Lemonade CEO suggests insurer has ‘turned a corner’ in underwriting

Lemonade CEO and co-founder Daniel Schreiber believes that the insurer has “turned a corner” as its loss ratio is improving.

Lemonade’s loss ratio improved to 130 percent in the first half of 2018 compared to 260 percent in the first half of 2017.

“Our loss ratio dropped by half from H1 2017 to H1 2018, and while it’s still too high, a similar progression in the year ahead will get us to where we need to be,” Schreiber wrote in a blog.

Schreiber blamed the absence of historical data for the high loss ratio.

“Insurance is the business of using data from the past to divine how many claims people will have in the future,” he explained. “And so, while our early results kept us on our toes – they didn’t surprise us. Our competitors had a hundred years of data; we had zero. Over the past two years, as we’ve signed up more customers and handled more claims, we’ve graduated from relying on the proverbial ‘wild-ass-guesses’ to the more credible ‘educated guess’,” he noted.

Lemonade, an artificial intelligence-focused insurtech company was first launched in September 2016 and offers renters and home insurance policies.

Schreiber was also critical of the insurer’s performance: “The fact that our reinsurance agreements protect us from too many claims can’t hide the fact that, since launch, we’ve paid out more in claims than we’ve collected in premiums. Clearly, that can’t continue indefinitely,” he said.

Lemonade has been growing fast. “Two years in market, Lemonade has over a quarter of a million active customers, an annualized run rate of $80 million in sales and continued hypergrowth,” Schreiber said.

Schreiber added that the company has still “a lot of growing to do” as it aspires to become “one of the preeminent global brands of the 21st century.”

In an earlier blog, Lemonade’s co-founder Shai Wininger suggested that Lemonade should reduce the growth pace in order to address its loss ratio.

On its website, Lemonade continues to promise “killer prices” on a monthly subscription basis.

A recent report by Matteo Carbone and Adrian Jones showed that US insurtech startups continued to show rapid premium growth in the second quarter of 2018 but noted that they have yet to generate a sustainable loss ratio under 100 percent.

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