The TAM Nobody Talks About: How Lower Costs Create New Customers

TLDR

• Insurance price has three blocks: claims, overheads, and a small safety buffer.

• Shrink the overhead block and the price drops; in price‑sensitive markets that creates first‑time buyers - real TAM expansion, adding people not products increase the TAM and margin, something too frequently forgotten, ignored or misunderstood.  

The $1 That Moves the Market

Banking the unbanked made payments inclusive. Insuring the uninsured does the same for risk, turning third party claim cost into a growth opportunity and opening markets that have never embraced insurance before.

Think of an insurance premium as three Lego bricks:

1. Claims – what we expect to pay out

2. Overheads – sales, support, payments, fraud checks, claims handling

3. Safety buffer – roughly 10% on top so the company stays solvent

A simple rule of thumb: Price ≈ (Claims + Overheads) × 1.11.

That means if Lemonade trims $1 of overhead, the required premium can drop by slightly more than $1. That’s the whole story: efficiency can either expand TAM or boost margins. Both paths create accretive returns for shareholders.

Lower expense per policy → lower premium. In price-sensitive markets, even a few dollars shaved off unlocks millions of first-time buyers. That’s how Lemonade doesn’t just add new product lines but greatly expands the size of the insurable market.

We’re already seeing this in Kenya, where instant, parametric-style payouts at NGO scale have drawn in hundreds of thousands of farmers. The same playbook can scale commercially across growth markets.

The one equation that matters

Imagine a toll bridge. L is the cost of keeping the bridge safe. E is the cost of the toll booths and staff. Automate the booths and push payments to phones. E drops. With lower E, the toll price P falls. And when P falls, traffic doesn’t just rise - in lower-income cities, even a small cut in the toll can double traffic. That doubling is new TAM.

For $LMND the drivers are obvious: straight-through underwriting and claims, AI fraud screens, embedded distribution, parametric triggers, and rapid pricing loops where regulation allows. All roads lead to a smaller E - and when E shrinks, TAM Expands dramatically.

It’s not just “more product lines” – It’s more people!

Launching new lines (pet, auto, home, contents) is normal growth. Expanding TAM is different: make coverage so affordable and easy that people who never bought insurance start buying it - especially in LEDC / growth markets. This is why LMND’s AI flywheel matters: it doesn’t just widen the catalog; it shrinks the unit cost of providing cover.

And it isn’t theoretical. The Lemonade Foundation has already run parametric, crypto‑settled weather covers for smallholder farmers in Kenya - they’ve publicly said coverage has scaled to hundreds of thousands of farmers. That’s the same “cut E, raise trust, pay instantly” idea - live in the wild.

You can read more about it here and watch the explainer video below:

Lemonade kept this initiative under the radar. In March 2023 they cited 7,000 farmers in the pilot. Fast forward two years and that figure has quietly ballooned to 260,000 Kenyan farmers, a 37x increase!

That is not a pilot, it is product market fit. And it is clear evidence that when costs fall, entirely new pools of demand open up. The same playbook that unlocked hundreds of thousands of first-time customers in Kenya can scale across growth markets and act as a direct TAM expansion lever.

TAM extrapolation with market examples

1. USA - In the US, efficiency mostly translates into margin. Customers are already well insured, so lowering expenses doesn’t double demand, it improves profitability. This is where Lemonade can turn cost advantages directly into shareholder returns.

   
   

2. Nigeria - In Nigeria, the story is different. Insurance penetration is extremely low and price sensitivity is high. Even modest reductions in cost can unlock huge new demand, as households that previously could not afford cover now cross the affordability threshold.

   
   

3. Kenya - Kenya already offers a live case study. Lemonade’s pilot went from 7,000 farmers in 2023 to 260,000 just two years later, showing how parametric products, mobile payments, and lower overhead can unlock entirely new markets at scale.

These three markets show how the same cost lever creates very different outcomes: margin in the US, new customers in Nigeria, and exponential adoption in Kenya. Put together, they reveal the engine that drives Lemonade’s growth - a self-reinforcing flywheel.

At the heart of this flywheel is the ability to cut overhead without cutting quality. Nowhere is that clearer than in parametric insurance, where automation does the heavy lifting and entire layers of cost disappear.

That is why parametric matters. It isn’t about blockchain or buzzwords. It’s about triggers you can verify, adjudication you can automate, and payout rails people trust. Lower E, lower P, bigger TAM. From farmers in Kenya to renters in the US, the same logic applies - efficiency doesn’t just improve margins, it manufactures new demand with market leading NPS and Customer Satisfaction scores, take a quick look at Adina Lemonades COO talking about this exact scenario for the LA wildfires late last year at InsureTech Insights London, I won't give any spoilers on their CSAT and NPS scores, so best to take a look at this two minute clip.

