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P/C Insurtech Earnings: Profits Largely Out of Reach While Avenues of Growth Expand

OLDWICK, N.J. //BestWire// - Profitability remains elusive for most property/casualty insurtech carriers as they develop and take diverging paths to growth, from expanding lines and geography to forming partnerships, making acquisitions and delving into cryptocurrency.

Stephanie Lloyd

Stephanie Lloyd

Just one of six nonpublic companies posted an annual profit in 2020, Farmer Group subsidiary Toggle. While automobile insurance writer Elephant recorded a $109,000 net loss, it notched a $566,000 underwriting income, compared with a $15.2 million loss a year earlier. Three property/casualty insurers transitioned to public companies over the past year — Lemonade, Root and Metromile — and each showed a net loss in the first quarter.

But the segment is working to give profitability more sway, said Stephanie Lloyd, head of Farmers new ventures division and Toggle president. In early stages, she explained, the push to acquire customers is paramount because it attracts investors.

Greater scale also helps lower combined ratios. Small business writer Next Insurance improved last year to 118.5 from 254.4 a year earlier. Chief Financial Officer Michelle Cheung said common initial fixed costs become “much smaller” as a percentage of premium as the business grows.

“Profitability is our end goal, and we hope to achieve it in the next few years by focusing on key opportunities for customer acquisition, continuing to underwrite to a profitable loss ratio target using our integrated technology platform and data advantage, and taking advantage of the benefits of scale.”

The profitability dynamic at Toggle is different than an independent startup, a blend of insurtech’s “fail fast, run, run, run” mentality and Farmers’s 90 years of experience and data, said Lloyd, who earlier was personal lines chief underwriting officer.

She joked she moved from “the office of ‘no’ to the office of ‘yes’ overnight … It’s really a series of learning and pivots. You have to really embrace it” and shun the failures label. “We didn’t know what we were going to be when we grew up.”

The maturing Toggle and other insurtech carriers are getting an inkling. Toggle started with renters as part of a strategy to attract 25- to 35-year-olds to the aging Farmers customer base. It did. Seventy-five percent of Toggle customers are in that age range.

Lloyd calls renters the path of least resistance to insurance coverage because it’s a simpler model. Unfortunately, the premiums aren’t beefy enough to sustain a carrier. “From a survival perspective you need to graduate into higher-premium policies and more complex lines,” she said.

Toggle has done that recently with auto, now in five geographically dispersed states with more on the way. Lloyd said she’s eager to work with homeowners again. And she’s keen on embedded insurance that “is all about getting more relevant and personalized insurance offerings to customers by helping brand partners seamlessly incorporate” coverage at a point of sale, for instance, of automobiles.

Next partnered this year with Amazon Business to offer small business products. It will assume the risk for general liability, professional liability, workers’ compensation, commercial auto and tools and equipment insurance written for Amazon Business Prime members (BestWire, March 17, 2021).

Cheung said Next is broadening agent and partner channels and partnerships to “meet more customers where they’re at. We’re also focused on diversifying our customer base … We continue to build our brand awareness through performance marketing and creative advertising that speaks to the specific pain points of small business owners.”

Lemonade started with renters and homeowners and started a product line expansion last year. It also partnered with an insurtech, Bestow, on life insurance, while expanding to pet insurance and announcing its intent to take a bite out of the $300 billion U.S. auto insurance market. However, higher expenses widened its first-quarter net loss to $49 million from a $36.5 million net loss last year (BestWire, May 12, 2021).

Managing general agent Hippo acquired what had been a partner, fronting carrier Spinnaker, whose net income rose to $6.65 million from $4.31 million in 2019. Now Hippo is partnering with fellow insurtech Metromile Inc. so it can offer a multipolicy “bundling” discount for home and auto. Parent Hippo Enterprises Inc. plans to go public in a $5 billion special purchase acquisition company merger deal, setting a goal to write $2.3 billion of premium in 2025. (BestWire, March 4, 2021)

In the first quarter, Metromile’s total revenue nearly doubled to $17.3 million, but its net loss widened to $103.6 million from a $16.9 million loss a year earlier (BestWire, May 17, 2021).

