The Insurtech firm Hippo was facing two big challenges related to climate change: major loss ratios and rate hikes. The company used technologically empowered services to create its competitive edge, along with providing smart home packages, targeting risk-friendly customers, and using data-driven pricing. But now CEO and president Rick McCathron needed to determine how the firm’s underwriting model could account for the effects of high-intensity weather events.
I’ve actually also talked to many of these incumbents, Prudential, State Farm, and when they saw this new model coming in, this almost like touchless, faceless market that Hippo is a part of, and that Hippo, Lemonade, Ladder, I’m going to mention a few names, they may come up again, these are these kind of new entrants. They’re the flag-bearers of this model that says, “Hey, people actually don’t want their neighbor.
Let me just kind of give the landscape of insurtechs. Insurtechs have come in, disrupted, and are stealing the essentially policyholders and new policyholders like crazy. It looks like their model is working, but the model that’s working is the stealing of the people. If you actually look at the losses that they’re incurring… That’s a great part about insurance is that you can actually compare. These are all public documents.
LAUREN COHEN: I think you might be hitting on something. Look, if you think about the valence of the interactions you have with a bank, with the financial advisers, they’re growing your wealth. Insurance is just kind of bad stuff. You go to them when something bad happens, then you have to argue with them and you bicker back and forth when something bad… You think about health insurance or property insurance.
LAUREN COHEN: Yeah. That’s a very savvy pick up, and I hadn’t even thought about it in that way, but you’re right. When we see innovations, they’ve been on the logos and the advertising but not as much on the loss models. There have been some innovations, and they claim to be updating the loss models obviously whenever they can and trying to maximize the loss models, that’s in their best interest, but we haven’t seen huge innovations in the insurance market.
BRIAN KENNY: It’s a wonder that any insurance company is making money given the impact that climate change has had on weather patterns. If it’s not a hurricane, it’s a tornado. If it’s not a tornado, it’s softball sized hail that’s damaging vehicles and homes, so I would say it’s not for the faint of heart. Anybody who ventures into this space really has to think hard about what they’re doing and why they’re doing it.