Steven Porrello, The Motley Fool

Mon, Jun 2, 2025, 7:45 PM6 min read

• Insurance disruptor Lemonade has weathered an 82% stock decline since 2021 but shows signs of potential recovery with stronger growth and improving financials.

• The AI-native insurer's technology handles everything from pricing to claims, recently hitting $1 billion in in-force premium while maintaining stable loss ratios.

• Despite progress toward profitability, Lemonade faces obstacles from potential tariffs and industry giants with decades of pricing advantage.

• 10 stocks we like better than Lemonade ›

Insurance is a $3 trillion market that touches nearly every household, vehicle, and business. It's one of the largest industries on Earth, yet also one of the hardest to disrupt. Regulated to the teeth and hardened by decades of risk aversion, it hasn't exactly welcomed start-ups with open arms.

Enter Lemonade (NYSE: LMND), the artificial intelligence (AI)-native insurer. Since its launch, the company has aimed to reshape the insurance model by replacing agents with AI. Bots manage onboarding, handle claims, and even help price policies. It's a model that has attracted attention, but has struggled to deliver consistent profitability.

That struggle has been reflected in the stock price. Since peaking in early 2021, Lemonade's shares have fallen approximately 82%, as investors grew weary of its persistent losses, high customer acquisition costs, and the broader market's shift away from unprofitable growth stocks amid rising interest rates.

However, recent developments suggest a potential turnaround. The latest quarter brought stronger growth, tighter execution, and Lemonade's first brush with positive free cash flow. With shares down about 20% since January, could Lemonade be setting itself up for a comeback?

Let's take a peek.

To figure out whether Lemonade's stock is mispriced, you first have to know what you're buying.

Lemonade isn't a legacy insurer dabbling in tech. Rather, it was built with a radical idea: that software can handle the core functions of insurance (pricing, underwriting, and claims) more efficiently than people. Since 2015, it has been testing that thesis at scale.

Bots like "Maya" and "Jim" handle customer interaction. (Fun fact: Jim paid a claim in three seconds, which Lemonade claims is a world record.) But the real story happens behind the scenes. Lemonade uses machine learning to price risk and predict customer value. That data helps the company spend its marketing budget where it's most likely to pay off, which can lower acquisition costs and generate stronger margins over time.