{"id":5186,"date":"2023-08-11T10:47:19","date_gmt":"2023-08-11T14:47:19","guid":{"rendered":"https:\/\/insurtechadvisors.com\/?p=5186"},"modified":"2023-08-11T10:49:03","modified_gmt":"2023-08-11T14:49:03","slug":"insurtechs-2q23-the-shawshank-redemption-or-the-big-short","status":"publish","type":"post","link":"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/","title":{"rendered":"Insurtechs 2Q23: The Shawshank Redemption or The Big Short?"},"content":{"rendered":"<div class=\"wpb-content-wrapper\"><p>[vc_row][vc_column][vc_column_text]<span style=\"font-weight: 400;\">My daughter, <a href=\"https:\/\/www.linkedin.com\/in\/hadar-hertz-237170278\/\" target=\"_blank\" rel=\"noopener\">Hadar<\/a>, the overachiever, managed to cram a 4-year college degree into just one year. It&#8217;s like she had a time-turner from Harry Potter. On top of that, she became an EMT, CPR Instructor, and continued lifeguarding. Why? To fund her love affair with fast food. (Honestly, who can resist the allure of crispy fries?)\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Recently, she ventured into the world of credit with a shiny Discover card. But lo and behold, two months in, she&#8217;s already giving me those puppy eyes, asking for a financial lifeline. She&#8217;s sharp enough to dodge those pesky interest fees but seems to have a blind spot for 100 pair of glasses.\u00a0 We sat down for a heart-to-heart about not spending tomorrow&#8217;s money today. She nodded in understanding. If only the insurtechs had someone to give them such sage advice.<\/span><\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e9495a8468a\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e9495a8468a\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/#Insurtechs_and_the_Whiskey_River\" >Insurtechs and the Whiskey River<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/#Movies_and_Real_Life_A_Tale_of_Two_Cities\" >Movies and Real Life: A Tale of Two Cities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/#The_Insurtechs_Financial_Rollercoaster_Now_with_More_Loops\" >The Insurtechs&#8217; Financial Rollercoaster (Now with More Loops!)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/#What_in_the_world_is_a_%E2%80%9CSynthetic_Engine%E2%80%9D\" >What in the world is a \u201cSynthetic Engine\u201d<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/#Peering_into_the_Insurtech_Crystal_Ball\" >Peering into the Insurtech Crystal Ball<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/#The_Grand_Finale\" >The Grand Finale<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Insurtechs_and_the_Whiskey_River\"><\/span><b>Insurtechs and the Whiskey River<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">These insurtech companies remind me of a memorable trip to Austin, TX where I had the privilege to see Kris Kristoferson join Willie Nelson on stage in a small saloon and just jam together for the night.\u00a0 These insurtechs are like Willie, crooning away, hoping the \u201cWhiskey River\u201d of venture capital keeps flowing. But, just like my attempts to sing karaoke, it went south and ran dry.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now, who do we point fingers at for the insurtech missteps? The Boards? The VCs? Or perhaps it&#8217;s the allure of those swanky Silicon Valley espresso machines and bean bags?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A friend of mine called me after the Hippo results and asked me how long should a board wait before replacing the executive team? I quipped, &#8220;When they&#8217;ve had enough time to order, use, and break a company-branded Segway.&#8221; But on a serious note, 12 to 18 months, after more active oversight.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">Why have the Boards not moved. Most boards won\u2019t move unless there is a major violation of conduct, rather than poor performance.\u00a0 Moreover, these boards have been able to count on the VC community for continued support.\u00a0 VCs have poured billions of dollars into these companies, rewarding them for growth even when they were not profitable.