Here’s why 1 million people chose lemonade insurance

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Insurance disruptor Lemonade (NYSE: LMND) recently announced that it has completed 2020 with over a million active customers. This is an impressive milestone, especially since Lemonade has made it in just over four years of operation. It took more than two decades for most insurance heavyweights to cross the seven-figure threshold. In this fool live Video clip, recorded on February 8, Fool.com contributor Matt Frankel, CFP, and Focus on industry Host Jason Moser explains why so many people have chosen Lemonade for their insurance needs.

Matt Frankel: Right now, so you’re in your house, God forbid, if your house was flooded and you had to file an insurance claim, would you easily know what to do?

Jason Moser: I mean, yeah, I could go straight to Progressive.com (NYSE: PGR) and log into my account, then click on the file a claim button. I know this is where I would start, but I would actually have to go through the documents and analyze this language to understand exactly what is covered, what we are hooked for.

Frankel: Law.

Moser: Even then, it is not easy to fully understand.

Frankel: One thing I read, and it was a Tweet, so it’s like hearsay. But, a customer who has pet insurance through Lemonade filed a claim and guess how long it took for the claim to be processed and paid.

Moser: By lemonade?

Frankel: Yes.

Moser: I hope 24 hours.

Frankel: Six seconds. [laughs] This means that this client knew exactly what was covered, exactly what they needed, knew exactly what documents they needed to produce. It’s just a really transparent process. One interesting thing about Lemonade’s business model is that they take all reasons to deny claims out of the equation.

Moser: Yes.

Frankel: With most insurance companies, it is not in their best interest to pay claims. If you file a claim for $ 50,000 with your home insurance, that $ 50,000 will come out of your insurer’s pocket.

Moser: That’s right.

Frankel: With Lemonade, they virtually eliminate all risk with reinsurance policies, so there is no reason to deny claims. It is not in their best interests to do so. They take 75% of the premiums they collect, they buy reinsurance policies that will cover all claims, and the remaining 25% is their operating expenses and hopefully a profit. It’s a really very consumer-friendly business model. Not all that is left of that 75% goes to Lemonade, which is first donated to charity, which really attracts young investors. It is in no way in Lemonade’s best interest to refuse legitimate complaints or to drag out the complaints process. Because remember, insurance companies make money the more money they keep in their investments.

Moser: Yes.

Frankel: It is in Lemonade’s best interests to distribute the money to its customers as quickly as possible.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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