In other news, the “golden children” of Insurtech startups, Lemonade, Root and Metromile, have reported a struggle to increase product and get a handle on their loss ratios.
After making an enormous splash in the market, what do the three unicorns, Lemonade, Root, and Metromile, have to show for themselves? As shown by their publicly available financial reports, what they have may be concerning… Let’s take a look at the loss ratios for those companies in 2017 and the first and second quarters of 2018.
Lemonade’s Loss Ratios:
Root’s Loss Ratios:
- 103 % for Q1/Q2 2018
- 156 % for 2017
Metromile’s Loss Ratios:
- 87 % for Q1/Q2 2018
- 98 % for 2017
Two other standout numbers were the combined ratio of 791 percent reported by Lemonade in 2017, and the combined ratio of 2,089 percent reported by Root for the same period. For comparative purposes, the industry average loss and combined ratios were around 73 and 100.6 percent, respectively, in 2017.
Naturally, few businesses are profitable out of the gate, and as Metromile’s age and relatively more reasonable loss ratios suggested, Lemonade and Root may simply be experiencing some growing pains. Their lackluster underwriting returns in previous quarters may also have been due to a higher frequency of claims. In a recent filing in Oregon, Lemonade reported that they had recorded higher than average frequencies in the states in which they operate, and were implementing a Loss Cost Modification Factor for renters in certain zones and vulnerable to certain perils.
Additionally, the high combined ratios could be attributed to the higher-than-normal expansionary expenses new companies need to dole out. Lemonade and Root were both founded in 2015; it is entirely possible the companies are still working to absorb the costs of onboarding new hires, tapping into established data streams, and general research and development in order to better their business.
Whatever the cause, that all three firms saw decreased loss ratios in 2018 is a sign they may be adapting to the demands peculiar to the insurance industry. But, it remains to be seen whether or not the business models these firms pioneered will be sustainable.