Premiums creating 'real stress' in insurance: Lemonade CEO

Lemonade (LMND) has had a rollercoaster of a rise with share prices going from a record peak during the pandemic to now trading 75% below its opening price. The insurance company saw a surge of 170% in gross profit of $22 million for its third quarter, with its net loss down 33% to $62 million.

Lemonade CEO Daniel Schreiber joins Yahoo Finance to discuss the company's recent performance, and exponential growth, as well as how it's handling insurance rates and premiums during volatility and global economic headwinds.

"The whole industry has suffered greatly from heightened inflation... homes have suffered disproportionately and cars even more so, so that loss ratio for insurers across the industry has been very, very high particularly, in those areas," Schreiber states. "You've seen some of the largest, most marquis names in the nation withdrawing from some of its largest markets... but we are seeing everything at least within our own business trending in the right direction, the graphic that you just showed shows rates slowly climbing while rates slowly declining."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: Daniel, I wonder and, I'm, specifically, looking through where the revenue is coming in from, and where there's been an increase? Premiums are one area that would catch a lot of investors' attention here. And as we think about the different products that you do offer for many who perhaps have their home insured. When you have a hot summer, like, we just came off of or more volatile weather, those premiums tend to go up. How have you needed to adjust premiums? And where have you seen some of the customers, either realize that premium adjustment, or others move away, or, say, that's too high?

DANIEL SCHREIBER: Well, the whole industry has suffered greatly from heightened inflation. So the industry at large, the economy has suffered from inflation. But homes have suffered disproportionately, and cars even more so. So that loss ratios for insurers across the industry have been very, very high, particularly, in those areas.

And you've seen some of the largest, most marquee names in the nation withdrawing from some of its largest markets-- California, Florida, and others. So this is a time of real stress throughout the insurance space. But we are seeing everything, at least, within our own business trending in the right direction.

The graphic that you just showed shows rates slowly climbing while inflation is slowly declining. And one of the things we just shared last week is we're passing our 2,000,000th customer any day now. And when you compare our millionth customer to our second millionth customer, you see that we have grown at a 35% faster rate. And even though customers have doubled in number, our gross earned profit has more than trebled in numbers. So we're seeing premiums for every customer growing much faster than the rest of the industry. And that's really driving a lot of the efficiencies that we discussed.

So today, we offer car insurance, home insurance, renters insurance, life insurance, pet insurance. And all of them combined across, not only the US, but Europe, are performing very strongly.

SEANA SMITH: Daniel, you just mentioned that a customer growth rate there 12% increase on a year-over-year basis. When you talk about the fact that you're just below 1.98 million, just below two million customers, what is that growth then look like? And is that growth at 12% on a year-over-year basis, is that sustainable?

DANIEL SCHREIBER: We actually indicated that we expect to accelerate growth in 2024 because of the inflationary pressures that I intimated earlier. We've seen Lemonade and the industry suffer excessive loss ratios, which really means that rates have not kept pace with inflation. And in a highly regulatory environment, there is going to be that time lag.

Looking forward, we're seeing that come down. The lag is closing. And our rates are coming online. Just last week, California approved a 51% increase in our car or auto insurance rates in the state. And about 50% of our business is in that state. So these are very important milestones for our business.

And as we see rate match risk, we are getting more confident about accelerating growth. And we've indicated that while we've grown this quarter and our guidance for next quarter is around the 17% or 18% growth, we think it will be considerably faster than that accelerating growth in 2024. Indeed, a business like ours needs scale to get to profitability.

Everything that we do is technology-based. We pay claims in as little as three seconds. We sell 98% of our policies through an AI chat bot. All of those investments in technology are great, when you have a scale. They're not so great when you're small. Indeed, over the last 24 months, we've doubled our gross earned premium without growing our expenses. And that scalability is the secret of how we get to cash flow positivity in 24 months.