I've seen a lot of people talk a lot about $LMND, and how it's going to disrupt the insurance industry and produce outsized returns. I'm not as confident, and so, at the risk of looking foolish as time goes on, I'd like to share some of my thoughts.

1) Lemonade first and foremost, is an insurance company. An insurance company needs to have cash on hand to pay out claims when they happen. This is a company that is burning cash and losing money each year. The net loss premium for this company was ~70% in their latest 10-Q. I just don't see how the financials add up for this company long-term.

2) Lemonade isn't the differentiator everyone thinks it is, as far as I can tell. I see two main issues: First, claims adjustments, and second, corporate insurance. A claims adjuster is an INCREDIBLY difficult and in-depth job. You can't just take a picture of a burnt house and expect to get paid in 5 seconds. Furthermore, if my house burnt down, I'd probably want to deal with an actual person to make absolutely sure everything was documented 100% correctly, rather than hope the claim I submitted on my phone was sufficient.

It's the same story with corporate insurance. When you're dealing with running a company, you need to make sure that the insurance is truly customized to your needs. It's not as simple as taking 10 minutes to answer some questions and poof. Lemonade is good at claims because of the type of insurance it offers, and I believe that's intentional. It's a lot easier to pay on a renters insurance claim than it is on, say, a COVID-19 claim.

If the argument is that AI just makes Lemonade cheaper, and not necessarily faster for more complex claims I would argue that human adjusters are still needed currently. In the future, maybe not! I think it's a mistake to just assume, however, that no other legacy or new companies will innovate by that time and create something better than what Lemonade offers currently. At that point, it's not like people are gonna have strong brand loyalty to their insurance company. They'll choose whatever provider meets their needs and has the lowest rate.

3) Legacy insurance companies aren't dumb. They've been around forever and have tons of data on people, locations, etc, that all can be used to make better decisions. I don't see how Lemonade could have close to the amount of data. Sure, they're definitely constantly collecting customer data, but there's only so much you can gather from smartphone usage habits. Lemonade's AI isn't physically inspecting properties or locations to create better risk models the way traditional insurers are, so even if it could create a better model, I don't understand how the data inputs are of a high enough quality to actually be beneficial.

4) Lastly, I see a risk with how much of their business model relies on reinsurance. What happens if Lemonade has to pay out on a lot of claims and the reinsurers can't make money? They'll raise the fees or stop doing business with Lemonade all together, either of which throws a wrench, in my view, into the low-cost business model.

I'm sure I'm missing something, so I'd love to hear if I've screwed something up in my understanding. I also am not a complete hater of Lemonade. I think they've done some amazing things, and I think they'll likely continue to grow in the areas they've found success in. I just see them having trouble continually expanding which causes me to struggle with the current valuation. There are definitely reasons to be incredibly excited about what Lemonade brings to the table, some of which, I probably haven't thought about, but this idea of just explosive growth doesn't make a whole lot of sense to me.