“All the insurance players will be InsurTech” is a phrase we have uttered on many occasions in the past few years, but some InsurTechs have chosen to be insurers. Real insurers. Which means they file detailed financial statements.
In Part 1, the authors present overall loss ratio, expense ratio and combined ratio results from statutory filings of the three insurers.
These obscure but public regulatory filings are a rare glimpse into the closely guarded workings of startups.
Full-year 2017 filings for U.S.-based insurers were released earlier this month. Here’s what we found:
We explain and show data for each of these points in this article.
Context and Sources
The most notable recent independent U.S. property/casualty InsurTech startups that operated throughout 2017 as fully licensed insurers are Lemonade, Metromile and Root.
Despite the lack of interest, being a fully licensed insurer may prove to be a more durable business model than the alternatives like being an agency or otherwise depending on incumbents, and the three carrier startups that we analyze all have strong teams with powerful investors.
The statutory filings we reviewed provide many of the traditional KPIs of insurance companies. Startups may use additional internal measures as they scale their company. Statutory statements typically do not include the financials of an insurer’s holding company or affiliated agencies, and companies have some flexibility in how they record certain numbers. But for all their limitations, statutory figures have the benefit of being time-tested, mostly standard across insurers, and measuring critical indicators like loss ratio and net income.
Here are the key stats on three companies—from top line to bottom line:
The ratios are typically calculated on net earned premiums, but we also show a row where the expense ratio denominator is total direct premiums written, which may be more appropriate for growing books.
Lemonade Insurance Company
Metromile Insurance Company
Root Insurance Company
Additionally, a few other notable companies are worth a mention:
Berkshire Hathaway Direct Insurance Company sells online via biBERK.com but isn’t a venture-backed startup. They wrote $6.4 million in premium last year—their second year of operations—most of it workers compensation. Their loss ratio gross of reinsurance was 124.
Oscar is a startup brought to you by Josh Kushner and others who have plowed in $728 million already, with more funds being raised currently. Oscar shows no signs of profitability in its three main states:
Bottom Line: Underwriting Results Have Been Poor
All three companies have a gross loss ratio of near 100 or higher. (For reference, the industry average in 2016 was 72.) That means they have paid $1 as claims for each $1 earned from policyholders in the last 12 months.
An insurance startup has to prove two critical things.
We’ve been in debates over which is more important, and we always start with underwriting, since it takes no special talent to distribute a product that has been poorly underwritten (i.e., selling below cost). Underwriting quality/discipline is one of the “golden rules” of the insurance sector. Disrupt it at your investors’ peril.
Poor results are to be expected at first, even for the first several years. A single big loss can foul a year’s results in a small book. It can be hard to tell if that single loss is an anomaly or a failure in the model. Building an underwriting model is like playing whack-a-mole with a year’s time lag. Sometimes it’s difficult or impossible to address even widely known underwriting issues.
Other articles in this series:
For the complete original article, visit the LinkedIn pages of Matteo Carbone or Adrian Jones.
The authors’ opinions are solely their own, and only public data was used to create this article.