Lemonade Announces $300M in Series D Funding

… intelligence and behavioral economics, today announced the signing of a $300 million Series D funding round led by SoftBank Group (“SoftBank”), …

NEW YORK–(BUSINESS WIRE)–Lemonade, the insurance company powered by artificial intelligence and behavioral economics, today announced the signing of a $300 million Series D funding round led by SoftBank Group (“SoftBank”), with participation from Allianz, General Catalyst, GV (formerly known as Google Ventures), OurCrowd, and Thrive Capital. Lemonade plans to use the funds to accelerate its US and European expansion in 2019, and explore new product lines.

Founded by tech veterans Daniel Schreiber and Shai Wininger, Lemonade is licensed as a full-stack property and casualty insurance carrier. The company began offering homeowners and renters insurance in New York in late 2016, and is now available for most of the US population. Lemonade is currently the #1 rated provider of renters insurance in the country.

In addition to digitizing the entire insurance process, Lemonade reduces costs and bureaucracy through giving. In a reversal of the traditional insurance model, Lemonade takes a fixed percentage as a flat fee, eliminating the conflict between paying claims and making a profit, and donates a portion of unclaimed premium dollars to nonprofits during its annual ‘Giveback.’

“In less than three years, Lemonade has expanded across the US, given back to dozens of charities chosen by our community, and fundamentally changed how a new generation of consumers interacts with insurance,” said Daniel Schreiber, CEO and cofounder, Lemonade. “Looking forward, we aspire to create the 21st century incarnation of the successful insurance company: a loved global brand that can endure for generations; an organization built on a digital substrate, enabling ever faster and more efficient operations, and ever more delighted consumers.”

Built from scratch on a digital substrate, Lemonade collects 100X more data than traditional carriers, enabling the company to generate highly predictive data with the promise of ever improving underwriting and pricing.

“We’ve watched Lemonade transform insurance using big data and AI, reaching half a million homes in a little over two years – a shockingly rapid pace,” said Shu Nyatta, a senior investment professional within the SoftBank Group and a Lemonade Board Member. “And we’re confident that the best is yet to come. The value Lemonade provides, together with the values baked into its model, are fast making it one of the most intriguing, differentiated and compelling brands.”

The transaction – which is subject to customary closing conditions including regulatory approvals – is targeted to close in Q2 2019.

About Lemonade

Lemonade Insurance Company is a licensed insurance carrier, offering homeowners and renters insurance powered by artificial intelligence and behavioral economics. By replacing brokers and bureaucracy with bots and machine learning, Lemonade aims for zero paperwork and instant everything. As a Certified B-Corp, where underwriting profits go to nonprofits, Lemonade is remaking insurance as a social good, rather than a necessary evil. Lemonade is currently available for the majority of the US population and will launch in Europe soon as part of its global expansion.

Stay in touch at http://www.lemonade.com, @lemonade_inc or http://www.facebook.com/lemonade.

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InsurTech Futures: CFC launches UK digital health insurance product

CFC Underwriting has announced that it is now offering its specialist digital health product, which has previously been limited to American brokers, …

Specialist provider has created a health and technology underwriting team to work on the policy.

CFC Underwriting has announced that it is now offering its specialist digital health product, which has previously been limited to American brokers, in the UK.

The policy offers affirmative cover for bodily injury that has emerged as a result of advice given by companies and health professionals and/or bodily injury that has emerged due to technology failures and cyber events.

Its pre-existing cyber and privacy cover is also included as standard with additional cover for technology E&O, breach of contract, self-monitoring healthcare devices and cover for failure to perform.

A spokesperson for CFC confirmed that the product is sold exclusively through broker.

Healthcare team leader at CFC Underwriting, Tim Boyce told Insurance Age that the product looks at combining health and technology underwriting teams to deal with a new and relatively unknown market.

“It’s like cyber was ten or twenty years ago,” he added.

Boyce noted that one of the speed bumps the product has faced so far is that though the product was originally only provided to American firms, these have branches across the world and every country has different data privacy laws for example GDPR in the UK.

Audience

The UK product is targeted at any size firm working as part of NHSX, a public sector initiative designed to bring health technology firms and NHS trusts together.

Boyce commented: “If you want to disrupt an industry you have to go to small businesses.”

He added that digital healthcare disrupts the “archaic insurance industry” and “helps it to evolve”.

“This is where healthcare is going, traditional industries are going to look different in the next ten or twenty years, it’s very much about what is going on in the future.”

