Partnership with home builder Lennar a key channel for growth – Hippo CEO

➤ Rick McCathron became Hippo Holdings Inc. president and CEO in 2017 after previously leading Superior Access Insurance Services Inc.

➤ McCathron also serves as chairman of the board for Spinnaker Insurance Co., Hippo's property and casualty subsidiary.

➤ The California-based provider of homeowners insurance, founded in 2015, went public via a special purpose acquisition company in 2021.

S&P Global Market Intelligence caught up with McCathron at the recent Future of Insurance Conference in Chicago to discuss customer expectations after COVID-19, the disruption insurtechs have brought to the marketplace and the importance of the company's embedded partnerships to its future growth. The following interview has been edited for brevity and clarity.

S&P Global Market Intelligence: What is your take on the current state of the insurtech sector?

Rick McCathron: Insurtech promised a modernization of the insurance industry. If we look at many of the things launched initially by insurtechs, we're seeing some of the traditional incumbent insurance companies take on those initiatives and do the best they can to launch those within their large organizations. Often, for a large organization, it's sort of like refitting a ship at sea. Insurtechs generally have forced the incumbents to take more of a customer-centric approach, so, in that regard, we've been very successful.

That sounds a lot like the disruption of the industry that insurtechs have been talking about.

That's right, but I don't like the term "disruption." I've been in the insurance industry for 30 years and I think the insurance industry has done some great things, not only in my time but for years before that. That being said, every industry needs to be modernized and our industry has not always looked at the customer as a partner. Sometimes they've looked at the customer as an adversary and I think insurtechs have the exact opposite approach, which is [that] without the customer we don't have a business. And customers' expectations are changing and we need to meet those expectations while still being fiscally responsible.

The pandemic helped make some of those customer expectations a reality. Where did the pandemic spark the biggest changes?

The pandemic accelerated people's comfort with technology. A perfect example of that is my 80-year-old mother. If you had shown her a QR code pre-COVID she would have absolutely no idea what that was. Now my mom can go to a restaurant, snap the QR code and be very comfortable. I heard a quote from a food delivery CEO who made a comment that prior to COVID, it was a luxury. Post-COVID, it's a necessity. So I really think that COVID accelerated the path for many of these companies, as well as consumer adoption. And I think that shift has caused that pendulum to start swinging faster toward this modernization we've been talking about.

Hippo has an embedded insurance partnership with home construction company Lennar Corp. as well as partnerships with loan servicers. How are those arrangements working out?

Our fastest-growing channel is our partnership channel. Lennar is our largest partner, and it has an embedded Hippo offering in every model home that they're selling. And so a customer already has the quote when they decide they want Model 7 and Subsection 16 of Development X ... and they simply have to review it and accept it, and they're done. That simplifies the closing process. It makes it easier for everybody. People just want to get into their home. Everything else is paperwork, and if we can simplify the paperwork through embedded insurance, it really does make a difference in the experience.

What is your reaction to Embedded Insurance Inc.'s offer to buy out Root Inc., which was eventually rebuffed? Does it say anything about the state of the sector?

It shows that even companies that have had significant pressure on their stock, there are those out there who believe those companies have built something that has real value and has helped modernize or transition specific product lines. There has been a lot of bad news generally about insurtechs over the last 18 to 24 months. Despite the fact that some insurtechs like Hippo are doing good things and having great success, we often get lumped into a single basket and are sort of painted with a broad brush. When there are offers to acquire or offers to merge, those offers indicate that there's real value being created.

Where do you see the insurance industry going in the near future? What kind of changes have you seen or expect to see?

The industry is in flux in a pretty significant way. Consumer expectations are changing. The weather is changing. The use of embedded insurance, we firmly believe, is something that customers are going to want over time as well as personalized insurance products. All of these require significant investments in technology, and the incumbents generally struggle with that because they have siloed legacy systems bolted on from companies they have acquired. The insurtechs that are well-capitalized and maintain their insurance pedigree are in a positive position to modernize that. It's a difficult time and I think that's the struggle that many insurance techs have seen — along with the incumbents. The incumbents' loss ratios generally have not been great, and insurtechs have a hard time raising money. It's been difficult, but we think we're building something that is significant.