What You Should Know
- Lemonade acquires Metromile, an auto insurtech company, for a net of $200 million
- The acquisition shores up Lemonade's new car insurance product, Lemonade Car
- Customers can expect more precise telematics and the "most affordable" product
Lemonade, the New York-based, insurtech company that offers personalized insurance packages powered by artificial intelligence, announced that it is acquiring car insurance insurtech company Metromile in a full-stock takeover with an equity value of approximately $500 million.
The move comes as Lemonade begins the launch of its car insurance program, which seeks to rely on one major factor in determining rates: telematics.
Metromile a Good Fit for Lemonade: Analysis
In a post explaining the acquisition on the company's website, Lemonade wrote that Metromile is celebrated for its innovation within the car insurance industry and that its core offerings can help Lemonade improve its car insurance product.
"Their proprietary data and machine learning algorithms can transform Lemonade Car by collapsing time, flattening risk, and increasing efficiency," Daniel Schreiber, Lemonade CEO has stated.
Metromile offers pay-per-mile car insurance and has been in the car insurance industry for around a decade. The company set premiums for its policies primarily on information gained through telematics systems. Its data collection includes 400-million road trips.
Lemonade's car insurance program — which it hopes to roll out nationally in the coming months — lacked the data to make telematics accurate, which would have exposed it to underwriting losses by not calculating risks correctly. To gather the data, Lemonade would have needed years and hundreds of millions of trips.
Acquiring Metromile solves that problem.
Lemonade writes, "...our modeling suggests that within 18 months of closing the deal, we will reap the fruits in the form of a larger, more efficient, more differentiated, and less risky Lemonade Car business."
Customers Can Expect the "Most Affordable" Car Insurance Product
Lemonade is not revealing details about how it will use Metromile's data yet, but it suggests customers will receive a great product.
"Injecting all the Metromile mojo into Lemonade Car could make the most seamless and customer-centric car insurance product also the most affordable, differentiated, precise, and fair," Schreiber writes. "That’s the plan."
One word that Lemonade consistently uses to describe its current and future plans for its car insurance product is "precise." Policyholders can expect a system that accurately pinpoints their driving behaviors and assigns policies based on the risks that come with those behaviors.
The Metromile acquisition gives Lemonade billions of miles to quantify, perhaps making the risk analysis even more precise. This acquisition will go a long way toward answering one common question we often here - "does Lemonade offer insurance."
"(Metromile's) proprietary data and machine learning algorithms can vault us over the most time and cost-intensive parts of the journey," Schreiber said. "In a vast and competitive market like auto insurance, today’s deal is a huge unlock of value for our customers and shareholders.”
The use of telematics to partially set rates has been growing steadily among even the most traditional car insurance companies like State Farm and GEICO. Some insurtech companies do away with proxy factors (such as age, sex, and credit scores) and set rates solely with telematics.
Telematics can reduce insurance rate costs if the driver reduces risky driving behaviors. eMarketer writes that through this acquisition, Lemonade gains technology and information that can reduce customer rates by as much as 47%. This might give it a leg-up in the competitive auto insurance space.
Based in San Francisco, Metromile shareholders approved the sale on February 1, 2022. Lemonade's acquisition of Metromile is expected to be completed sometime in Q2 of 2022, with regulatory approvals still pending.