In developing markets, high-NPS services spread fast through word of mouth and personal referrals. Combine that with “killer prices” and you have ideal conditions for rapid TAM expansion. Now let’s take a deeper look at the maths behind cost-based TAM expansion.

Case Study: United States - The Margin Game

Typical home+auto bundle around $4,000 per year. If overhead drops by $150, price falls by about $167. Most households were buying anyway, so the main benefit is better unit economics and competitiveness.

Case study: Nigeria - Every dollar saved unlocks buyers

Start with a simple contents/phone cover. With today‑type overhead ~$10 and claims ~$7, the price is about $18.90 and roughly 1 in 10 households buy. Push overhead to $5 and price drops to ~$13.30; adoption roughly doubles. Push to $2 and price is ~$10; adoption approaches 3 in 10 households.

Why this is a prize worth fighting for…

• Tiny base today: Nigeria’s insurance penetration is <1% of GDP (non‑life ~0.2–0.3%), one of the lowest among large economies.

• Sheer scale later: Nigeria is projected to be the 3rd‑largest country by ~2050—so even modest per‑capita spend yields huge absolute TAM.

• Macro improving: IMF’s 2025 Article IV notes growth accelerating to ~3.4%, with near‑term support from a new refinery and reforms - still not spectacular per capita yet, but directionally better.

• Digital rails: GSMA shows steady smartphone/4G adoption to 2030 across Sub‑Saharan Africa, and the World Bank’s Global Findex 2025 highlights fast uptake of mobile‑money accounts - both crucial for ultra‑low‑touch parametric/embedded micro‑covers. 

• Risk / Fraud – Legacy actuarial models assume clean, stable data; in Nigeria fraud and data gaps (noisy claims, weak KYC, duplicate IDs, collusive providers, cash price opacity, long lags) kill postcode and channel granularity; use real-time fraud signals, device and network graphs, payment-rail metadata, and parametric triggers instead.

Case study: Kenya - Parametric + mobile money = inclusion

And now look at where $LMND decided to launch first – a Parametric, weather‑triggered household cover with mobile payouts. If we use some example numbers (as $LMND has never published their policy fees for this pilot to my knowledge) - With overhead around $6 and claims $4, the price is ~$11.10 and about 5% buy. Cut overhead to $3 and adoption doubles to ~11%. Push to $1 and adoption jumps to ~23%.

An IronicApes Bottom line

The Bears are so focused on Commercial lines and the current TAM that they completely overlook the structural changes set to unfold rapidly in the coming years. This isn't about creating another SKU (line of business/product). It's about reducing the cost to serve so that entirely new groups can finally afford coverage. That's the true opportunity for LMND. In the US, Europe, and other MEDCs, the focus is on margin; in Nigeria, Kenya, and similar regions, the market expands. This isn't to say there aren't many uninsured people in the US and Europe who could also be reached, but the potential growth there is smaller compared to other markets, where the benefit in established markets is margin expansion.

Banks and FinTech have been running this strategy for years, “the democratization of financial services, expanding TAM to the Un-banked” we have already witnessed the rise of Nu Bank, Revolut, Chime and C6 to name just a few – Lemonade is the first and only company I believe has a real chance to do the same in Insurance across multiple lines of business globally.  

These are just a few examples. The curves are illustrative (while rooted in data and logic). Execution risk remains and a market-by-market plan for acquisition and retention is essential. Will it play out exactly like this? Nobody knows. What you can control is how you acquire customers, how you pay claims, how fast you iterate, and how you retain them. 

Considering how the team and the company are structured - with a clear vision, strong product discipline, and a history of quality delivery - I anticipate they will continue to reinvent insurance from the ground up. In my view, their vision has only been superseded by their ability to execute on it, and it appears the broader market is just beginning to recognise this; up more than 200% in the past 12 months and more than 415% since Aug 2023.

To the Bulls, I salute you! To the bears, I wish you all the best, as this is just the beginning in my humble opinion.

Ironic Ape - Data‑driven, open‑source thinking for retail investors.

Disclosure and disclaimer: IronicApe currently holds a long position in Lemonade, Inc. (NYSE: LMND). Our positions may change at any time without notice. Nothing in this material is investment, legal, accounting, or tax advice, and it should not be relied upon for any investment decision. The information is provided for educational and informational purposes only, is believed to be accurate at the time of writing, but is supplied on an as-is basis and may contain errors or omissions. Any forward-looking statements are based on assumptions that may change. Investing involves risk, including the risk of total loss. Do your own research, consider your personal circumstances, and consult a qualified adviser before acting.