Can insurtechs match the financial performance of traditional carriers?

Lemonade, Root and Metromile have a few things in common, and it’s not just their leading-edge technology.

“Their performance has been consistently worse than those of their more traditional [insurance company] peers,” writes Joel Baker, CEO of MSA Research Inc.

All three insurtechs have achieved unicorn status, meaning they each have a market capitalization of more than US$1 billion, Baker wrote in Thirsty Insurance Unicorns – Lemonade, Root and Metromile: Perception vs Reality, an article in MSA’s Q4 2020 Outlook Quarterly Report.

Lemonade Inc. started trading on the New York Stock Exchange in July 2020. It had net premiums earned of US$77 million in 2020 with a net loss of US$121 million, Baker reported.

For its part, Root had net premiums earned of US$322 million in 2020 and a net loss of US$363 million, Baker went on to note in MSA’s quarterly report.

In its 2020 letter to shareholders, Metromile reported last month its loss from operations in 2020 was US$44.8 million. Metromile’s total revenues in 2020 were US$35 million.

“All three carriers are heavily dependent on reinsurers and cede a large chunk of their writings via hefty quota share deals,” Baker wrote of Lemonade, Root and Metromile. “The sustainability of these arrangements as the volumes grow and results remain choppy is, in our view, questionable.”

Columbus, Ohio-based Root Insurance Company uses telematics technology to rate its American clients based on driving behaviour. Root also provides homeowner and renters insurance in the United States.

For its part, New York City-based Lemonade uses an artificial intelligence chatbot, dubbed “Maya,” to help clients sign up for renters’ insurance. Lemonade also offers homeowners insurance.

Auto insurer Metromile, based in San Francisco, charges its motorist customers a premium based on distance driven. It also licences its technology to other carriers through its Metromile enterprise offering.

“Taking on top-line business willy-nilly and leaning heavily on reinsurers as opposed to careful and selective underwriting has long been a recipe for disaster in our industry,” Baker wrote. “The main difference here is the glee in which the markets look at tech versus the sober view they take on old school insurance.”

Feature image via iStock.com/wutwhanfoto