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Lemonade’s deal with Metromile, a matter of speed and efficiency: Schreiber

Lemonade logo New York new.jpg

In a letter explaining the reasons to acquire InsurTech Metromile, Lemonade CEO and co-founder Daniel Schreiber has said the personal lines insurer is looking to speed up its immersion in the auto insurance business.

Days before the deal was announced, the New York-based InsurTech had launched Lemonade Car, its personal car insurance product.

But with Metromile’s acquisition, Lemonade is expecting to reach efficiencies faster than if it were running solo.

“That’s where Metromile comes in. They have been down this road already, and their proprietary data and machine learning algorithms can transform Lemonade Car by collapsing time, flattening risk, and increasing efficiency,” Schreiber wrote in a blog post.

By “collapsing time” Lemonade means that it is planning to build from Metromile’s decade-long experience in the auto sector combined with Lemonade’s tech stack.

Lemonade estimates that through a better risk selection process, the deal will allow the company to reach an improved pricing as so far customers have reported 47% in savings by selecting Metromile.

Lemonade has also highlighted the “flattering risk” benefits of acquiring Metromile, as the auto insurance business is a very competitive market with a steep and costly learning curve.

“The most vulnerable time in the life of an insurance product is during its early years, before data accumulate,” Schreiber said, adding that “being able to minimize or bypass that stage entirely makes for a smoother ride to the top.”

Getting Metromile’s expertise will also prove useful as during a volatile period as driving patterns changed dramatically due to the Covid-19 pandemic, while premiums remained flat.

Schreiber said that in California, Metromile’s largest market, regulators calculated that auto insurers owe their customers a 17% refund for this mismatch, but Metromile’s system, in real time, had automatically charged its customers 16.2% less during 2020.

After describing Metromile’s pricing flexibility, the executive went on to quote Warren Buffett saying that “only when the tide goes out do you discover who’s been swimming naked.”

Finally, Schreiber noted increasing efficiencies from the transaction by saying that the combined entity can perform better with fewer resources than the two companies would on a standalone basis.

“Our modeling suggests that within 18 months of closing the deal, we will reap the fruits in the form of a larger, more efficient, more differentiated, and less risky Lemonade Car business,” the executive concluded.

After announcing the deal, Lemonade’s shares plunged over 13% to $61.6as markets opened, while Metromile’s stock went up 2% to $3.2.

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