After telling my story on why I support Lemonade, I felt like I just talked about how I liked their ideas, but left out a lot of details on how I think they could continue to grow.
- Subscriber Growth
There are still a lot of people who are not aware of Lemonade right now. I’ve made a couple of recommendations to my friends who were first buying their homes, and when I asked if they’ve considered Lemonade, it wasn’t even on their list of insurance companies. I believe Lemonade will get a lot of word of mouth growth due to the great experience everyone has, and the huge amount of savings people get by transferring, just like I had. And, now that they are a publicly listed company, the amount of trust that the customers have in the company will probably significantly increase. As the company grows, the amount of budget that the company can spend on marketing will also increase too, which will help exponentially grow subscribers.
Considering the fact that every single house has some sort of insurance, and also thinking of the size of the total potential market, there is substantial amount of growth opportunities to come just through subscriber growth.
- Revenue per Subscriber
Lemonade stated that 70% of their customers are under the age of 35. Capturing the next generation is the most important mission for most of the insurance companies, and starting from Renters Insurance makes a lot sense. First time home buyers should be a big target too. They say that an average person will acquire 3 homes during their lives. Although many will start with beginner homes, as they mature in their careers, the house they will live in will potentially become bigger and bigger. Customers of Lemonade who started three years ago are already spending 56% more than when they first joined. Obviously as these renters insurance change into home insurance, the payment amount per subscriber could 10x easily. There is a huge amount of upside to growth as time passes, and I hope Lemonade does their best to maintain the retention. The transformation from physical to digital factor with the help of AI means it won’t need huge overhead of face-to-face relation to keep the customers happy. And with technology, it will be much more easier to provide personalized services and pinpoint potential risk customers too.
- Product Growth
Another way to increase growth is by providing new insurance products like Pet Health Insurance, Life Insurance or Auto Insurance. Just like all the existing insurance companies bundle packages together, same could be done here by bundling these products together and increasing the retention and revenue of the subscriber. While they may be slightly different competition, the fundamental approach to delight the customers with technology at a competitive price would always work, even with new products. I would be happy to see more products introduced that I could subscribe to.
- International Growth
If well done, this could set apart Lemonade way further than any other insurance company. This is where the beauty of digital really kicks in too. Insurance has always been know to be old school and a face-to-face business in many countries around the world. Just like Spotify has disrupted music distribution on a global scale, and just like Netflix is putting local cable companies internationally to their knees, there is no reason why insurance can’t do that, if they have the right formula locked down, although there may be significant amount of regulatory hurdles to jump through in the beginning. Eventually digital transformation of insurance could really mean potential global transformation of insurance.
Right now, the company doesn’t even operate in all of the states in the United States. And Lemonade doesn’t even need to be physically present in all the states, unlike their competitors. Since the majority of their ads are digital, acquisition in more states or even internationally is not the problem, as they would just need to check another box when acquiring. As they knock down the regulations one by one, there will be huge amount of potential upside just by expanding geographically.
There are tons of insurance companies that I’ve never heard of, that are worth many multiples more than Lemonade. And yet Lemonade is the first of its kind, and has a very different approach that could stand out very easily. Doing insurance the new way can bring great amount of growth to the company.
Also check out Why I’m Supporting Lemonade — Disrupting Insurance