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Movies_and_Real_Life_A_Tale_of_Two_Cities\"><\/span><b>Movies and Real Life: A Tale of Two Cities<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Remember &#8220;The Wolf of Wall Street&#8221;? The VCs are like Jordan Belfort, living it up without a care for tomorrow. And &#8220;The Big Short&#8221;? The boards of Lemonade, Root, and Hippo should be having some serious d\u00e9j\u00e0 vu. They should be asking themselves the same question that Michael Burry asked his board. Are they doing enough to address the risks? Are they being patient enough, or are they just delaying the inevitable?\u00a0 Are they just waiting for their own bubble to burst?<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Insurtechs_Financial_Rollercoaster_Now_with_More_Loops\"><\/span><b>The Insurtechs&#8217; Financial Rollercoaster (Now with More Loops!)<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Lemonade, Root, and Hippo&#8217;s financial reports are starting to resemble my attempts at <\/span><b>DIY home repairs<\/b><span style=\"font-weight: 400;\">: ambitious beginnings, followed by a lot of &#8220;Oops!&#8221;\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Lemonade spilled red ink to the tune of $67 million. Hippo, not to be outdone, splashed $105 million. Root, the &#8220;diet version,&#8221; shed only $38 million. It&#8217;s like they&#8217;re in a race, but the finish line is a cliff. Their stock prices continued to plummet.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/s24.q4cdn.com\/139015699\/files\/doc_financials\/2023\/q2\/Shareholder-Letter-Q2-2023-FINAL-8-2-2023.pdf\" target=\"_blank\" rel=\"noopener\"><b>Lemonade\u2019s <\/b><\/a><span style=\"font-weight: 400;\">12-month trailing Net Income stabilized at a loss of $295M.\u00a0 They lose 13% of their premium per year due to attrition.\u00a0 This requires them to acquire even more customers than an incumbent carrier who would have retention rates far above 90%.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/s28.q4cdn.com\/605554075\/files\/doc_financials\/2023\/q2\/Hippo-Shareholders-Letter-2023-Q2.pdf\" target=\"_blank\" rel=\"noopener\"><b>Hippo <\/b><\/a><span style=\"font-weight: 400;\">lost 55% more than the previous quarter.\u00a0 This increased their 12-month losses to $361M, the highest since the end of 2021.\u00a0 One bright spot for them was their fronting carrier, <\/span><b>Spinnaker Insurance<\/b><span style=\"font-weight: 400;\">, which contributed $5M to their quarterly net income.\u00a0\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/ir.joinroot.com\/static-files\/362fc010-f0ab-401d-abc0-561f8a98b227\" target=\"_blank\" rel=\"noopener\"><b>Root <\/b><\/a><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">perhaps provided the brightest spot among these three.\u00a0 Quarter over quarter they have been bringing down their losses, with their 12 month losses down to $201M, down 21% from the previous quarter.<\/span><\/span><\/li>\n<\/ul>\n<h2><b><img decoding=\"async\" class=\"aligncenter size-full wp-image-5189 lazyload\" data-src=\"https:\/\/insurtechadvisors.com\/old\/wp-content\/uploads\/2023\/08\/2Q23-Results-1920-IA.jpg\" alt=\"Insurtech Running 12 Month Resul;ts\" width=\"1920\" height=\"1218\" data-srcset=\"https:\/\/insurtechadvisors.com\/old\/wp-content\/uploads\/2023\/08\/2Q23-Results-1920-IA.jpg 1920w, https:\/\/insurtechadvisors.com\/old\/wp-content\/uploads\/2023\/08\/2Q23-Results-1920-IA-300x190.jpg 300w, https:\/\/insurtechadvisors.com\/old\/wp-content\/uploads\/2023\/08\/2Q23-Results-1920-IA-1024x650.jpg 1024w, https:\/\/insurtechadvisors.com\/old\/wp-content\/uploads\/2023\/08\/2Q23-Results-1920-IA-768x487.jpg 768w, https:\/\/insurtechadvisors.com\/old\/wp-content\/uploads\/2023\/08\/2Q23-Results-1920-IA-1536x974.jpg 1536w\" data-sizes=\"(max-width: 1920px) 100vw, 1920px\" src=\"data:image\/svg+xml;base64,PHN2ZyB3aWR0aD0iMSIgaGVpZ2h0PSIxIiB4bWxucz0iaHR0cDovL3d3dy53My5vcmcvMjAwMC9zdmciPjwvc3ZnPg==\" style=\"--smush-placeholder-width: 1920px; --smush-placeholder-aspect-ratio: 1920\/1218;\" \/><\/b><\/h2>\n<h2><\/h2>\n<h2><span class=\"ez-toc-section\" id=\"What_in_the_world_is_a_%E2%80%9CSynthetic_Engine%E2%80%9D\"><\/span><b>What in the world is a \u201cSynthetic Engine\u201d<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">And then there&#8217;s Lemonade&#8217;s &#8220;Synthetic Agents.