Insurtech Blog

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How do you like your Lemonade: tart or sweet? June 2020

As you probably have heard, the Insurtech Lemonade announced on Monday its intent to go public with a $100M offering. The current VC funding values Lemonade at ~$2B. There is not enough information in the S-1 to estimate market capitalization yet. Like another New York VC darling that flamed out, they were heavily funded by Softbank.

Lemonade’s announcement comes on the heels of Everquote and Selectquote’s successful IPOs.

Selectquote launched at the end of May at $20 and is trading around $27 now, reflecting a market cap of about $4.6B. In 2019, they were profitable and made $72.6M net income. Everquote launched in June 2018 at $18 and is now trading above $57, reflecting a market cap of $1.6B.

These launches come at a time where VC interest in Insurtechs in Q1 2020 has slowed down more than 50% to $750M from a year earlier at $1.7B. In addition, some well-funded Insurtechs have gone down the road of purchasing regulated Insurance carriers (Hippo buying Spinnaker Insurance who incidentally cede nearly all their premiums to reinsurers), Pie Insurance (workers comp) raising $127M to allow them to build or buy an insurance carrier, and Next Insurance forming their own carrier last year.

Is Lemonade sweet or tart?

Looking at Lemonade’s S1 filing there is enough to make everyone happy. The people who like sweet lemonade will be looking at the fact that premiums are over $115M/year and the Gross Loss Ratio has fallen to below 100% (79%). This premium reflects about 3% of the rental insurance market. Which should give them plenty of runway.

Lemonade financials

If you prefer tart lemonade, then there are lots of data points to support your views as well. Lemonade has never been profitable. Net losses have ballooned to $108.5M in 2019 while revenue was only $63.8M. When we compare Q1 2019 to Q1 2020, we see losses accelerating 70% from $11M on 1Q2019 to $36.5M in 1Q2020.

To generate the $115M in premium, Lemonade spent $76M in advertising (85% of their sales and marketing spend). That translates to $1.51 in premium for each dollar spent in advertising. That is not sustainable for most carriers. In addition, it will take significant resources to get to 10% market penetration, which will top out their revenue at about $350M.

Finally, their 1 and 2-year retention rates are hovering around 75%. If you add in company-initiated cancellations, that figure drops to an average retention rate of 67%. Vastly different from industry leading results.

Technology to the rescue

We also learn more about their technology stack, which they spend $9.8M annually on. One part they are touting is their acquisition bot AI-Maya:

“AI Maya typically asks only 13 questions before giving a bindable quote (compared to 20 – 50 for a traditional carrier) for home insurance, but the interaction generates close to 1,700 data points”.

I wonder what the usable added points of information might be. IP address? Time? Date? OS? Browser? The time you spend on one question? How many times you come back before you bind? etc.

Finally, they are targeting technology investors who believe legacy insurance is a cash cow with most carriers behaving like they are leisurely grazing out on the pasture. Take this quote about delightful cocktails:

“Lemonade’s cocktail of delightful experience, aligned values, and great prices enjoys broad appeal, while over indexing on younger and first-time buyers of insurance. As these customers progress through predictable lifecycle events, their insurance needs normally grow to encompass more and higher-value products: renters regularly acquire more property and frequently upgrade to successively larger homes; home buying often coincides with a growing household and a corresponding need for life or pet insurance, and so forth. These progressions can trigger orders-of-magnitude jumps in insurance premiums.”

What does this mean for you?

At minimum, I suspect your executives and Boards will be asking questions like:

  • What does this mean? If the IPO is successful, it means that VCs will pour far more money into carrier competitors who are going direct. More of your products will targeted. We are already seeing this in small commercial and workers compensation.
  • What does this mean for us? Lemonade will not be a threat for many more years to come unless they also crack the nut into selling homeowners and auto.  And their technology and reinsurance contracts hold up during a major claim event like a hurricane.
  • How can we compete with Lemonade? You need to improve your renter’s product and develop an approach where independent agents can profitably sell a renter’s policy, or experiment with selling the product direct or through partnerships. Without this, Lemonade will continue to dominate new insurance buyers and that will give them a potential advantage as renters transition to more insurance products.

