Esurance Founder Gives Insights on Viability of Lemonade

Implications for Independent Agents

Some insuretechs are turning to distributing their products through Independent Agents.  Hippo and other smaller insurance start-ups realize the value of independent agents and find the agency channel a low cost (relative to direct marketing) way to generate new business.  Lemonade is less likely to pursue independent agent relationships given its predominant focus on renters insurance, and its strategy of focusing on the Millennial and Generation Z markets.  Furthermore, the absence of a HO-5 product combined with the lack of an AM Best Rating make Lemonade a less than appealing market to independent agents, particularly those targeting affluent small business owners.

Some numbers:

Lemonade has raised ($500M with venture capital and $300M through its IPO)

$3.5B market cap as of 08/18/2020

Ann. EPS Est. -4.24 FY 2020

So the question is, can Lemonade’s tech provide a better customer experience? The tech industry is notoriously bad with customer support. When was the last time you called Google/Facebook/Instagram/Twitter for an account that had been terminated? Good luck! To get an answer you must know personally a senior engineer at one of those companies. 

Maybe your customer experience was better at Comcast/ATT or T Mobile?

On the other hand when you call a broker or directly an insurance company (I personally love the service at Progressive) for an accounting or a claims issue, you get an immediate, personalized answer. Most often the problem is solved on the spot or a claims adjuster is dispatched.

So, is Lemonade a tech company or an insurance company? Let’s look at some numbers again:

Lemonade has a $241,219 Revenue/Employee and generate a negative Income Per Employee of -$388,889Compare that to real tech companies with the following Revenue/Employee:

Netflix: $2.3M/employee

Apple: $1.9M/employee

Facebook: $1.6M/employee

Google/Alphabet: $1.4M/employee

Lemonade is an insurance company trying to get the valuation of a tech company. Unfortunately the numbers do not look as good. Let’s wait few quarters before reaching any conclusions.