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Lemonade files S1

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Re: Lemonade files S1

#71

Post by hogFeast »

hardikgupta wrote: post #61
xfour wrote: post #12

In parallel to this growth of topline and increasing efficiencies, our gross loss ratio declined steadily from 161% in 2017, to 113% in 2018, to 79% in 2019 and to 72% for the three months ended March 31, 2020. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Operating and Financial Metrics." Seems like a struggle to get to profitability. With the ratio of closing the g…

Loss ratio is a specific measure in the insurance industry. You don't need to get to 0% loss ratio for the company to be profitable and ~70% loss ratio isn't bad for a relatively new company. Typical P&C insurance companies have loss ratios ~ 50%.

The relevant metric here is:

Do you gain more in expense reduction than you lose in loss increases?

By itself, the loss ratio tells you nothing because the pitch here is really that they can reduce expenses, not that they can reduce losses.

And I think the way they present this is slightly misleading. They only handle 1/3 of claims by computer in their entirety. The innovation is really on the front-end. And whilst this is probably a big part of costs, it isn't exactly huge. In addition, this is something that is fairly easy to replicate.

The specific claim made is: we have a "flywheel" (as ever, every company has one of these in 2020) whereby we use data to reduce costs and losses. This seems, from what I can see, false.

Re: Lemonade files S1

#72

Post by hogFeast »

afwaller wrote: post #3

You only make insurance cheaper by charging risky people more. Right now it is mostly laws that protect categories of people that keep insurance companies from charging people more. What’s the plan here, use machine learning in a “hands off” way with a black box algorithm to apply pricing discrimination in a way that a human could not because of regulation?

You don't. The point is to charge based on risk. There is no sense in which you can transfer gains from one set of customers to somewhere else. The profitability of any group of customers depends only on the price you charge them.

And btw, lots of insurers specialise in pricing high-risk customers. If another insurer comes in and tries to subsidise low-risk customers using high-risk customers, then a specialist insurer just comes in and undercuts them profitably.

Even a low-risk customer becomes a bad risk at the wrong price. It is all about the price.

Re: Lemonade files S1

#73

Post by jordache »

opex is significant in the insurance industry's profit margins. If you can sustainably conduct underwriting or any of the back-office flow w/o humans, you are at an advantage in terms of operational cost.

Quite often in the insurance industry a cost margin in the low single digits is considered good.

Re: Lemonade files S1

#74

Post by bsamuels »

gen220 wrote: post #26
richardwhiuk wrote: post #7

It's difficult to see why this is a good investment. They've made a net loss for every year in operation - although granted that loss is shrinking. This isn't a tech business - it's an insurance business that uses some tech. There's no network effect, and they are operating in a price sensitive market.

Insurance is a very different business model from tech business models. Losses that are single-digit percentages of revenue are not bad, especially for a company that's investing in growth. Shrinking loss while growing actually shows that they have very good traction. Price sensitivity can be a good thing for a competitor, and tech actually does help their business (see my cousin comments in this thread). I work in i…

how do you tell the difference between investing in growth and poor underwriting discipline in such a young company?

Re: Lemonade files S1

#75

Post by petra »

deeg wrote: post #41
afwaller wrote: post #3

You only make insurance cheaper by charging risky people more. Right now it is mostly laws that protect categories of people that keep insurance companies from charging people more. What’s the plan here, use machine learning in a “hands off” way with a black box algorithm to apply pricing discrimination in a way that a human could not because of regulation?

I'm tangentially involved in the insurance space and I believe Lemonade is trying to use machine learning to process claims because: - Processing claims with humans is expensive; every step that can be accomplished by a computer will probably be cheaper. - A claim processed via ML will probably be handled fast. A fast response = happy customer, which helps with retention. This is a big one. - A claim that is processe…

So from your insider vantage point, how will the insurance job market look in 5-10 years ? What jobs, if any, would be left ?