    You should also explore leveraging technological advances coming out of the Insurtech space such as conversational AI, prefill, fraud detection, and others.  These advances will help you maximize your value to agents, policy holders, and staff.

Feel free to reach out if you want to discuss the pending Lemonade IPO in more depth, or if there is anything else you are wondering about.


About Insurtech Advisors
Insurtech Advisors is dedicated to helping regional insurance carriers and agencies identify and partner with Insurtechs enabling you to thrive and continue to meet the needs of your members and independent agents. We work closely with your team to identify opportunities and aspirations and then personally curate and introduce you to the best Insurtechs to pilot.

What I learned and the 1 big takeaway in Davos at the World Economic Forum 2020

I had the real fortune to head to Davos this year and the World Economic Forum and some of the other forums around blockchain, cryptocurrency, and inclusiveness.   I decided to go, mostly because this year’s theme “Sustainability” wasn’t something I hear regularly discussed in my personal or professional circles.  I wanted to see if there were themes being discussed there that we needed to discuss here.  Are overseas carriers thinking differently that gives them a competitive advantage?

Here is what I observed:

  1. There were only 3 carriers (Generali, Zurich, and Hanwa) and 1 broker (Marsh) who had a public presence in Davos.   Most were front and center around Asset Management and Hanwa was there more because they are a large Korean conglomerate.  There were only a few non-US banks present and Blackrock.  The biggest presence were technology and tech provider firms like HCL and TCS.
  2. Being at Davos is like any other conference or event.  The company attends if it believes attendance is good for their business and if their clients will be there.  Since Davos is a place for the ultra-high net worth (Bloomberg reported that over 100 billionaires were there) financial services firms are there to entertain their ‘private clients.’  There are far more press and company support staff attendees than actual members of the WEF.
  3. Technology that pushes the frontier has a place in Davos.  Cannabis tech; cryptocurrency/blockchain, anti-surveillance, Tradeshift, and Palantir to name a few.  The UN-Forum, the Ukraine, Russia, and Polish houses, plus others like the Misk Foundation and the Interfaith Alliance round out the external meetings and activities that perhaps reflect the real hope for society.   These side meetings are attended by a mix of academics, passionate people, and entrepreneurs trying to change the world or hawk their latest investments.  The conversations focus on how to solve problems and building the relationships to start to tackle the issues.
  4. I met two insurtechs: Cybercube (who provide cyber risk analytics), and Vouch for Me (who are working on a unique approach to lowering the cost of auto insurance)
  5. A Quantum computer looks nothing like any computer we currently use. The picture is of me with a real IBM quantum computer.
Quantum computing will impact insurance and insurtechs.  Davos 2020
With an IBM Quantum Computer

Here is what I learned:

To answer my question — are there things that overseas carriers are doing that will give them a competitive advantage?  Maybe, but it most likely won’t come out of attending the main political stage at Davos.  So, what did I learn? 

  • There are some amazing people and in Davos, it’s easy to meet them and learn from those interactions.  I found out that Chuck Robbins (The Cisco CEO) and I have an Atlanta connection in common.  They are taking amazing steps to develop innovative internship programs and work to ensure diversity and equality in pay and opportunities across their global footprint. Dina Powell from Goldman Sachs talked about the importance of mentoring. She pointed out that even a person first starting out in their career can mentor!
  • The cellist, YoYo Ma is a true world statesman.  He even brought in a discussion of metrics.  “Music isn’t a competition for metrics.  We haven’t developed the capacity to measure what we just experienced (listening to him perform).  He also shared how important is to have “scouts” on the edge of society.  Within Insurance, this has become synonymous with having staff devoted to tracking “Insurtechs.”
  • The monarchy in Dubai are putting their resources to ensure they become a powerhouse outside of Oil.  For example, they have created a university devoted to training students in AI.
  • There is an extreme sports athlete, Will Gadd, (a fellow Calgarian) who tackles his endeavors exactly how an insurance carrier should look at risks, underwriting, new opportunities, and even solving challenges.  This is so poignant especially in today’s Insurtech hyped world.  He calls it the “Positive Power of Negative Thinking” and in short it involves the following:
    • Use terror to your advantage to think thru the problem
    • Listen to your fear and break things down into their underlying components  
    • Freedom comes from recognizing the hazards and moving forward/mitigating the risks
    • Everyone on the team must be alert and look out for each other and speak up if they see something that seems out of the ordinary
With Will Gadd

