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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
by richardwhiuk 6y ago
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.
- gen220 6y agoInsurance 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 insurance tech, but not for Lemonade or anyone affiliated with them.
- bsamuels 6y agohow do you tell the difference between investing in growth and poor underwriting discipline in such a young company?
- gen220 6y agoIt's a good and fair question, and it's one you can answer by looking at their loss ratio trajectory. You expect to see it really high in the beginning (while they're learning how underwriting works), and to logarithmically decline over time, tending to plateau somewhere reasonable. That's what their loss ratio trajectory looks like, so far.
- deleted 6y ago[deleted]
- derision 6y agoIf you're considering organic growth of a component of network effect, they definitely do have that. I used Lemonade and had a great experience, including a claim, and recommended it to a dozen of my friends who signed up as well
- fouric 6y agoI don't think this counts as "network effect" - I believe that that term applies to situations where the value of the service increases with the (square of?) the number of users. Here, you don't get better insurance as people sign up (at least not directly because people are signing up). I think this is just normal word-of-mouth marketing.
- deleted 6y ago[deleted]
- jfno67 6y agoI think you can say that all insurance have at least partial network effect built in. Quality of underwriting comes from a diverse and large risk portfolio, which leads to profits and pricing accuracy.