In an accompanying article, we looked at the statutory financial results of three U.S. P/C InsurTech carriers, finding that Root continues to outpace Metromile and Lemonade on the top line, while Lemonade still generates industry buzz.
And that was before Lemonade announced an initial public offering.
Beyond the IPO, what paths will each of these InsurTechs take in the future? How will they get there? Will COVID-19 change everything?
Another question on everyone’s mind is probably this: What will be the impact of temporary lockdowns on the three players? As we look ahead into expected results from first quarter 2020, we expect to see the effect of COVID-19 play out in a few different ways.
• We expect Metromile to be the most impacted due to the fact that their product is based on a “per- mile” computation basis. Analysts are already reporting that mid-March to the end of the April, “miles driven” have reduced by 50 percent. With millions of U.S. residents that have spent a couple of months in lockdown, we expect the Metromile top line will shrink.The company has already laid off part of the employees, including the entire marketing team.
• Root has announced a “stay-a- home” bonus similar to many other auto insurance carriers. Root’s incentives are based on a measured 20 percent or more reduction in driving in April and May. With the lockdown, their try-before-you-buy approach probably takes more time to be completed so their growth will be impacted.
• For Lemonade, we do not currently expect any change in the coverage needs and or customer behavior for the core products that the company provides. We do however expect that macroeconomic issues like increasing unemployment, underemployment and reduction in disposable incomes will lead on one side to some customers seeking lower prices through competitive shopping but, on the other hand, customers who have never considered or bought renters insurance policies may continue to ignore the need and shun the product. Industry watchers will recall Lemonade’s claim on effectively attracting first time buyers of rental insurance. We expect this to be tested.
(Editor’s Note: In an IPO filing, Lemonade disclosed first-quarter 2020 gross premiums of $38.1 million, which represent a 15 percent increase over fourth-quarter 2019 and a 97 percent increase over first-quarter 2019)
From a broader P&L perspective, we also expect to see first-quarter 2020 investment income to be depressed.
Looking ahead to the rest of the year from his exile in a downtown Atlanta hotel, one of us (Matteo) has already articulated his thoughts about futurologists who are designing a future based on their own self-image over recent weeks. (There have been tons of articles and webinars claiming that “nothing will be as before” and announcing the triumph of both digital distribution channels and pay-per-use telematics.)
One of us (Matteo) also remains skeptical about any long-term structural changes brought about by a few weeks of lockdown. The other (Sri) believes that while the “target state” of consumer behavior and expectations may not be known for a while, the COVID-19 crisis will cause at least some segments of consumers to fundamentally rethink their risk management and insurance solution needs. That may fuel changes in sectors like commercial real estate, pushing commercial insurance companies to rethink products, pricing and positioning in the commercial sector.
Time will tell which prediction is closer to reality.