The Biggest Lesson I Learned

For me, one thing I learned is that you can be a top 10 global insurance company with over $70B in premiums and still have the heart of an American regional carrier.  I heard Gabriele Galateri di Genola, the Chairman, and Philippe Donnet, CEO of Generali talk about the fact that they have begun to adopt the ESG sustainability goals.  They decided to stop underwriting coal production and use.  However, they also realize that they can’t arbitrarily pull out of certain markets.  Why? because of the social and economic impact it will have.  They have a responsibility to their communities that transcends dollars.  How can they then integrate their new commitment to sustainability?  By working with the local industries to help them move off coal and to more sustainable energy solutions.  That is the true essence of what it means to be an insurance carrier.  You provide a safety net.

In closing, I think Jack Ma, founder of Alibaba, sums up the future of insurance so well from his presentation at Davos.

“In business, never worry about competition, never worry about the pressure. If you worry about pressure, don’t be a businessman … If you create value, there is opportunity. Today the whole world worries. That means there is great opportunity.”

Jack Ma, Alibaba

Here’s to creating great value together!

2019: Insurtech in Review

Happy “National Science Fiction Day” to all of you that enjoy reading a great SciFi book or had a chance to see the latest Star Wars entrant.  I hope you had a great holiday season with family and friends.  As I reflect on 2019, I’ve been blessed to work and interact with amazing people like yourself.  I am forever grateful for this.  Here’s to the next year and decade together.  May it be filled with only great things, health, success, and happiness for you and your family.

2019:  Insurtechs take hold (but will they hold?)

In last year’s email, I started off with the fact the Everquote had gone public in 2018 and was down 80% since its IPO.  What a difference a year makes.  As of the end of 2019, Everquote was up 700% YTD.  Too bad I didn’t invest Jan 1st 2019!  They are just one example of where Insurtechs and start-ups have started to gain traction.

Personal Auto

It’s much easier to track the growth of the Insurtechs within the personal auto sector.  Four Insurtechs: MetromileRootClearcover, and Noblr have collectively raised $875M and they have created traditional full-stack insurance carriers as compared to acting as an MGA.  Thru the 3rd quarter in 2019, they had written over $450M in combined premium.  Root itself, in 2018, was the 107th largest private auto writer in the country.  Not bad for a few years in business!  One entrant, HiRoad which was founded by Statefarm and only writes in Rhode Island has written just under $20M in their first year.

An interesting fact: in 2018, HiRoad wrote $12M in coverage while their parent Statefarm only wrote $18M in Rhode Island

While these carriers have seen significant premium growth, they all struggle when looking at their combined ratio (and especially their loss ratio).  I found it ironic that HiRoad had the highest combined ratio, given its roots in Statefarm.

Renters and Home

In the Renters/Home-owner spaceLemonade wrote $97M in premium in the first 9 months of 2019.  Hippo Insurance (which is an MGA and doesn’t report directly) wrote close to $170M in premium.  Lemonade has certainly tamed their loss ratio however; they are still just above a 100 combined ratio.

Another niche Insurtech is TypTap which sells flood insurance online.  In the first 9 months of 2019, they wrote about $37M in premium with a combined ratio of 96%.

Small Commercial

In the small commercial spaceNext Insurance continues to expand and has formally created a full-stack insurance carrier.  While it has only reported $1k in premium through 3Q19, they have probably written over $40M YTD.  Intrepid Insurance (which is part of WR Berkley) is a startup focused on selling directly to niche small business categories such as franchises and auto repair shops.  They have written $13.7M through 3Q19.  Pie Insurance, which sells workers compensation insurance online as written about $27 (through Sirius America Insurance).  This doesn’t include the likes of HiscoxbiBerk, and Chubb’s small business marketplace to name a few of the legacy carriers upping their focus on small business.

A Natural (and low) Ceiling

We all read and followed the collapse of the WeWork dream.  It was a dream.  Billions of dollars poured in with little evidence of a workable business model.  The Insurtech world suffered much of the same.  Many companies were funded without a clear vision for profitability.  Coverager just published a report on ~175 of these inactive startups.

