Lemonade is getting closer to breaking even. Tim Bixby, Chief Financial Officer at the disruptive insurance company since 2017, joined OPTO Sessions to discuss its strategy for becoming a mass-market product and broadening its consumer base, with the aim of becoming the Spotify or Amazon of insurance.
Breakeven is Just a Step on the Way
Things could be about to get fizzy for Lemonade [LMND]. A leading disruptive insurance company with 2 million active customers as of November 2023, it looks set to break even for the first time. “Fortunately, I think we’re well past the point where there’s a real question mark around our viability,” Chief Financial Officer Tim Bixby tells OPTO Sessions. “We’re not yet at the point where we’re burning no cash, but we’re getting awfully close. We indicated that we’d expect net use of cash to get to zero sometime in the first half of 2025, and then head positive.” However, Bixby stresses: “Breakeven is just a step on the way to where we ultimately are going, which is a healthy, profitable business with best-in-class loss ratios and expense ratios. We’re always a couple of years ahead of where the business is, and that’s a smart way to think.
“We’re planning for that next phase — which is cash-flow positive and EBITDA breakeven — in the rear-view mirror, versus coming ahead of us.”
Losses Down
In its last set of results for Q4, EBITDA increased 44% year-over-year, with gross profits up 165%. The company ended 2023 with $945m in cash, an increase from $942m at the end of Q2, reflecting its slowdown in cash use.
Loss-rate ratio — the claims and related expenses an insurer pays out relative to premiums — is a primary health indicator for insurance companies. Lemonade’s came in at 77% for Q4, a 12-point improvement over the year-ago quarter. However, Bixby stresses that in Lemonade’s renters’ segment, its most mature segment, the loss-rate ratio was significantly lower than 77%. “Conversely, home and car are somewhat higher because they’re newer, they’re more complex, and they’re more inflation impacted.”
He points out: “Loss ratio is not something that goes to zero by definition; that’s the service you’re providing to your customers.” He adds: “The target we have always talked about is 70%, and we’re edging quite close to that.”
What Will the Company’s Evolution Look Like?
Bixby says he expects “a much broader presence” as customers expand the number and value of policies held.
At the moment, the average Lemonade customer pays around $400 per year, “a pretty low number in the realm of insurance”. Meanwhile, top customers pay up to £20,000 annually.
He believes that with sufficient capital and a breakeven behind it, certain trends will play out across the business In addition to an increase in the number of policies and premium paid per customer, “you’ll see brand awareness grow. We expect to be a well-known global brand in the realm of insurance.”
“If you found the average 27-year-old renter in a big city in the US and ask them about insurance, they’ve probably heard of Lemonade. It’s not yet true of the average consumer across America or across Europe.”
Lemonade is just “scratching the surface”, but the pickings could be $100bn or $500bn markets in the wider insurance realm, says Bixby. Most recently, the company expanded into the UK for contents insurance and now operates in Europe as well as across the US (the company is headquartered in New York).
“We expect to be a well-known global brand in the realm of insurance”
Bixby explains that if there’s a big idea ahead, it’s Lemonade developing a more cohesive understanding of insurance customer needs from a data and behavioural perspective.
“Not only the policies they need to buy and how much they’ll pay… but their beliefs and behaviours, and how that all comes together in understanding their risk profile. The core of insurance is really risk. “If Spotify [SPOT], Amazon [AMZN] and Netflix [NFLX] can understand your behaviour so well through their algorithms, if they can give you stuff that’s really important to you, there’s no reason an insurance company can’t have that same depth of understanding of the value of a customer, the risk profile of a customer, the needs of the customer. That’s what Lemonade is all about.”
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