Lemonade's Loss Ratio Improved to 60%, and Its Gross Profit Rose 76%. The Stock Is Still 49% Off Its High.
Jennifer Saibil, The Motley Fool
Mon, September 14, 2026 at 2:15 PM GMT+3 4 min read
Lemonade (NYSE: LMND) is an insurance technology company that was using artificial intelligence (AI) to operate a better insurance model long before it became the trend it is today.
Customers are enjoying its digital platform, which makes signing up for a policy and filing claims easy. Lemonade is growing fast, and its loss ratio (the amount it pays out as claims) has been dramatically reduced. However, Lemonade stock is still 49% off its 52-week high. Is it time to buy?
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Aid for your lemons
Lemonade uses AI and machine learning to price policies and improve the user experience for insurance customers. Its chatbots handle onboarding and claims filing, reducing the need for human intervention.
Management says the company's advantage is its interconnected systems. Palantir Technologies and ServiceNow's Control Tower product provide such interconnectedness for other companies, but Lemonade built its business this way, which gives it an edge over other insurance companies.
It also claims to have an edge over newer insurance companies that might be built with all the AI tools available today, essentially replicating what Lemonade does. That's because it already has more than a decade of data to underwrite its policies, and data is the currency of an insurance business. It also has that decade of marketing and developing its business, so it's already the leader in this niche.
The results have been strong. In-force premium (IFP), the insurance company's top-line metric, increased 32% year over year in the second quarter, the 11th straight quarter of acceleration. Total customers increased 23% to more than 3.3 million, and premium per customer increased 8%, indicating that the company's cross-selling and bundling strategy is working.
Loss ratios and losses
One important metric for insurance companies is the loss ratio. The lower this metric is, the more of the policy premiums the company is keeping. Maintaining a low loss ratio requires efficient underwriting and lots of data, which is why it took Lemonade some time, as a young company, to bring it down. However, it's been reliably low for several quarters, so much so that management hasn't really called out the figure lately. It was 60% in the second quarter.
What's on investors' minds these days is the net loss, which also includes expenses. Lemonade isn't profitable, and it reported a $43 million loss in the second quarter, just a tad better than the $44 million of the year before. Management reaffirmed that it expects to become profitable on the basis of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the fourth quarter, and it has said in the past that it expects to report positive net income in 2027.
In the meantime, it's demonstrating a path toward profitability, and it noted its low loss adjustment expense ratio. This measures the cost of handling claims, and it has shrunk from 7% last year to 5% this year, ahead of schedule. The industry average is 9%.
Lemonade has a long growth runway, and it could become profitable soon. This does look like a good time to buy.
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Jennifer Saibil has positions in Lemonade. The Motley Fool has positions in and recommends Lemonade, Palantir Technologies, and ServiceNow. The Motley Fool has a disclosure policy.
Lemonade's Loss Ratio Improved to 60%, and Its Gross Profit Rose 76%. The Stock Is Still 49% Off Its High. was originally published by The Motley Fool
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