always expanding its services and has a growth potential that’s vast, to say the least. If Lemonade continues to scale at its current pace, the stock will generate double-digit returns in the long-term.
On the date of publication, Divya Premkumar did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020.