➤ In its first-quarter results, Hippo revealed that its net loss ratio plunged year over year to 87% from 273%, while total generated premium jumped 20% to $294 million.
Hippo Holdings CEO Rick McCathron |
Rick McCathron:
In what ways have insurtechs influenced the industry's use of this technology?
Insurers typically utilize new technology to benefit the insurance company, not necessarily the customer. This is where insurtech has shifted that balance a little bit, saying, "Let's use some new technology to also benefit the customer." I think there are insurance companies that are doing that right now. They are taking a look at when a customer calls and using AI and analytics to determine the best offering for that customer.
What is AI's role in collecting the data? Where is it used?
A good use of AI is through a fronting carrier. They help [managing general agents (MGAs)] identify various risks and various programs that make sense. They have data that you want to be able to use to help your partners, whether it's a policy that you write in your own MGA or a third party. It anonymizes much of the data, meaning you don't have to give proprietary information without providing directional information. It's no different than what Insurance Services Office Inc. (ISO) does, but it's using ISO more in real-time without waiting for a circular to come out with a particular recommended change. And that's where you can accelerate everything. Everything in the industry is speeding up and the companies that will ultimately be successful are those that can either make decisions quicker, put a product into market faster and really be nimble in this ever-changing world. Because I think the one thing everybody agrees is it's changing and it's changing fast, and you've got to stay ahead of it.
You have called 2023 a "a transformative year" for the company. What made this a reality and how did it lead to a first-quarter improvement?
We narrowed our focus to areas where we could earn an underwriting profit. This was the result of the industry having a very difficult [second-quarter] and the commitment that we made to our investors and our partners that we would have a portfolio that would get us to adjusted EBITDA profitability by the end of 2024. So we made a lot of tough decisions, but that has put us in a great position for 2024. Last quarter was the first quarter that our actual cash level increased as a company, which is great. And so we're really excited about the position that we are in. As you know, it takes a year or two to make any real changes within the insurance space and we have made the necessary changes. At this point, it's just watching those changes work themselves into the portfolio and into the financials.
Weather events such as severe convective storms are becoming a nationwide problem for insurers regarding claims and risk assessment. How is the industry responding to the challenge?
The industry is an inflection point in terms of how it deals with this situation. When the Northridge earthquake hit Southern California in 1994, earthquakes were a standard covered peril on most homeowners insurance policies. It took a while for the industry to recognize you could not ensure that peril in a standard way. So then the specialty provider started to come to fruition ... and I think you're starting to see the same thing with severe convective storms. I think you're seeing carriers increase their deductibles, trying to create that equilibrium that should exist between customers, the company and roofers, and those that make the repairs. I think that is a temporary solution. I think the industry will, either through parametric insurance or other offerings, take those frequent large events out of the traditional insurance market and put them in a specialty insurance market.
What is the current M&A landscape looking like for insurtechs? Are there companies ripe for acquisition or has the sector stabilized?
It depends on the ability to raise money. Hippo is very fortunate to have a lot of cash to help us weather the storm the industry is going through right now. It is difficult for insurtech companies to raise money when they need it. Some will be able to and there are some very good companies out there that are doing very unique things that I'm convinced investors will want to raise money and support. There will be others that really can't raise money. Those insurtechs have built a lot of technology offerings, etc., and some companies are going to want to acquire that because sometimes it's easier to buy it than to build it yourself. So, I think those that are viewed as very close to profitability, are doing something unique, have ample cash and can raise money are going to be just fine. There's a large subset that are not able to do some of those things, and I think those are primed for acquisition.