Home insurance, a $108 billion legacy industry that depends on troves of data, is a natural area for fintech companies to target.
That change is starting to happen — and one company is getting fresh capital to tackle the opportunity. Hippo, led by co-founder and CEO Assaf Wand, is going public today through a merger with a special purpose acquisition company Reinvest Technology Partners Z. The SPAC is run by LinkedIn co-founder and venture capitalist Reid Hoffman and Zynga founder Mark Pincus.
Hippo, now available in 37 states, looks to differentiate itself in the competitive field by focusing on one sector — the home. That includes individuals as well as homeowners' associations.
There are already several other upstarts in this sector, including Lemonade, which offers homeowners, renters, pet and life insurance and went public in July 2020.
Insurers have used the web to sign up new customers and manage billing for decades. But Hippo is going far beyond just having a user-friendly app. It uses technology to monitor data such as weather or other things in the home that could cause damage. Hippo gives customers smart sensors to detect smoke or leaks and hopefully prevent damage. It also uses machine learning to optimize pricing and offer fast quotes online. This is also a strategy to stay in regular contact with customers and offer more value than just when a customer needs to file a claim.
The company, which was backed by Felicis Ventures, Horizons Ventures, Lennar, Fifth Wall Ventures and Bond Capital, had $405 million in written premiums in its 2020 fiscal year, according to its investor presentation.
Hippo also is offering its technology as a platform to other insurance startups, in what it calls an AWS strategy.
We caught up with Wand to talk about how insurance is changing.
This interview has been edited for clarity and brevity.
What are insurance incumbents doing that you'd like to take on?
The current incumbents spent the last 100 years building a flawed process of insurance. It's hard to purchase. When you look at what your purchase is for, it's usually obsolete. It's things like fur coats and beautiful china or silverware. And then, when you have a claim it's almost always a horrible experience, and in between this horrible claim experience and the purchase experience, you have zero touch points with the insurance company.
How are you different from all of that?
So we took all of that experience and said we'll make it very easy for people to purchase. The coverage is focused on modern things, so instead of the fur coats, it's more about your home office and enhanced electronics or your bicycle, things that you actually have. When you have the claim experience, we have one person who's dedicated to you and a claims team that's available 24/7 handling the claim.
Is your strategy to provide more services for customers when they don't have a claim?
The best claim experience comes from avoiding a claim from happening in the first place. So what we're trying to do is be a proactive insurance company. We're doing it by constantly monitoring the home with different data and basically telling you, "We just found this discoloration on the roof. I think we should send a roofer." This is way before the winter when you're going to have a $20,000 water loss.
How do you monitor that?
We're giving smart sensors to all of our customers to help avoid losses from escalating because it's way better to catch it at the beginning. And then we have a service called Hippo Home Care that helps our customers take care of the home from installing a shelf and replacing leaky faucets to doing renovation in the bathroom. The idea is: How do we build this relationship with our customers?
Last year you bought Spinnaker, a property and casualty insurer you've worked with since 2017. How does that change your model to offer insurance directly now?
Yes but we also have most of the risk being shifted to reinsurers anyway. In short, we own our own path forward. It gives us a lot more flexibility. It also serves as a platform for other insurance startups as well. We call it the AWS of insurtech. So if you have a startup in, say, Denton, in travel, you also need to find a carrier to actually write (insurance). So we enable people to focus on what they do best, which is use the data to underwrite, and then do the marketing, and we're going to do the insurance platform for them.
So you're providing to other companies what you didn't have before?
Yes, this exact structure for other companies, that back-end part of it.
So how much risk are you taking on?
The carrier ... is one thing; where the risk is sitting is another thing. So in this framework our aim is to have 10 to 25% of our risk that we capture, and the rest is done by reinsurers.
Are you a tech company or an insurer?
We view insurtech as a mix of insurance and technology. It's finding the best technology people and the best insurance people. If you're an insurance company that is trying to do stuff in tech, you can't get the talent that you want, and you cannot implement enough innovation and growth. On the flip side, if you're a technology company who's dabbling in insurance, you're going to make too many mistakes on losses, because there's a risk component.
My job is to basically balance these two things and have the strongest technology backing to innovate as fast as possible, and bring back the focus on the customer to bring the tools to the insurance people but then have the insurance people do the filing, the underwriting and all that kind of stuff. I need to give them the latest and greatest in underwriting tools in data, in aerial imagery, in machine learning, so they can do a better job at a faster pace.
So you're trying to bring new approaches to this industry but not changing the underlying business.
We're not disrupting insurance. I'm not taking people that have a first name starting with a T and say I'm going to give you a 15% discount — it doesn't work like that. It's about modernizing. There has been an explosion of data sources and new technology that came in in a field that hasn't changed in 100 years, and we're just embedding it all and refocusing back on a customer.
How is your technology different?
It's very different than other insurance companies. They're also not wired as a technical company. So I have a CTO and chief product officer. They have a CIO and it's all outsourced. And they're dependent on them or an army of Accenture consultants. It's just not the same kind of architecture.
How does this change the agency insurance model?
Don't forget that this is an industry that for a hundred years ... , there was one customer and that customer was an agent. We're thinking of Tomio as a customer. We're enabling Tomio to purchase however you want, not however the agent wants. The average age of an agent is 61; they're retiring like crazy. So it's about refocusing back on the customers. The customers should be agnostic on what technology. Why do you care if I have alien technology on the back end, or a bunch of papers on my desk? You care about having the best experience when you want, the best customer touch point and being covered for what you should be covered. It's my problem how to enhance it and innovate in a pace that is adhering to the customer needs.
So what's happening to that agent model of selling insurance?
This is a model that started in the 1950s and 60s, when there was the move to the U.S. suburbs. And you needed to cover [customers] and you couldn't cover them otherwise. And now, the world is moving to digital and direct.
Look at what happened in the 1990s. The biggest carriers in automobiles were Allstate and State Farm. Well now it's Progressive and GEICO that dominate. What they've done is they went direct: 15 minutes could save you 15%. You go to geico.com to purchase. Home insurance is going to go through the same evolution. Same with SMB and life insurance. So we are building the next Progressive.
What has changed with COVID-19?
COVID happened and digitization moved everything five years forward. The place of the home in our lives changed significantly because it's where you sit, is your office, but it's also your gym, it's the school, your kitchen, it's everything.
So is your model cheaper with no agents?
What we realize is you can't be mono-channel. We're omnichannel, so you can go to Hippo.com, and you can go via an agent of another company or independent agents, and you can go via our partners. You can buy a house on Compass, and it's going to be embedded via an API with the policy. You're always going to get the same price. It's my problem if the margin is going to be different. The world is moving to direct, but it always moves slower than people think. So it's also moving to independent. I'm agnostic. I'll serve a customer however they want.