Lemonade's Metromile deal was a 'genius' business move
The future leaders in the insurtech space are starting to pull ahead of the pack through shrewd decision-making and stout leadership.
The future winners in the insurtech space are starting to become clearer as a combination of business smarts, financial resources and stronger leadership are allowing some of these tech-forward companies to pull ahead of the pack.
According to Eric Ayala, senior vice president and general manager, North America, for insurance software provider Novidea, Lemonade Inc.’s purchase of Metromile Inc. and subsequent divesture of Metromile’s Enterprise Business Solutions (EBS) platform, is a perfect example of what it will take to be a future leader in the insurtech space.
“Some folks in the insurance industry may see this deal as a sign of a coming recession. But when we break it down, we see that this was much more of a genius business move by Lemonade than a recession issue,” Ayala says.
Here is the math: Lemonade purchased Metromile for $145 million in an all-stock deal, which included $150 million in cash, $100 million in premium and licenses to sell auto insurance in 49 states. Lemonade then divested the EBS business in an all-cash deal with EIS (no further terms of that transaction were revealed).
“This is a textbook private equity move that demonstrates how today’s insurtech is business savvy, just as much as tech savvy. It should be a wakeup call to the larger insurance players,” Ayala says. “While the Progressives of the world are making fun commercials, Lemonade is making serious moves.”
In addition, Lemonade also picked up Metromile’s team of data engineers, arguably the biggest asset, and “algorithms that will change the auto insurance landscape,” Ayala says, adding: “This is the kind of thing that can take a company years and years of work to get through organic growth.”
Concerning that final point, Lemonade CEO and Chairman Daniel Schreiber confirmed as much, explaining during the deal’s announcement that Metromile’s “proprietary data and machine-learning algorithms can vault us over the most time and cost-intensive parts of the journey.”
The deal also radically altered Lemonade’s book of business overnight, according to the insurtech’s second-quarter shareholders’ letter. Renters insurance now makes up around one-third of Lemonade’s portfolio, down from almost half. Auto went from accounting for about 1% of the company’s book of business to 20%.
Ayala notes that Slide’s acquisition of St. John’s book of business is another example of an insurtech combining business savvy and technology capabilities to uncover huge opportunities.
“It is the same story: You have a strong leadership team and an insurtech (Slide) that has cash. Slide acquired a $400 million book of business, and did it because they used AI to evaluate that book of business faster than anyone else could.”
In 48 hours, Slide processed $73.7 billion in annual total insurable value, multiple years of claims data, projected reinsurance costs and forward modeled loss ratios, according to Slide Founder and CEO Bruce Lucas.
For companies with the cash, now is the time to buy, according to Ayala.
“Not so much for the product portfolio, but to keep other insurtechs from making the acquisition. It is why the Lemonade deal makes a lot of sense; it is a different line of business and algorithm. The more that Lemonade acquires that type of company, the more dangerous they’ll be in the space.”
Standalone companies, such as Metromile, are prime acquisition targets, Ayala tells PropertyCasuatly360.com, adding: “We are going to see a couple of players come out of it with very diversified portfolios. They’ll be rewarded because insurtechs get penalized in the public market because of a lack of diversification.”
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