Why insurance premiums are rising for consumers: Lemonade CEO

Insurance company Lemonade (LMND) reported second quarter results, posting a net loss of $0.81 per share. However, the company saw growth in premiums, rising 8% year over year. Lemonade CEO Daniel Schreiber joins Wealth" to discuss the report.

Schreiber describes the quarter as "spectacular" on "every metric that matters." He highlights their AI initiatives that have led to 22% business growth, reduced operating expenses, and improved efficiency within the company.

Regarding insurance premiums, Schreiber acknowledges they are higher for customers, but emphasizes this isn't "driven by corporate greed." Instead, he attributes the increase to inflation, which was "disproportionately pronounced in the auto space" and home repairs, which impact "the two most crucial insurance products." As a result, when accidents or damages occurred, insurance companies were paying significantly more than usual, leading to rising premiums for consumers.

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This post was written by Angel Smith

Video transcript

Turning now to insurance company lemonade.

Shares of the company are falling today as investors weigh a slightly lower profit than they were expecting.

But a key point that we want to pull out from this report is premiums.

Growth.

Lemonade reporting premiums per customer rose 8% year over a year to $387 here to tell us how that's impacting consumers.

We've got Daniel Schreiber.

Who is the lemonade?

CEO Daniel.

Always a pleasure to grab some time with you.

And thanks for joining us on Yahoo Finance.

Take us into the court Some of the catalysts and the the health of the business right now.

Great to be with you as well.

Brad, thank you for having me on again.

The quarter that we just announced has really been spectacular.

Um, on pretty much every metric that matters.

We're seeing everything.

All the lights are green, things moving ahead pretty dramatically.

So we're seeing the impact you were just talking about.

McDonald's struggling with a I well, at lemonade A. I is doing exactly what it's meant to be doing.

We're seeing tremendous efficiency drives.

Just in the last year, our business grew 22% but a head count contracted by 9% Over the course of the last couple of years, we've seen the efficiency per human double as a result of all these systems.

So every employee that we have is now responsible for twice as much premium as they were just a couple of years ago.

Indeed, we've seen this tremendous growth 50% growth over the last couple of years with a decline in operating expenses, excluding marketing and growth expenses.

So we're seeing the fundamentals of the business, the scale and the advantages of scale that a, I always promised are now very much invisible sites and, uh, really in evidence across our report this quarter.

Where are you seeing the highest jump in premiums?

I know, I know you have a couple of different segments you've got pet, you've got, of course, home ownership, auto as well.

Where where is the biggest jump right now in premiums that you're seeing and why?

So the average premium per customer that you spoke of is an amalgam of yes, People pay more for the same kind of policy.

We did see inflation take a bite out of profitability.

for the entire sector, and now prices are clawing their way back up to a profitable measure.

Indeed, our loss ratio came down by 15 points year on year.

In insurance, that's almost unheard of.

And that's a reflection of getting risk and rate match as they ought to be.

That's translated into us becoming cash flow positive this quarter.

This has translated into us seeing 100 and 55% growth in gross profit.

So those prices coming back in line with where they need to be are having dramatic ripple effects across our financials.

Certainly.

And you know, I. I have friends that perhaps some of them lemonade and some of them, uh, users of different services.

But all of them, when they kind of continue to talk about why they're paying higher premiums, a lot of them might not know just why.

Why are people having to pay higher premiums right now?

It's really driven not by corporate greed or anything like that.

We've actually seen insurance companies suffer, um, unparalleled lo losses, you know, huge, big, well known names.

USA a reporting a couple of quarters ago, the first loss into the founding of the company pretty much 100 years ago, and we saw that across the board.

What happened was that inflation, which was rampant across the United States, was particularly pronounced disproportionately pronounced in the auto space in the cars, buying cars, fixing cars, getting parts for cars and home repairs.

And your two most crucial insurance products are home insurance and car insurance.

And there you saw not 78 9% inflation, but often times 15 to 20 22% inflation, depending on the states.

So suddenly you were sold a policy that assumed a certain cost of repair or replacement.

By the time that cost came due, uh, the insurance company was paying a lot more than they factored when they set that price.

And there's always a time lag, even though that inflation has died down because of the regulatory environment.

It takes a couple of years for insurance companies to get those new premiums approved, and that's what your friends are experiencing.

I will tell you those of them who are not currently, uh, um, buying insurance from lemonade will probably get a savings by switching to lemonade.

We are priced lower than most of the incumbents, but the factors that you just, uh, um, highlighted are true, really.

Across the industry