TRUP vs. LMND: Better High-Tech Insurance Play to Own the Long Haul?

The insur-tech scene is a pretty intriguing place to look if you’re looking for disruptor innovators that the rest of Wall Street may be sleeping on. Indeed, the insurance business is dominated by some behemoths in the space, many of which have embraced next-gen technologies such as AI. That said, I do think there’s room for some smaller players to make a lot of noise, especially if they tailor AI for the tricky business of insurance.

Indeed, the business of insurance is overdue for a high-tech facelift of sorts. And while there’s ample promise that comes with incorporating AI to offer better-tailored (and perhaps even cheaper) products for customers, I do think that investors may be inclined to underestimate the longer-term margin impact. In any case, it seems like the insur-tech plays are getting a new breath of fresh air now that they’ve got some newfound momentum behind them.

In this piece, we’ll concentrate on two of the more intriguing insur-tech plays that have long-term potential as they leverage tech to gain market share from incumbents that may need to stay on their toes as new tech paves the way for transformed business models.

Trupanion

Trupanion (NASDAQ:TRUP) stock has been quietly making a comeback over the past two years, gaining close to 54% over the timespan, thanks in part to some encouraging quarters and confidence for the firm’s road ahead. With a compelling subscription model and AI tech trained on tons of real claims (this data is a huge differentiator in the AI age), Trupanion has all the makings of a true industry disruptor, especially as pet insurance becomes more of a must in an era where a sudden vet visit could be ruinous to one’s personal finances. 

Of course, TRUP stock is going to be a very choppy ride in both directions over the near- to medium-term. It’s $2 billion mid-cap with a 1.78 beta with the potential to move double-digit percentage points in either direction on earnings. While Trupanion isn’t the only insurance firm leveraging AI, I do think it’s a name that the behemoths in the space should keep on their radars.

In many ways, Trupanion could do to the pet insurance market what the slew of tech-focused fintech firms are doing to big finance (think brokers, third-party lenders, banks, and all the sort). With AI and the “humanization of pets” secular trend riding behind the stock, there’s no shortage of excitement with the name, especially as the stock paws its way higher again. On a price-to-sales (P/S) basis, shares still look too cheap at 1.54 times P/S. If Trupanion can leverage AI to get its margins inching higher, I’d be inclined to take a small position. Until then, it’s a worthy watch.

Lemonade

Lemonade (NYSE:LMND) is an insur-tech play that’s seen its post-IPO boom go sour (pardon the pun) in a hurry. Indeed, the name shed close to 93% from its 2021 peak to its 2023 trough, but has since begun returning to the high road.

Of course, shares are still well off (around 69%) from their peak levels, but with a magnificent second quarter in the books and some serious multi-year momentum now behind the name, it’s starting to look like a disruptive force worth backing again. While LMND shares look like a worthy near-term trade now that it’s where the momentum is at, I think it’s the long-term potential that’s most exciting, especially if the firm can round up more quarters like Q2.

Now up 233% in a year, the red-hot AI-first insurer looks ready to floor it again. With strong guidance, more agility than larger P&C insurers, brand affinity among younger tech-savvy consumers (think Millennials), and plenty of low-hanging fruit for AI to pick, I certainly wouldn’t bet against LMND stock, even though the valuation is getting a tad on the frothy side. At this juncture, I’d rather be a buyer of TRUP for its lower price of admission. Though I’d not be against owning both for those keen on targeting different corners of the insurance scene.