A recent S&P Global Market Technology report suggests insurtech startups have shifted from a “growth at all costs” mentality to one more focused on profitability.
Full-stack companies, or those that have licensed carrier subsidiaries, will require profitable underwriting and investing to achieve this goal, though the report says this may prove difficult for some.
Publicly traded full-stack insurtech startups have been running heavy GAAP losses for the last few years and the COVID-19 pandemic has had a material impact on later-stage investments, with (re)insurers holding back.
Doma Holdings Inc.’s carrier subsidiary has produced profits for the past three years, and Lemonade Inc.’s carrier turned a profit in 2020. S&P state that from a solvency perspective, the carrier operations of Lemonade, Metromile and Root, do not seem overly troubling.
Personal auto insurer Root Inc. and a trio of health insurers, Oscar Health Inc., Bright Health Group Inc. and Clover Health Investments Corp. all face relatively tougher roads to reaching profitability in their carrier operations, based on their 2019, 2020 and 2021 annual results. They each racked up more than $350 million in cumulative statutory net losses over that time period.
Conversely, the carrier subsidiaries of Lemonade, Doma and Hippo Holdings Inc. are faring much better. They each managed to turn a profit in at least one of those years; in the case of Doma Title Insurance Inc., all three years.
Lemonade and Hippo both specialize in homeowners insurance, a category that also includes condo and renters insurance, per the National Association of Insurance Commissioner’s definition, Doma is more focused on title insurance.
Hippo’s underwriting subsidiary, Spinnaker Insurance Co., is a unique entity known as a fronting carrier, which is an insurer that partners with managing general agents, and while it technically writes the policies, the fronting carrier passes through the premiums written to a reinsurer.
Spinnaker ceded about 96% of its premiums to reinsurers in 2021. As such, Hippo’s GAAP earnings are likely a better gauge of its underwriting and they do not paint as rosy of a picture. Hippo’s gross loss ratio was 138% in 2021, up from 109% in 2020.