Will this change.  Not a chance.  There is too much investable money out there.  With T-bills at historic lows and some European countries with negative interest rates, Investors are chasing any potential return.  What will change though is the exit strategy for the Insurtechs.  They will have to have a profitable product or provide something of value to a Carrier (who would then acquire them).

Another barrier to growth is brand recognition.  Whether you are B2B or B2C, you need brand recognition to grow.  For the Insurtech carriers (and MGAs) to truly grow they will have to start to spend advertising dollars that most likely exceed their raised capital.  The top 10 Insurance advertisers spend just under $5B annually.  Will Hippo, Lemonade, or Next spend 10s of millions on advertising?  Unlikely, but it’s anyone’s guess.  WeWork did some crazy illogical things.

Source AdAge 2019

2020: To Enable or Not?

Perhaps the area that I see of greatest potential is around Insurtechs providing a service to the legacy Carrier community.  Rather than treat Insurtechs as just a new type of vendor, successful Carriers collaborate with or even acquire the Insurtechs.  This allows the legacy carrier to quickly benefit from the entrepreneurial culture and technical creativity of Insurtechs, while the founders at the Insurtechs benefit from the industry’s market expertise, capital, and brand recognition.  It’s a win-win!

We surveyed Insurance Carrier CEOs this past summer as to what Insurtech areas they were exploring, and what POCs they ran and what was successful.  The highlights are below.  If you want to learn more, please reach out!

There are plenty of enabling Insurtechs to discuss, but I’ll leave that for another post.

Happy New Years and I very much look forward to staying in touch.

About Insurtech Advisors

Insurtech Advisors is dedicated to helping regional insurance carriers plan for the future today.  We help you identify and partner with Insurtechs.  This enables you to thrive and continue to meet the needs of your members, employees, and independent agents.

2019 Anti-harassment and data protection laws: are your agents and policy holders compliant? Does a Carrier have responsibilities?

Over the past few years, politicians have become increasingly involved in legislation to protect consumers and employees.  As a result of the #MeToo movement, 7 states have enacted regulations requiring private companies to provide anti-harassment training to their employees, and this is in addition to stricter laws protecting individuals and employees.  These regulations can apply to companies as small as 1 employee!  Click here to see a list of states and their relevant anti-harassment laws.

Add to this, all the press around data breaches and most States have enacted a wide range of consumer protections.  These include everything from how companies can use customer data to how they need to dispose of customer data.  Click here to see a list of states and their relevant data security laws.

No data is safe.

There is a report of a recent SMS data leak affecting 10M+ TrueDialog clients and their customers.  Have you implemented an SMS program to keep your Agents and policy holders informed of key activities?  Do you use a TPA?  If either of you used TrueDialog, your policy holder’s private information was exposed.

anti-harassment training poster

Do you have a process in place to stay abreast of new regulations?

How do you monitor if your insureds are following state mandates?  Would you cover a claim if your insured wasn’t aware of the regulations or didn’t think they applied to them?   Most EPLI policies would not cover a claim if the policy holder was not compliant with State or Federal requirements.

In New York, if a business didn’t train their employees and there was a complaint, the courts are expected to be less forgiving and provide for larger awards and penalties.  Driving up litigation and loss exposure expenses, perhaps into the hundreds of thousands of dollars.

A new California Consumer Privacy Act comes into force January 2020.  Companies will have to disclose to California customers what data of theirs has been collected, delete it and stop selling it if the customer requests. The fines could easily add up — $7,500 per violation if intentional, $2,500 for those lacking intent and $750 per affected user in civil damages.  In addition, the law has specific requirements for IoT manufacturers.

data protection

Your Agents

What about your independent agents?  Do you know if they comply with relevant state regulations? What if they violated any of the state regulations?  How would you respond?  How could this impact your reputation?

These are just a few questions that a carrier needs to think about in our ever-changing world. These changing regulations impact you, your suppliers, agents, and your policy holders.

