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 largest usage-based auto insurers in the world. Insurtech M&A has been strong, but admittedly, I didn’t expect to see a transaction like this so soon. But I suppose I shouldn’t be surprised. Afterall, Lemonade is a highly ambitious digital insurer. Within six years it has gone from startup to a global, publicly traded brand with a market cap of nearly $4B. Its product expansion has been 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 believe the future of insurance will be solution focused.  Sure, companies that sell limited products and services will thrive. But companies that sell comprehensive packages will dominate markets and maximize their operating leverage.  Consumers want ease and the ability to “one-stop-shop” for insurance. Our survey data shows that the top three reasons customers buy additional products from their auto insurers are: cheaper rates, easier multi-policy management, and trust in the provider.  Insurers that provide comprehensive solutions can leverage deep customer relationships to reduce buying frictions and expand margins (in part through lower average customer acquisition costs).  Lemonade understands this opportunity as it underpins its growth approach and its interest in Metromile.

Insurance market growth is multifaceted. From the start organic growth was Lemonade’s logical focus. The company developed and offered renters insurance and, shortly thereafter, pet insurance. Early this year, Lemonade began selling life insurance through Bestow Life’s API, using a partnership (embedded insurance) approach to spur growth. Now it’s purchasing Metromile to add to its multifaceted growth model, gaining scale in the business while meeting the needs of the customer. Lemonade’s focus on a millennial customers is smart and its strategy to provide comprehensive, but affordable, solutions beneath one umbrella will benefit the customer experience.

Vertical integration and virtual integration are converging. Both Metromile and Lemonade have vertically integrated operating models. They both underwrite their coverages, develop their own products, use their own software, and rely on first-party data to manage their businesses. As insurance newcomers they benefit from technology born in the digital economy and their modern platforms should limit post acquisition integration risks.  But it’s virtual integration that will help insurers, particularly smaller ones, extend their products and services into new markets, just as Bestow Life has done with its Lemonade partnership. Both techniques – vertical and virtual integration – have a place in a digital insurance strategy (as Lemonade’s growth story shows). For competitors, especially those at risk of displacement as insurtech consolidation accelerates, the emphasis should be on keeping pace.

Digital transformation is here to stay, and I love the energy that digital insurers like Lemonade bring to the market.  Insurance is a large, complex industry.  Many markets are untapped. There is room for many to succeed, but success starts with placing the customer at the center of your business strategy. Lemonade’s approach isn’t beyond limits.  You too can leverage technology to create a solution focused business, expand into connected insurance, and embed your insurance lines into your customers’ buying journeys. To learn more on how Forrester can help, please schedule an inquiry.



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