Hippo Raises $100M Series D

Hippo  announced a $100m Series D funding round led by Bond, bringing the company’s total funding to date to $209m. Established in 2015, the company provides home and condo insurance, and is currently live in Alabama, Arizona, California, Colorado, Illinois, Indiana,Maryland, Minnesota, Mississippi, Missouri, Nevada, New Mexico, Ohio, Pennsylvania, Tennessee, Texas, and Wisconsin.

With its $1B valuation, we were wondering what’s the connection between VC investment and premium written?

To its credit, Hippo has re-invented the Homeowners product to include coverage for modern living. They have introduced standard coverage for equipment breakdown (A/C, Stoves, etc.) and your water/sewer service line breakages. Both combined could save a customer hundreds of dollars a year if they were to buy these coverages separately.

So, how much premium does $209M generate?

It’s not so simple to calculate, but we looked at 2017 and 2018 premiums for their underlying carriers and tried to estimate the growth that Hippo is bringing them. Hippo’s premiums were probably somewhere around $70M* in 2018.

Other notable Insurtechs include Next Insurance which raised $131M and wrote $44M in 2018. Lemonade wrote about $47M in 2018 and has raised $480M.

What does this all mean?

Based on these 3 Insurtechs, it seems that $1 of investment brings somewhere around 20 cents in premium. Now if we were to extrapolate from these numbers, based on a combined ratio of 90% (and these companies’ real ratios are much higher), they would generate about $16M in profit. That reflects a 2% rate of return for their investors. It will be 50 years before they are whole!

As Hippo begins to entertain the thought of becoming a licensed carrier like Lemonade, Metromile, Next and Root, they will need to raise even more money. Simply put, they will need to raise funds to set aside money for loss reserving and not product design or territorial expansion as they currently have. Something their underlying carriers and reinsurers now do on their behalf.

On the bright side, solutions like those of Groundspeed or Arius that provide analytics focused on loss reserving will see their market size grow and consequently VC interest in this segment will also grow.

* According to Hippo, their premiums are “north of $150 million”. Based on this data, the return rate will change from 2% to 3% and the years from 50 to 34.