3 Things – Auto Pivots, Capital Flow & Parametric / AI Opportunity

Hello Friends!  Hopefully everyone is gearing up for what appears to be large scale mid-year break.  Happy Fourth of July !  This week we are following recent auto insurance pivots, capital flow momentum and parametric / AI evolving to more than buzzwords.  Here are the three things we learned:


Recent Auto Insurer Pivots Highlight Market Challenges

The auto insurance market has been active this week, with several insurers making significant pivots in response to the mounting difficulties they face. The high frequency and severity of claims, coupled with soaring loss costs, have compelled industry leaders to reassess their strategies. The latest to make significant pivots include Nationwide E&S, a prominent player in commercial auto underwriting, made headlines by announcing their exit from the market. In a similar vein, Progressive has decided to hit the brakes on appointing new agents, recognizing the need for a careful evaluation of their distribution channels to ensure they are writing the right risk. The saga with Root Insurance took an unexpected turn, first suing their potential suitor Embedded Insurance, only to later reveal that their board had evaluated the offer and concluded it was not worth pursuing due to a significantly low valuation. This news caused a sharp decline in Root’s stock price after last week’s soaring highs following the initial takeover announcement.  Finally, Buckle, the rideshare and nonstandard insurer, has completely pivoted their model to using their underwriting company as a fronting carrier, but what balance sheet will they use?  These recent developments serve as a stark reminder of the challenges and complexities inherent in the auto insurance landscape, prompting insurers to navigate carefully and adapt to ensure long-term success.


Capital Flow Momentum and Strategic Shifts

Capital flow is building momentum but is also taking on different characteristics.  Brookfield Re’s $4.3 billion offer to acquire American Equity Investment Life Insurance exemplifies this trend, building on their previous $1.1 billion acquisition of specialty P&C insurer Argo. They’re strategically expanding their US-based insurance platform, potentially leading to more significant acquisitions in the market.  Meanwhile, classic auto insurer Hagerty secures $105 million from strategic investors, showcasing how niche players can thrive amidst a challenging market through micro-segmentation and targeted growth strategies.  In a unique move, Lemonade turns to General Catalyst for up to $150 million in fresh capital, using a synthetic agent concept to cover customer acquisition costs. They will give General Catalyst 18% of new business written, one time, which they explain is more cost effective than the recurring commission they would pay a traditional agent.  Bottom line: if they were profitable they could raise money through stock issuance so this is not a good sign.


AI and Parametric Insurance: Evolving to more than just buzzwords

AI and Parametric insurance have emerged as transformative forces with promising potential and are becoming more than just buzzwords. Federato, a pioneering insurtech, recently secured $25 million in series B funding to advance their AI-driven underwriting technology. This innovative solution empowers underwriters to leverage data, revolutionizing the traditional underwriting workbench concept.  Another exciting development is the partnership between parametric insurtech Kettle and Reask. By harnessing weather data and adopting a parametric approach, they are creating insurance products that base payment on the severity of events like hurricanes, moving away from the conventional model of relying solely on actual losses. This could be a good use case for parametric insurance to streamline the process and offer more efficient solutions for weather-related risks.  Creating opportunities where the large carriers are pulling back such as wildfire risk.

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