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The chief executive of Lemonade has criticised “naysayers” that predicted the lossmaking insurance start-up would go out of business after it reported a small rise in its cash and investments in the second half of 2023.
Lemonade, whose shares have fallen more than 70 per cent since its first day of trading in New York in 2020, provides a range of insurance including for homes, pets and cars to customers in the US and Europe.
Its shares dropped again this week after it posted its fourth annual loss since its initial public offering and said it would have to increase spending on advertising to achieve its growth targets.
But co-founder and chief executive Daniel Schreiber told the Financial Times that the results, which included a small increase in its cash and investments, from $942mn at the end of the first half to $945mn by the end of the year, provided a riposte to “naysayers” who said the company was “going to burn through [its cash] and go out of business”.
“We are not burning through it, our cash levels are going up, so I think a lot of the questions about survivability . . . ought to have been put to bed,” he added. The company expected net cash flow to turn “consistently positive” in the first half of next year.
Schreiber said the fourth quarter, when operating expenses fell 5 per cent year on year while premiums rose by a fifth, was starting to show the benefits of a business model that relied on automated processes that could settle insurance claims automatically in seconds.
Its use of generative artificial intelligence was also growing, he said: about a fifth of all emails that come into the group — a trickier area to automate than in-app communications — are responded to by generative AI. “We don’t see an upper limit to that,” he said, adding that generative AI was able to provide responses that were “entirely empathetic and precisely worded”.
In the results, Lemonade said it would double its “growth budget” this year compared with the $55mn spent in 2023, including spending on advertising and other ways of attracting customers.
It said it deliberately slowed customer acquisition last year in response to a sector-wide surge in claims costs, but as premiums had risen, it was aiming to rebuild momentum. “For our business, that requires an upfront investment,” Schreiber said. Lemonade relies on advertising for growth because it sells cover directly to customers rather than through insurance brokers.
High spending on customer acquisition has been a concern for investors in Lemonade and other insurance start-ups.
“Not everybody loves this perhaps, but that [extra spending] dampens near-term profitability. It boosts long-term profitability,” said Schreiber. He added that Lemonade remained subscale and needed to grow for its digital operating model to demonstrate its full value.
“Growth and rapid growth doesn’t live in tension [with] getting to profitability, it is the path to profit,” he said. The business aims to generate positive adjusted earnings before interest, tax, depreciation and amortisation during 2026.
