Inflation

I once had a conversation with an advertising professional who had worked for both American and Israeli brands. He explained that the primary distinction between Israeli and American consumers is that Israelis buy because they have to, but Americans buy because they want to.

According to findings by the Organisation for Economic Co-operation and Development (OECD), the US leads the way in terms of living space with an average of 3.8 rooms per household member. Another indicator that may support this statement is the average retail space per person in different countries. Based on a PwC analysis, in places like France, Germany, the UK and Japan, average retail space was less than 5 square feet per person. In the US, that number is over 23. “We are clearly overretailed in America,” said Byron Carlock, head of PwC’s US real estate practice. “Suburban sprawl created a situation where we just believed that every time there was a new intersection with four corners we needed to put up four strip centers. We’re learning differently now.”

In my opinion, this American consumer trait is what made the United States of America the land of opportunity. When wanting something is as important (for some) as needing something, consumption increases which leads to greater (and sometimes better) supply. Domino’s first promised people in the US pizza in 30 minutes or less. Apple released the iPhone in the US months before doing so in Europe. And the Israeli founders of Lemonade decided to reinvent insurance for the American people, not for their people. On the other hand, great demand can also lead to greater (and sometimes mediocre) supply.

A few years ago, a guy working at Nationwide decided that he’s “got to try something.” That something was building a new insurance company. Since news travels, a guy traveling on the Gili Islands off the coast of Indonesia decided that he also wanted to build an insurance company after he couldn’t find one or two of his policies. Both companies were launched and this week both companies made the news and not in a good way. Root laid off a significant number of employees and Coya was sold in an all-stock deal to another insurance startup.

While they operate in different markets, Root and Coya experienced the same challenge – attracting customers in a fast and efficient manner. Root was able to grow fast but they’ve wasted a lot of resources by hitting the gas all the way, and Coya’s low premium products weren’t enough to keep it going.

It’s easy to criticize the efficiencies of insurance startups compared to established carriers as their balance sheets are significantly more fragile. But a quick look at GEICO will also reveal a difficult environment – in 2020, the insurer increased the number of auto policies by 820,000. That may appear to be a significant number, but when you spend over a billion dollars in advertising every year, it isn’t.

And yet, Root and Coya weren’t formed because of a need but because of a desire to take advantage of an opportunity in a big industry. One was able to go further than the other simply because a few folks wanted it to. That’s the negative side of the land of opportunity – some folks are opportunistic.

In a video obtained by Coverager, Mark LeMaster, Root’s chief claims and customer service officer, blamed inflation as the cause for the mass layoffs that took place. The truth is, there’s an inflation of insurance companies that look and sound alike, and there simply aren’t enough customers to go around.