Potential Steps you Could Take

Carriers should take the following steps to mitigate exposure for the carrier, agent, and insured:

  • Determine what state laws apply to your organization and suppliers
    • For instance, do you have any employees working in New York or New York City?
    • Do you have any policy holders or suppliers in California?
  • Review your policies, arbitration agreements, and NDA’s
    • Update your existing harassment and data policies to meet the requirements of the relevant state and local laws.
    • Review your current arbitration agreements and NDA’s with employees.
  • Agents
    • Evaluate if you need to require your independent agents to be in compliance with relevant state and local laws.
  • Decide on your role
    • Do you want to take a proactive role with your agents and policy holders?
    • If you do, how and what do you want to do?
    • Should you consider amending the commercial policy holder application to ask questions about adherence to state laws?

Please reach out if you have any further questions about these laws and their potential impact on you, your suppliers, agents, and policy holders.

What do you think?  Should a carrier be proactive with their agents and insureds?

About Insurtech Advisors

Insurtech Advisors is dedicated to helping regional insurance carriers plan for the future today.  We help you identify and partner with Insurtechs.  This enables you to thrive and continue to meet the needs of your members, employees, and independent agents.

Chatbots: Insurtech vs Big Tech

Insurtech funding thru Q3 2019 has hit record levels totaling about $4.4B (approximately 60% being P&C and 40% L&H).  Surprisingly, little funding attention has been made to the “Chatbot.”  Even though the simple chatbot provides immediate benefits to customers, agents, and employees.

According to an analysis of Coverager data, there have been 5 Insurtechs funded for approximately $35M to launch chatbots specifically focused on the Insurance vertical.  This amount pails in comparison to how much traditional tech providers like IBM, Microsoft, Amazon and Google have invested in chatbot technology.  Afterall, wouldn’t a carrier like to have a chatbot as smart as Watson was on Jeopardy or as ‘helpful’ as Alexa or Siri?

Chatbots can help you:

  1. Save Time
  2. Save Money
  3. Improve customer, agent & employee satisfaction
  4. Increase customers
  5. Can decrease errors
  6. Allow you to show some humor

So where do you start?

As with any project, start with the use case.  What opportunity or problem are you trying to address?  First, identify your use case then, identify what vendor to use.

Remember, you don’t have to start with customers.  There are perhaps even more use cases for internal staff or your brokers.

Now that you have a use case and realize chatbots can help, who should you consider partnering with? Insurtech or Traditional Tech?

Partner with an Insurtech if your current tech stack is outdated and/or you want to jump start training the bot specifically for insurance.

Partner with a traditional tech company to integrate easier with your current systems and/or knowing they will be around for the long term.  Unlike Insurtechs, some of the big tech companies provide their chat technology for free!

Here are 7 traditional chatbot providers to consider

  • AMAZON: simply put AWS Lex lets you leverage Alexa’s brains. If you are an AWS user – integration is easy
  • GOOGLE: Dialogueflow integrates with lots of services and is strong on ML analytics and understanding intent
  • IBM WATSON: No this isn’t just your Jeopardy contestant. Watson also includes a process for measuring the emotion of the user and transferring the conversation to a human if the user grows angry
  • MICROSOFT: AzureBot is about building enterprise-grade bots focused on controlling the data. It integrates with Cognitive services to make interactions more human-like
  • LIVEPERSON: is a completely integrated customer service platform.
  • LIVECHAT is a platform for supporting live agents with a collection of canned responses and commonly sought info
  • BOLD360: is about “bot and agent harmony” Its software aims to blend the work of humans and AI.

Here are 5 Insurtech chatbot providers to consider

  • Hi MARLEY: Insurance focused specializing in claims, underwriting and policy interactions. APIs to connect with Guidewire and Duck Creek
  • CLAIMBOT: Mostly focused on claims-based interactions. Delivers a seamless conversational chatbot experience on SMS, Facebook Messenger and any browser
  • INSURMI: Designed to guide consumers through the entire insurance customer journey from sales to claims to customer service
  • LEO: Focused on helping the insurance agent sell and service customers 24/7
  • Focuses on conversational transactions that are AI enhanced

The Path Forward

As with any activity, it’s very important to pay attention to what’s going on outside your four walls and to identify the best use case.

