Insurance coverage is a $3 trillion market that touches almost each family, car, and enterprise. It is one of many largest industries on Earth, but additionally one of many hardest to disrupt. Regulated to the tooth and hardened by a long time of threat aversion, it hasn’t precisely welcomed start-ups with open arms.
Enter Lemonade (LMND 7.19%), the bogus intelligence (AI)-native insurer. Since its launch, the corporate has aimed to reshape the insurance coverage mannequin by changing brokers with AI. Bots handle onboarding, deal with claims, and even assist worth insurance policies. It is a mannequin that has attracted consideration, however has struggled to ship constant profitability.
That wrestle has been mirrored within the inventory worth. Since peaking in early 2021, Lemonade’s shares have fallen roughly 82%, as buyers grew weary of its persistent losses, excessive buyer acquisition prices, and the broader market’s shift away from unprofitable progress shares amid rising rates of interest.
Nonetheless, current developments counsel a possible turnaround. The newest quarter introduced stronger progress, tighter execution, and Lemonade’s first brush with optimistic free money move. With shares down about 20% since January, may Lemonade be setting itself up for a comeback?
Let’s take a peek.
Picture supply: Getty Photographs.
Reinventing insurance coverage with AI
To determine whether or not Lemonade’s inventory is mispriced, you first should know what you are shopping for.
Lemonade is not a legacy insurer dabbling in tech. Quite, it was constructed with a radical concept: that software program can deal with the core capabilities of insurance coverage (pricing, underwriting, and claims) extra effectively than folks. Since 2015, it has been testing that thesis at scale.
Bots like “Maya” and “Jim” deal with buyer interplay. (Enjoyable reality: Jim paid a declare in three seconds, which Lemonade claims is a world file.) However the actual story occurs behind the scenes. Lemonade makes use of machine studying to cost threat and predict buyer worth. That knowledge helps the corporate spend its advertising funds the place it is almost certainly to repay, which might decrease acquisition prices and generate stronger margins over time.
The corporate presents renters, householders, pet, time period life, and automotive insurance coverage. Of the bunch, automotive insurance coverage often is the largest alternative. It is a $365 billion market, and Lemonade’s footprint to this point is modest, however rising. After launching in Colorado this quarter, its auto product now reaches states representing about 40% of the U.S. market. That is 60% of untouched market that Lemonade hasn’t tapped — a large runway if the corporate continues to scale its auto providing.
For all the thrill round its AI, nonetheless, the actual take a look at has at all times been the underside line.
From burning money to breaking even
In Q1 2025, Lemonade crossed a milestone, topping $1 billion in in-force premium (IFP) for the primary time. That determine, which displays the annualized worth of all lively insurance policies, has now grown for six straight quarters.
Extra shocking, Lemonade stored its gross loss ratio regular at 73%, even with wildfire claims weighing on outcomes. This loss ratio, which signifies the proportion of premiums paid out in claims, sits inside the firm’s goal vary of 75%, however it’s nonetheless larger than business leaders like GEICO, which reported 69% in the identical quarter. For a smaller participant nonetheless increasing into higher-risk merchandise like auto, nonetheless, holding the road on losses in a tricky quarter is a step in the precise path.
The highest line appears good too. Income elevated 27% yr over yr, reaching $151.2 million. And whereas the corporate is not worthwhile but, it expects to hit breakeven on adjusted earnings earlier than curiosity, taxes, depreciation, and amortization (EBITDA) by 2026, that means its core operations would not run at a loss.
It is progress. Nonetheless, it would not assure easy crusing.
A protracted-term plan with short-term doubts
Let’s begin with tariffs.
Lemonade has flagged {that a} proposed 25% U.S. tariff on automotive components may nudge its auto insurance coverage loss ratios larger by single-digit proportion factors. Auto restore prices are already bloated, and Lemonade’s telematics-driven pricing solely works if the claims aspect stays predictable. Tariffs would throw a wrench within the mannequin, actually and figuratively.
Then there’s buyer retention. Annual greenback retention dropped to 84% in Q1, down from 88% final yr. The drop wasn’t unintended. Lemonade scaled again publicity to sure markets, almost certainly these in catastrophe-prone areas. It is a disciplined transfer, however it may additionally imply slower progress in a key product line.
Lemonade can be taking part in catch-up to legacy insurers like GEICO and Progressive, which have each grown earnings on the again of scale, pricing energy, advertising effectivity, and underwriting maturity. These corporations have a long time of pricing knowledge, hundreds of thousands of policyholders, and model attain that stretches all the way in which to the Tremendous Bowl. Lemonade could also be getting higher, however it’s nonetheless removed from matching the size of its bigger friends.
That is why Lemonade nonetheless trades extra on potential than efficiency. Till it proves it could possibly compete on margins, buyers are prone to stay cautious. When you’d quite not wait round to see if software program can out-underwrite a long time of actuarial custom, Lemonade might not be the precise funding for you. If, alternatively, you imagine Lemonade’s AI-native mannequin will revolutionize the insurance coverage business over time, in the present day’s worth may very well be a compelling entry level.
