Lemonade (LMND) – CPI – April 13, 2024
As we frequently write about, inflation is especially tough for the insurance industry. Consumer claims rise freely with rising prices. The premiums collected from those plans cannot be adjusted in real-time to reflect that reality. These premium hikes must be approved by regulators, and those regulators are slow. Furthermore, there’s another time lag between when hikes are approved and when they can actually be implemented the following year. So? When we get sky-high inflation like we did in 2022-2023, profitability for the space is greatly pressured. We’ve seen large incumbents even pull out of some markets based on the harsh backdrop. Lemonade has also greatly pulled back on growth in many geographies and products as a result of this too.
The March consumer price index (CPI) certainly wasn’t the most encouraging report (producer price index (PPI) looked a lot better). But? A large portion of the hot reading came from sky-rocketing auto insurance rates. Auto insurance rates jumped by 22.2% while auto maintenance rose by just 8.2%.
To me, this is a clear sign that regulators are finally catching up. That will make all of these companies more profitable and will again embolden Lemonade to re-accelerate its growth spend, which tanked Y/Y in 2023. And we do have a bit of evidence for what this can look like. Europe has much more favorable regulation for insurers. They have more freedom to adjust rates on their own. And? Lemonade’s strongest geography right now is Europe. The macro-based weakness in the U.S. fading away would surely be great news for its largest market becoming healthier once more.