Root Inc. narrowed its first-quarter net loss to $99.6 million and said the push is on to process a meaningful portion of claims autonomously as it works to reduce severity (BestWire, May 6, 2021).

Here are annual 2020 earnings posted by other non-publicly traded property/casualty insurtechs, according to BestLink:

Elephant Insurance Co.

The auto writer’s annual net loss narrowed to $109,000, compared with a $14.8 million net loss in 2019. The combined ratio improved 7.2 points to 108.8, as the company moved to a net underwriting income of $566,000 from a loss of $15.2 million. However, other expenses rose to $1.59 million, from $1.44 million. Net losses paid declined to $61.1 million from $80.6 million.

Net premiums written declined 35% to $61.3 million.

Elephant, which is a subsidiary of the United Kingdom’s Admiral Group, writes much of its business in Texas and its home state of Virginia, but reduced direct premiums written in Texas to $87.4 million from $103.1 million in 2019 while expanding to two new states, Ohio and Georgia.

It also offered coverage in Illinois, Indiana, Maryland and Tennessee.

HiRoad Assurance Co.

The net loss narrowed at HiRoad in 2020 to $12.3 million from an $18.5 million net loss. Net premiums written rose slightly to $18.7 million from $18.1 million. Net losses paid increased to $16.2 million from $14.8 million.

HiRoad’s combined ratio improved 46.8 points last year to 194.2, as it narrowed its underwriting loss to $16.8 million from $23.1 million.

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.

Kin Interinsurance Network

Kin’s net loss widened to $8.6 million, compared with a $644,000 net loss in the prior year, which was the first year it wrote homeowners coverage.

Net premiums written of $3.7 million compared with negative $90,000 a year earlier, which was the first year Kin wrote homeowners coverage. Net losses paid rose to $2.6 million from $41,000. Its net underwriting loss widened to $9.1 million from $936,000.

Kin, a reciprocal, prefers dislocated markets. It writes coverage on its own paper in Florida and Louisiana and is a managing general agent in California. The carrier plans to launch in more states this year as global warming and other factors create more extreme weather. Writing $19.4 million in direct premiums written in Florida last year made Kin the state’s 53rd-largest homeowners multiperil insurer with 0.18% market share, according to BestLink (BestWire, May 13, 2021).

Next Insurance Co.

The annual net loss at Next also widened, to $1.1 million from a $218,000 net loss a year earlier, while net premiums written jumped to $5.1 million from $210,000. Its net underwriting loss was $1.2 million, compared with a loss of $364,000.

The combined ratio was cut by more than half, to 118.5 from 254.4.

Next expanded its geographic reach significantly in 2020, writing $25.8 million of direct premiums across in multiple states, including its largest, Texas, and Pennsylvania, Georgia, Illinois, Michigan, North Carolina, Maryland, Tennessee, Ohio and Arizona. A year earlier, it wrote $1.1 million of DPW in Texas.

Toggle Insurance Co.

Renters writer and Farmers insurance Group member Toggle’s annual net income fell to $864,000, compared with $1.3 million in 2019.

Direct premiums written rose to $4.5 million from $1.6 million, with $2 million of the coverage in 2020 written in Texas. The combined ratio worsened 13.4 points to 110.2.

TypTap Insurance

The HCI Group Inc. subsidiary’s net loss widened to $10.9 million from a $5.2 million net loss a year earlier.

Net premiums written rose to $64.1 million from $44.4 million a year earlier. The annual combined ratio worsened 27.2 point to 115.5, as its net underwriting loss widened to $13.4 million from $6.2 million.

TypTap wrote business in Florida only in 2020, the great majority in homeowners. It also laid the groundwork for a national expansion and has received approvals since December to write homeowners in 13 more states, with further approvals pending (BestWire, March 5, 2021).

In the first quarter of 2021, the insurtech received $100 million from a Centerbridge Partners L.P.-affiliated fund to increase needed surplus. TypTap also expects to hire between 50 and 100 employees this year. HCI Group Chief Executive Officer Paresh Patel expects premiums to keep doubling as the company’s geographic reach grows, setting a goal of $1 billion annually by 2025 (BestWire, March 5, 2021).

(By Renée Kiriluk-Hill, associate editor, BestWeek: Renee.Kiriluk-Hill@ambest.com)



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