"Forget everything that you know about the insurance industry"

That’s the strap line that Insuretech company Lemonade uses as they aim to disrupt the $5 trillion insurance industry! Unlike their rivals in the insurance space, Lemonade has a rather unique business model which involves the use of AI, data & behaviour economics! Lemonade is successfully removing the conflict of interest that plagues the insurance industry via the reinsurance of what customers pay them. By doing this, Lemonade is largely able to remove the conflict of interest between insurer and customer. This allows Lemonade to garner a lot more trust from it's customers and this is clear from their Net Promoter Score (NPS) of 70 versus the industry average of 20!

As well as running on a better business model, Lemonade also uses its expertise in data & AI to automate their processes to pay claims in as little as 3 seconds! Obviously this is a huge hit with customers however this streamlined automation process also allows the business to keep operating costs down. Thanks to its efficient use of data & AI, Lemonade is able to employ only 1 person for every 2000 customers versus the industry average of 400 customers per employee. This is a 500% efficiency improvement on their peers and this will allow Lemonade to keep costs down and perhaps undercut the competition when they are done scaling the business!

Despite their streamlined processes, Lemonade continues to lose money as they continue to invest in R&D as well as expand into new countries and products! The business recently launched in France before announcing that they would be bringing out a car insurance product towards the end of this year! The combination of these 2 recent developments will increase Lemonade's total addressable market by 70X and therefore I'm expecting to see extraordinary revenue growth in the business over the next 12 months! This revenue growth is vital if the stock is to hold up at this level. Right now, Lemonade trades at a very expensive price-to-sales ratio as seen in the table below.

Although revenue is always important to the performance of growth stocks, Lemonade also relies heavily on the growth of its customer base! Despite being the fastest Insurance company to ever surpass 1 million active users, this figure slowed down considerably in 2020. Like Netflix, Lemonade’s main goal is to prove that they are still growing their customer base when they report earnings on Tuesday 11th. Although it’s important that Lemonade posts a very positive quarter, the second half of this year will be a lot more important for the company! Investors will get a glimpse of how successful the launch of “Lemonade car” has been and just how sticky their ecosystem really is!

If Lemonade can successfully execute their expansion plans into France & the Motor Insurance industry, then we should see a re-acceleration in their customer growth and a kickstart in their share price!

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