Finding Their Footing
First-half P/C insurtech net losses narrow or move to profit as businesses mature.
- Renée Kiriluk-Hill
- October 2020
The insurtech segment is maturing, with businesses evolving and net losses starting to narrow or inching to profits for property/casualty carriers.
Automobile writer Elephant Insurance Co. is finally seeing positive growth as it posted a net income in the first half compared to a multimillion-dollar net loss a year earlier. Chief Executive Officer Alberto Schiavon said it benefited from reduced frequency during virus-containment shutdowns.
“During the past five months, we have been able to continue the momentum we began the year with to leverage our insurance and technical competencies to deliver further value to our policyholders,” he said.
During the past five months, we have been able to continue the momentum we began the year with to leverage our insurance and technical competencies.
Elephant Insurance Co.
Looking ahead, he said his company's investments in infrastructure and talent will emphasize digital efficiencies and data analysis.
Lemonade's successful initial public offering in the second quarter could be a harbinger as the coronavirus pandemic accelerates the push for digital products and services. Homeowners managing general agent Hippo is tentatively preparing for an IPO in 2021, according to Chief Insurance Officer Rick McCathron. And it's on track to complete its acquisition of Spinnaker Insurance.
Investments in the space are booming, according to American Family Ventures Managing Director Dan Reed. American Family and 12 industry partners recently launched a $213 million venture capital fund focused on fledgling insurtechs. Though primarily a financial investment tool, it does come with strategic perks. “We all learn a lot about how you build a company that's fast and attractive to the digital consumer,” from entrepreneurs who disrupt and are proactive, he said.
Despite this flurry of growth and industry interest, some property/casualty insurtechs are still finding their financial footing, according to data from the National Association of Insurance Commissioners regulatory filings received by AM Best:
Elephant Insurance Co.
Net income of $898,000 in the first half, compared with a $9 million net loss a year earlier for the auto writer. Incurred losses declined to $26.4 million from $36.8 million and the combined ratio improved 11.4 points to 106.7. Premiums earned declined to $43.4 million from $46.4 million.
Elephant, which is a subsidiary of the United Kingdom's Admiral Group, writes the bulk of its business in Texas and its home state of Virginia. It also offers coverage in Ohio, Illinois, Indiana, Maryland and Tennessee.
HiRoad Assurance Co.
The net loss narrowed at HiRoad in the first half of 2020 to $7.6 million from $8.9 million. Premiums earned rose to $8.1 million from $6.2 million. Losses incurred rose to $8.8 million from $8.2 million. HiRoad's combined ratio improved 25.7 points in the half to 204.8.
State Farm launched direct auto subsidiary HiRoad late in 2017 in Rhode Island. HiRoad customers pay monthly premiums based on miles driven and driving behavior, all of which is measured from a smartphone app.
Lemonade Insurance Co.
Lemonade narrowed its first-half net loss to $5.6 million from $5.8 million a year earlier.
Premiums earned in the half more than doubled to $54.5 million from $23.8 million, with the most business written in Texas, California and New York. Losses incurred also more than doubled to $32.8 million from $15.7 million. The combined ratio improved 4.3 points to 99.4 in the half.
The company recently expanded beyond renters and homeowners to pet insurance in 33 states, which Chief Executive Officer and Co-founder Daniel Schreiber called a sign of things to come.
“The fact that we don't yet have all of our products out there is a handicap,” he said during an earnings call, adding the insurtech was built to launch products in pretty rapid succession.
Metromile Insurance Co.
Metromile, a San Francisco-based pay-per-mile car insurance company, has suffered the impact of reduced driving during the pandemic. It accepted a federal COVID-19 relief Paycheck Protection Program loan valued at up to $10 million. A company representative said the loan bolstered operations, helping Metromile bring back some employees furloughed when virus-containment shutdowns slowed business.
The company didn't report financial results for the first half of the year. In the first quarter, it posted a $339,000 net income, compared with a $2.9 million loss. In the first quarter, premiums earned fell to $3.8 million from $8.9 million.
Next Insurance Co.
A $435,000 net loss for the first six months was deeper than the $120,000 net loss in the prior-year period. Premiums earned of $342,000 compared with none a year earlier. The insurer incurred losses of $221,000 over the half and a combined ratio of 123.6.
Next started as a small business carrier two years ago, yet remains intent on growing its MGA operations. It's also hiring during the pandemic. “The war for talent isn't going away in the long term. This may be a time to hire top-tier personnel,” Chief Operating Officer Sofya Pogreb said.
MGA Next raised $250 million from Munich Re in a pre-outbreak, Series C funding round, said Pogreb. With almost $400 million on hand, it is expanding products and geography because it anticipates a resurgence in demand. Pogreb noted continued strong interest despite the economic conditions. Insurance is a multibillion-dollar space and “lots of people with great ideas want to be a part of it.”
Root Insurance Co.
The net loss at Root widened in the first half of the year to $51.8 million from a $48.8 million net loss in the prior-year period. Premiums earned climbed to $140.2 million from $98.6 million. However, losses incurred also rose to $131.8 million from $94.5 million and the combined ratio worsened 14.8 points to 154.8.
Root says it looks at more than 200 driving variables to assess a driver's risk behind the wheel. It plans to stop considering credit scores in auto insurance pricing by 2025. Credit scores and other demographic factors such as occupation and education in car insurance rates embed bias into drivers' pricing, it said.
TypTap Insurance Co.
Florida homeowners and private flood writer TypTap, a subsidiary of HCI Group, posted a net income of $1.1 million in the first six months of the year, compared with a $31,000 net loss a year earlier. Premiums earned rose to $25.9 million from $6.3 million. Losses incurred increased to $14 million from $852,000. The combined ratio worsened to 414.9 from 107.2 in the prior-year first half.
TypTap filed expansion plans recently with Florida regulators and is awaiting approval before submitting filings in additional states.
President Kevin Mitchell said his company is focused on slow, methodical growth, testing its insurtech capabilities in its home state because Florida is “one of the most difficult place to do business from a loss standpoint.” Unlike some competitors, TypTap currently avoids social media marketing, instead investing in independent and franchise agents, which Mitchell considers vital for distribution.