&#8221; Sounds like something out of a sci-fi movie, right? In reality, it&#8217;s just a fancy term for &#8220;let&#8217;s juggle these numbers and hope no one notices.&#8221; It&#8217;s akin to me renaming my weekly pizza indulgence a &#8220;gourmet carb-loading session.&#8221;\u00a0 And frankly, NY has some of the best Pizza! (Although if you are following our politicians, they want to eliminate all the wood burning ovens).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Simply put, this is nothing more than a way for them to defer direct customer acquisition costs over 3 years.\u00a0 And this is critical for them.\u00a0 Between Q1 and Q2 of this year, they grew net new customers by 50k.\u00a0 Given they spent $24.8M on marketing, that amounts to $492.10 per net new customer.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">They are brilliant with numbers.\u00a0 Next quarter, their marketing cost could drop by \u2154 and they will finally have reported CAC which is below their average premium per customer of $360.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">So what does this really mean?\u00a0 It\u2019s nothing more than an accounting trick which frees up capital.\u00a0 However, while it looks like their CAC dropped, in fact all that dropped is the way they accrue expenses.\u00a0 Not to mention, the real CAC goes up 16%, which is the fee they have to pay General Catalyst to front the money.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Peering_into_the_Insurtech_Crystal_Ball\"><\/span><b>Peering into the Insurtech Crystal Ball<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The future of insurtech is as clear as mud. Some prophets see a bubble on the brink of bursting. Others envision it as the golden goose of the insurance world. But if these fledgling companies want to soar, they&#8217;ll need more than just accounting wizardry.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_Grand_Finale\"><\/span><b>The Grand Finale<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">In &#8220;The Shawshank Redemption,&#8221; Andy Dufresne is the embodiment of hope and resilience. If insurtechs want to make it to the other side, they&#8217;ll need a dash of that Andy magic. And perhaps a rock hammer. Or at the very least, a solid business plan.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Please reach out if you want to discuss these results or have questions on how you can better position yourself or your company for success.<\/span>[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_btn title=&#8221;Book a Consultation&#8221; color=&#8221;primary&#8221; link=&#8221;url:https%3A%2F%2Fapp.simplymeet.me%2Fkaenan|target:_blank&#8221;][\/vc_column][\/vc_row]<\/p>\n<\/div>","protected":false},"excerpt":{"rendered":"<p class=\"card-text\">[vc_row][vc_column][vc_column_text]My daughter, Hadar, the overachiever, managed to cram a 4-year college degree into just one year. It&#8217;s like she had a time-turner from Harry Potter. On top of that, she became an EMT, CPR Instructor, and continued lifeguarding. Why? To fund her love affair with fast food. (Honestly, who can resist the allure of crispy [&#8230;]<\/p>\n<p class=\"m-0\"><a class=\"btn btn-outline-secondary btn-read-more\" href=\"https:\/\/insurtechadvisors.com\/old\/2023\/08\/11\/insurtechs-2q23-the-shawshank-redemption-or-the-big-short\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":5192,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","content-type":"","wds_primary_category":0,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-5186","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/posts\/5186","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/comments?post=5186"}],"version-history":[{"count":0,"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/posts\/5186\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/media\/5192"}],"wp:attachment":[{"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/media?parent=5186"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/categories?post=5186"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurtechadvisors.com\/old\/wp-json\/wp\/v2\/tags?post=5186"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}