Re: Lemonade files S1

#76

Post by harryh »

xfour wrote: post #12

In parallel to this growth of topline and increasing efficiencies, our gross loss ratio declined steadily from 161% in 2017, to 113% in 2018, to 79% in 2019 and to 72% for the three months ended March 31, 2020. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Operating and Financial Metrics." Seems like a struggle to get to profitability. With the ratio of closing the g…

It sounds like you don't know what "loss ratio" means in the context of an insurance company. Loss ratio is the % of premiums collected that are paid back out in claims. If the number is below 100%, then your core insurance business is profitable

Of course, this doesn't mean your company is. Insurance companies have many expenses beyond paid claims. But loss ratio should never get to 0% and, by definition, can't be negative. 72% is pretty good for a relatively new insurance business.

Re: Lemonade files S1

#77

Post by bcrosby95 »

joshgachnang wrote: post #46
KingMachiavelli wrote: post #4

In my case Lemonade was by far the cheapest option for renters insurance - even cheaper than bundeling with my auto insurance. Glad to see the company is doing well. I suppose it's greatest risk is incumbents offering more aggressive bundle pricing. So It'd be interesting to see if Lemonade could expand into the auto insurance sphere. Actually from the S1: > in February 2020, we announced our intention to launch pet…

They were cheaper for me until I realized they don't cover earthquakes, and then they became much more expensive than bundling with USAA sadly. I'd definitely be interested in them for most types of insurances though. They're super easy to use and importantly, super easy to cancel.

I don't know how it is for renters, but you can't find a standard homeowners insurance that will cover earthquakes, at least not in California. This occurred after the damages and insurance claims from the Northridge earthquake.

You have to buy earthquake insurance through a state program that the insurance company may offer - but it isn't really from the company, its from the state. In general, they are extremely high deductible programs and only for catastrophic loss - e.g. deductibles that are 25% of the structure.

Re: Lemonade files S1

#78

Post by strogonoff »

say_it_as_it_is wrote: post #44

"In our model, we minimize any incentive to deny legitimate claims as we aim to give back, rather than pocket, leftover monies. After our customers purchase a policy, we ask them to designate a charitable cause for us to support with the residual premiums from their policy. Despite there being no contractual obligation requiring us to donate leftover premiums to nonprofits, when a customer embellishes a claim, such c…

It seems that Lemonade advertises charity as a psychological trick to make customers willing to claim less money on their insurance, but is unlikely to have processes in place that make donations actually work this way.

If Lemonade were serious about charity, wouldn’t they make themselves contractually obligated to donate excesses?

Re: Lemonade files S1

#79

Post by londons_explore »

hardikgupta wrote: post #61
xfour wrote: post #12

In parallel to this growth of topline and increasing efficiencies, our gross loss ratio declined steadily from 161% in 2017, to 113% in 2018, to 79% in 2019 and to 72% for the three months ended March 31, 2020. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Operating and Financial Metrics." Seems like a struggle to get to profitability. With the ratio of closing the g…

Loss ratio is a specific measure in the insurance industry. You don't need to get to 0% loss ratio for the company to be profitable and ~70% loss ratio isn't bad for a relatively new company. Typical P&C insurance companies have loss ratios ~ 50%.

Whoa - if typical loss ratios are around 50%, surely there is a big opportunity for someone else to swoop in with cheaper insurance products?

Re: Lemonade files S1

#80

Post by 1123581321 »

pionar wrote: post #63
deeg wrote: post #41

Earlier quoted context omitted.

I'm tangentially involved in the insurance space and I believe Lemonade is trying to use machine learning to process claims because: - Processing claims with humans is expensive; every step that can be accomplished by a computer will probably be cheaper. - A claim processed via ML will probably be handled fast. A fast response = happy customer, which helps with retention. This is a big one. - A claim that is processe…

I'm not sure what's in it for me as a consumer. I did a quote with them a couple weeks ago, and even with all the "discounts", it came in at almost double the premium with worse coverage.

It’s unlikely the estimate varied much from what other insurers would offer you, assuming you were comparing the same building materials and coverage. If Lemonade were so expensive, their loss ratio from the S-1 would be much better and they’d have fewer customers.

(Anecdotally, they are offering me about 95% of what I pay Geico for similar coverage, and without the auto insurance discount.)

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