Look at implementing chatbots thru four lenses:

  1. Will implementing a chatbot create new value for you and your policyholders?
  2. If you don’t provide chatbots, will you lose market share?
  3. How might chatbots destroy old paradigms, ways to interact, and insurance products?
  4. How can chatbots help improve operational efficiency and customer/agent/employee experience?

Evaluating the upside and downside of any new innovation positions you to better meet the changing needs of your agents, customers, & employees.

About Insurtech Advisors

Insurtech Advisors is dedicated to helping regional insurance carriers plan for the future today.  We help you identify and partner with Insurtechs.  This enables you to thrive and continue to meet the needs of your members, employees, and independent agents.

Car Subscriptions and the Future of Personal Auto Insurance

As we all know, Millennial consumers expect speed, transparency, & online access.  This is true whether we are dealing with consumers or businesses.  There are some interesting developments that might impact personal auto premiums.

One of the most discussed is the sharing economy.  There is a generational shift in terms of car ownership.  People want alternative ownership or usage-based models.  Layer in Uber and Lyft, and it’s quite easy not to own a car. 

Ridesharing aside, car dealers and manufacturers are starting to sell cars via monthly subscriptions.  Currently, these lean towards the luxury market and standard in the monthly fee is insurance – with very generous limits.

BMW launched a program where you can subscribe to cars for as low as $998/mo.  Mercedes Benz has a program as does PorscheAudi’s subscription includes rentals through their Silvercar rental company.

What’s the benefit.  You exchange cars when you want.  You can drive an SUV one week and a coupe the next.

Volvo’s subscription resembles cell phone financing options and isn’t as generous.  You pay a fee for 24 months and can exchange after 12 months for a new model.  They are using Liberty Mutual to underwrite the policy

At the lower end, you have startups like Fair and Flexdrive who partner with local car dealers to provide subscriptions to used cars.  Both companies underwrite through Assurant.

Why should a Carrier care?

Instead of having a pool of hundreds of thousands of potential customers, carriers may be dependent on winning a couple of large global contracts.  In this case, the personal auto business will decline while a few commercial lines carriers will benefit.

The Bulls

  • Subscriptions simplify ownership and consumers like that
  • Small businesses will like the fact they can increase or decrease vehicles as business needs change
  • The biggest carriers and brokers will dominate

The Bears

  • Consumers and businesses still want to own the vehicles
  • Profitability and risk exposure is unknown
  • It’s only attractive for a small segment of the population

The Path Forward

As with anything, it’s very important to pay attention to what’s going on outside your four walls.

Look at the move to subscription auto thru four lenses:

  1. Will this type of product create new value for you and your policyholders?
  2. If you don’t provide a similar product, will you lose market share?
  3. How might this destroy old paradigms and insurance products?
  4. How can this type of product help improve operational efficiency and customer experience?

Evaluating the upside and downside of any new product innovation positions you to better meet the changing needs of your agents, customers, & employees.

Insurance agents should partner with Insurtechs
Could InsurTech Startups Be Friends—Not Foes for the Insurance Agent?

FacebooktwitterlinkedinmailI recently wrote an article about how Insurance Agents can benefit from the Insurtech Ecosystem.  The Insurance agent or broker should look to partner with appropriate Insurtechs, thus bringing their insurance industry enhancements into their Agency and giving them a competitive advantage.

You can read more @IndAgent:  Could insurtech startups be friends not foes?

Insurtech Advisors helps connect small and mid-sized insurance carriers and agents to the advances occurring in the Insurtech space.  We do this by working individually with each partner to help them understand how to innovate and implement some of these external Insurtech ecosystem advances into their current processes in a cost and resource efficient way.  Additionally, we strategically invest in early stage Insurtech startups, where their offerings can benefit our member insurance carriers or agents.  For more information, please contact us at: or +1.929.282.2031.

A contrary opinion to the impact of insurtech on incumbents

FacebooktwitterlinkedinmailAn interesting article on about why predicting legacy insurance carrier demise at the hands of insurtechs is wrong.

The demise of legacy carriers is overrated

They posit that these predictions don’t take into account game theory like behavior such as what the incumbent legacy carriers will do.  In the end, these legacy carriers have significantly larger balance sheets and if they are nimble enough, they could imitate or even wait out the demise of these smaller insurtech startups.