Here’s why I plan to own lemonade stock for years

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Iinsurance technology company Lemonade (NYSE: LMND) has put investors on a roller coaster ride, but what about the long term? In this fool live Video clip, recorded on September 20, Fool.com contributors Matt Frankel, CFP and Jason Hall explain why they plan to hold shares of Lemonade in their portfolios for years to come.

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Matt Frankel: This is Lemonade, a stock that I bought shortly after its IPO and which took investors on a roller coaster ride. Is not it ? Didn’t he jump to almost $ 200 a share at one point?

Jason Hall: Funny you said that because I was very reluctant to think of Lemonade as a $ 10 billion company, but as a $ 4 billion company and also six months in which I ‘learned a lot more about their platform and their perception of risk, it’s really interesting to me. Go ahead.

Frankel: Lemonade, it ranked number three (out of eight fintech stocks) in our ranking. It was my number four, your number two. I have been a shareholder for a while. I love the long term potential of Lemonade, I think insurance is just an industry begging to be disrupted. The insurance process is very clunky at best, especially in some of the areas where Lemonade is just starting to take hold. I am not a lemonade customer. The only thing. Say it. What do you use them for?

Room: It’s interesting. This actually, it’s funny because it’s part of the discovery process for me that got me to have the zeal for new converts here. Not being sure about the business six months ago until now, being such a big fan, we are moving in the right direction. We sold our house, and about a month ago we don’t own, so we have to insure our assets. Just decided to get a quick tenant insurance policy.

It was so easy. It was quick and it worked really well, and there is more choice because they now offer homeowners insurance and a number of markets. I decided to ask them to quote a home insurance policy for our new home, and they refused me. They said no. Of course, first I was pissed off, I was like “Come on, what are you doing?” But the fact that they turned me down means that they are in fact considering risks. They actually study the underwriting and think about the underwriting, whether they do it or whether their reinsurance partners are guiding them.

That has been my biggest concern with this company, is the quality of their underwriting, and the fact that they say no to some customers that other major insurers offer competitive rates to was reassuring to me. I think that answered that question. But Matt, you were talking about the disruption and I think it’s easy for people not to really understand how Lemonade is disrupting the insurance company.

They talk about their AI and quick quotes and quick claim payouts and everything in between, which is good. But what drives it are the financial incentives between the different stakeholders. Take a cut right away and it will work, but that’s what they’re doing right now. I think they take 15%, maybe a little more, I can’t remember the exact number. But they take a percentage of the premiums, right away, like, “It’s our money. All that’s left is for claims insurance and we’ll use it to buy reinsurance. This is what they are doing with this extra money.

They made their money from the start. When you file a claim, it’s not like other insurers who have this massive float. The incentive for them is to delay payment of claims as much as possible so that they can make some return. This is a really positive thing from the start as an insured. Knowing that if I file a claim, I am less likely to have to dance the dance of corporate insurance companies.

Frankel: Yes of course. It’s a big part. It’s 25% that they take off from the top.

Room: Twenty-five, okay.

Frankel: 75%, they usually buy reinsurance with the biggest part, really to limit their risk if there is anything left on that 75%, they donate it.

Room: Yeah, and that’s what’s cool. Because their members choose a charity. This is the other part of the financial incentive. I’m less likely to lie about a claim because I’m stealing money from my charity that I love.

Frankel: Yes. We know Jason is a great guy, he wouldn’t lie about a claim anyway.

Room: So honest. It was a $ 4000 laptop, I promise.

Frankel: But that said, I like some things about their strategy here. Jason can probably tell you that first hand rental insurance is cheap. It is a very inexpensive form of insurance.

Room: Yes.

Frankel: This is how Lemonade built its customer base to a million in one-fifth of the time it took State Farm to do so. But these are very young false tenants. These are customers who could be in their ecosystem for 50 years.

Jason Hall owns shares of Lemonade, Inc. Matthew Frankel, CFP holds shares of Lemonade, Inc. Motley Fool owns and recommends Lemonade, Inc. Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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