Lemonade’s Post

Transcript

Any shares of Lemonade rebounding from their low of the year, closing the day up almost 4%. Shares of the low-cost insurer known for its use of generative AI to measure risk still down 17% over the past month, but its CEO is optimistic, particularly when it comes to AI's benefits. Daniel Schreiber is the Lemonade CEO. Daniel, welcome to FAST MONEY. Welcome here to the NASDAQ. Good to have you with us. How do you measure the impact Gen. AI is having on your business? I mean, can you say the metric was here six months ago versus here today? Absolutely. Insurances are stunningly big business, 11% of GDP. It's pretty nuts. And all of it at its core is about monetizing probability theory. It's really all about using data, ingesting it, making predictions. Will this person have a theft? Will this one have a car crash? So it's really the foundations of our industry and businesses within our sector that are not built on AI or missing out on one of the most forceful technologies around for for us, it affects everything that we do. The whole company was built upon it. So it starts with managing. Risk. Every consumer who comes in has about 50 different machine learning models analyzing and making predictions about will they buy, will they churn, will they cross sell, will they claim. We create a very rich lifetime value picture in real time and that drives all of our marketing spend. About 90% of our marketing spend is driven by optimising to those machine learning probability theory driven kind of predictions. And then once you're on board, the consumer experience is entirely a I 98% of our policies are sold without any human intervention. 98% of our claims the first notice of loss has taken without any human intervention and 50% of the time the claim is paid without any humans. About a third of all inquiries, whether via e-mail, SMS or through the app are answered through generative AI. So this transforms everything from the risk management piece to the cost to serve piece to the user experience. Do your premiums or what you charge customers for various policies change according to what the machine predicts about that consumers behavior in the future for instance? You mentioned cross sell, if, if the machine finds that the consumer is likely to buy another policy, maybe a pet policy or another property insurance, will you reduce the initial premium to capture that stream of revenue in places where we are allowed to do that from a regulatory, regulatory point of view, yes. And in Europe for example, we operate in Germany and France and Holland and the UK they're they're much more allowing of that kind of dynamic pricing. In the US much less so. But we can guide where we spend the incremental dollar to where we think we'll get the best. Bang for the buck and that does use those machine learning predictions reported the first quarter. This is my big take away. Cash flow profitability projects would be net cash flow positive by the end of this year, which I thought was a huge deal, but for you know, the stock doesn't seem to be reacting to it. Is it as big a deal as I think? I think so. We IPO some four years ago with 5X our business since then, 15X our gross profit since then. This is a business that's really driving on every metric gross profit. Top line, bottom line, profitability, cash flow, it's all green lights everywhere. The stock market will notice that sooner or later. The mega stocks sucking a lot of the oxygen out of the air. But the fundamentals of the business, 15 quarters in, we have beat and raised 15 times. I think we're on the right track. And you're back to the dynamic around AI and, and I guess you know what we hear. It sounds like not only is it critical, but it's really been a game changer. When did you know suddenly companies, you know, we hear about AI, we see the performance of NVIDIA, but it's not as if you just flip the switch. Last year either. So I'm curious of that, but bring that more to strategic thinking in terms of the growth of your company and where where you are disrupting and where there actually might be people out there that you know you're not gonna ever talk about M&A. But you can talk about the concept of where you think actually the bigger players in the insurance space are not as nimble as you and might be very interested in what you do. I think they are and we've been acquiring rather than selling and we hope to continue that. We're going to be approaching a billion dollars of premium this year. We could 10X our business and we plan to, and then we could 10X it again and we still wouldn't be the largest insurance company around. So this is really unlimited upside in terms of growth. There's so much that we can do and we're competing with companies that we respect for their legacy and all that they have done. But in terms of technology, they, the incumbents are encumbered. Ajain from Berkshire Hathaway spoke at the AGM and he said that GEICO. It was 600 different systems that don't talk to each other. When you have that kind of legacy behind you, you are really going to struggle to take advantage of everything that we just spoke about. The number one cause of loss for most insurance companies in America and their database is other garbage in, garbage out. You can't close the loop. You can't do the kind of stuff that I just spoke about. So I think these are structural advantages that will manifest more and more as time goes on. We are already leading the pack in terms of our cost per claim. What's known as Ellie loss adjustment expense went 7%. Most companies are in the double digits and that such a tiny scale to already be best of the pack. Once we Tenex our business and our cost structure hardly moves. We doubled our business in the last two years without moving our OpEx at all. Play that movie forward and you get a good sense of where we're going. To Tim's point though, you know, wondering if you feel like you've not been given enough credit in this sort of AI frenzy for being an AI company, one that was actually formed around AI. Your systems are based on a. Everything about you is AI. It's in your DNA. And yet. I, I don't know, maybe, you know, do you feel like you deserve a little bit more of the AI Pixie dust that that is being accorded to some of the other players? I definitely think that we're trading at a price that doesn't make a ton of sense. So this was a wonderful buying opportunity for those who are looking. There's been AI is not simply about Pixie dust for us, as they say. For us, it's a structural, fundamental thing. As you quite rightly say, from day one, it's been part of our taglines. This is not a Jimmy come lately, Johnny come lately, kind of. We discovered a I. This is the foundation, the substrate upon which we built our business.