Talk about timing. Last week, Lemonade revealed Lemonade Car, its entry into auto insurance. This week it announced the acquisition of Metromile, one of the world’s largest auto insurance companies. Insurtech M&A has been solid, but admittedly I didn’t expect to see a deal like this soon. But I suppose I shouldn’t be surprised. After all, Lemonade is a very ambitious digital insurance company. In six years, I’ve gone from a startup to a publicly traded global brand with a market capitalization of nearly $4 billion. Its product expansion was as meteoric as its rise within the industry. Whether you were surprised by the announcement or not, this is big news for all of us.
- Offering comprehensive insurance is a great strategy. I think the future of insurance will focus on the solution. Certainly, companies that sell limited products and services will thrive. But companies that sell all-in-one packages will dominate the markets and increase their operating leverage. Consumers want the ease and ability to “one-stop shop” for insurance. Survey data shows that the top three reasons why customers buy additional products from their auto insurance companies are cheaper rates, easier management of multiple policies, and trust in the provider. Insurers that offer comprehensive solutions can leverage deep customer relationships to reduce purchase frictions and expand margins (in part through lower average customer acquisition costs). Lemonade understands this opportunity as it supports a growth approach and interest in Metromile.
- The growth of the insurance market is multifaceted. From the start, organic growth has been the logical focus of lemonade. The company developed and introduced renters insurance, and shortly thereafter, pet insurance. Early this year, Lemonade began selling life insurance through Bestow’s API, using a partnership approach (embedded insurance) to spur growth. Now it’s buying Metromile to add to its multifaceted growth model, gaining scale in the business while meeting customer needs. Lemonade focuses on Millennial customers with intelligence, and its strategy to provide comprehensive, affordable solutions under one umbrella will capitalize on the customer experience.
- Vertical integration and virtual integration converge. Both Metromile and Lemonade have vertically integrated operating models. They both guarantee their coverage, develop their own products, use their own software, and rely on first-party data to run their businesses. As new entrants in the insurance space, they are benefiting from the technology born in the digital economy, and their modern platforms should limit post-acquisition integration risks. but it virtual An integration that will help insurance companies, especially smaller ones, expand their products and services into new markets, just as Bestow did with its Lemonade partnership. Both technologies – vertical and virtual integration – have a place in the digital insurance strategy (as Lemonade’s growth story shows). For competitors, especially those at risk of displacement as technology integration accelerates, the focus must be on keeping up with the pace.
Digital transformation is here to stay. Insurance is a large and complex industry. Many markets are untapped. There is room for many to succeed, but success begins with placing the customer at the center of your business strategy.
This post was originally written and appeared by Chief Analyst Jeffrey Williams Here.