Insurtech Hippo’s 2021 results resemble Disney’s Fantasia and the Dance of the Hippos

When we were growing up, there were three things in our family that remained constant: listening to the “World at Six” during dinner, listening to classical music, and watching the “Wonderful World of Disney” at bedtime on Sundays. One of my all-time favorite Disney movies is Fantasia. It’s a wonderful blend of classical music and early animation. There are many famous scenes of dancing hippos in the movie.

Today, Hippo Insurance announced its full-year 2021 results, which reminded me of the film Fantasia (dancing hippos) and especially the scene with Mickey Mouse and the broom: “The Sorcerer’s Apprentice.” With a lot of creativity, even a broom could dance. Hippo’s premium is growing at a high rate. In fact, the premium for 2021 is 82% higher than 2020, $333.6 million vs. $606.1 million, while revenue grew more slowly by 77% $51.6 million vs. $91.2 million. However, its net income deficit grew even faster between 2020 and 2021 by 162% worse – $142M vs. $371M.

Public Markets Sour

In Fantasia, there is another scene in which the hippopotamus begins to dance lovingly with a crocodile, only to discover that he really wanted to eat the hippopotamus.  This mirrors the attraction of the public market to Insurtechs at first glance – love at first sight, but it quickly turned out that it was hungry carnivores who were wondering where their lunch had gone. Hippo’s share price has fallen more than 80% since it started to $1.93 at the close of trading on March 10.

If we look at Hippo’s performance over the past year, we see, as reported above, rising revenues, but spending on G & A has increased somewhat more, and if net income is taken into account, there is no evidence that Hippo has been able to control the underlying overall insurance economics.

Loss Ratio and CAC

There are two other factors related to Insurance economics: loss ratio and customer acquisition costs. Hippo recorded a gross loss ratio of 138% in 2021, an increase of 27% from the ratio of 109% in 2020. Looking at its net loss ratio, it rose from 148% in 2020 to 217% in 2021, which means that they are putting much of their losses into their reinsurance.

When trying to calculate customer acquisition costs (CAC), I looked at premiums and estimated an average premium amount to calculate customer numbers and growth. If Hippo’s average premium is $1,000, then the growing customer base accounts for 272,000 customers. If their average premium is higher, $1,500, then they grew new customers by 181,667. Now Hippo spent $95M on marketing for 2021, meaning their CAC is somewhere in the range of $349 to $523. Both are high numbers given their portfolio loss trends.

Insurance Talent to the Rescue 

There is a scene within Fantasia that foreshadows this year’s change in Insurtech operating approaches. That is “The Dance of the hours” in which the hippopotamus emerges from the small pool yawning and tired and tries to shake off the water. The underlying music was an opera by Amilcare Ponchielli, but better known to us as the song “Hello Mother, Hello Father, here I am in Camp Grenada.” In short, this sums up the state of Insurtech in 2021 and what is likely to continue in 2022. Leaders are asleep at the wheel and need parental help.

To that point, during the Hippo Earnings Call, they called out the fact that they had hired an industry veteran as Head of Claims. Insurtechs are hurrying to hire seasoned Insurance industry veterans in the hope that this talent will fix the ship.  A quick scan of the advertised jobs on Coverager finds that 40% of the listings are for back-office insurance talent.  In essence, Insurtechs are doing what legacy carriers have known for hundreds of years – hiring great Insurance talent ensures great results.

Insurtech Advisors helps regional carriers and agencies to work with the best Insurtechs that will enable you to succeed and continue to meet the needs of your members, employees, and independent agents. We know your business and the landscape of Insurtech. We save you countless hours of wasted time and false starts. Furthermore, we work closely with your team to identify opportunities and goals, then introduce you personally and to the best Insurtechs pilot.