Background

In the past the specialist provider has looked at health in relation food and drink manufacturing clients. CFC’s Natasha Catchpole wrote a blog about how brokers with these types of clients should have a product-recall ready in case there is an issue with allergens.

In regards to cyber as a cover, last year the firm joined forces with Biba to create a cyber insurance guide for brokers.

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InsurTech Carrier Growth Slows in 2018

The three property/casualty venture-backed U.S. InsurTech startups—Lemonade, Metromile and Root—finished 2018 with pretty good results.

The three property/casualty venture-backed U.S. InsurTech startups—Lemonade, Metromile and Root—finished 2018 with pretty good results. Quarterly growth was the slowest ever, but all three paid out less claims dollars than they collected in premiums.

Still, all three startup carriers have more work to do to achieve sustainable financials.

A year ago, when my friend Adrian Jones joined me in starting a public conversation about InsurTech statutory results, the picture was ugly: loss ratios well over 100, an aggressive focus on price, and promotional messages on company blogs that dismissed traditional measures of success in insurance.

Since the first post titled “Five Dispatches from InsurTech Survival Island,” the conversation has shifted dramatically. Fast forward a year, and one founder said he “messed up an entire quarter” because premium growth turned negative, when in fact the company generated its best quarterly loss ratio ever. In the intervening months, several startups have hired top underwriting talent from their traditional competitors, showing that they increasingly recognize the value of traditional insurance skills.

Skeptics point out that a quarter doesn’t mean much, there’s a long way to go before reaching sustainability and each additional point of loss gets harder to take out. True, but the increased focus this year on reducing losses and increasing prices is making a difference.

Here are the quarterly results:

I think—as already mentioned in the previous articles—these companies have strong management teams who could ultimately create valuable businesses. This will take several years, but all three companies are well-funded, even if the combination of statutory capital injections and operating losses consumes tens of millions in capital each year. (The Uber/Lyft model of growing rapidly while also incurring large losses is doubly penalized in insurance since carriers have to maintain statutory capital that increases with premium.)

Here is a year-over-year comparison.

The three companies have sold in the last 12 months between $40 million and $110 million, less than some of the early 2017 enthusiastic forecasts that Lemonade (for example) would hit $90 million premiums by the end of 2017. In auto, I pointed out at my IoT Insurance Observatory plenary sessions that the pay-as-you-drive telematics approach seems to attract only the niche of customers that rarely use cars—maybe a growing niche but not a billion-dollar business (in premiums at least).

Top Lines

In the last article of last year’s series on InsurTech carrier financial results, we told the story of top-line figures with comparisons to ants and grasshoppers. Both Lemonade and Metromile have showed a contraction in quarterly written premium volume for the first time in the past two years. Root has slowed down, but this grasshopper keeps hopping with a remarkable 55 percent quarterly growth rate for the fourth quarter.

Real and ‘Exotic’ Loss Ratios

Loss ratios for 2018 were all below 100, which is a great improvement from the 2017 performances of the three carriers. The quarterly dynamics show a positive trend, but these loss ratio levels are far from the U.S. market average for home insurance (Lemonade) and auto insurance (Root and Metromile).

I talk here about loss ratio—a fundamental insurance number—which is how much does an insurer have in claims divided by their premiums. Easy? Not always.

I’ve already heard someone ask how to normalize/adjust the loss ratio of a fast-growing InsurTech company.

What’s in a Loss Ratio?

Imagine a fast-growing insurer with the following annual figures:

  • Premiums written: $10 million
  • Premiums earned: $6 million
  • Claims paid: $2 million
  • Losses incurred but unpaid: $5 million

Any of the following numbers might be called a “loss ratio”:

  • Claims paid divided by premiums written: 20
  • Claims paid divided by premiums earned: 33
  • Claims paid and unpaid incurred losses divided by premiums written: 70
  • Claims paid and unpaid losses incurred divided by premiums earned: 117

The least attractive is the right one.

Claims paid and unpaid losses incurred divided by premiums earned is the loss ratio, for a fast-growing startup as for a large incumbent.

The others are only “exotic loss ratios.”

I’ve already heard people who say that accounting rules cause the loss ratio to be overstated based on the following unlucky scenario. A one-year homeowners policy sold for $730, earning $2 of premium each day. If a $100 claim (net of the deductible) is received on that first day, the loss ratio is 5,000 percent. That’s how it works, but is it overstated? Well, as long as premium is being earned, more claims could arrive, and the loss ratio could go even higher still. Obviously you expect the following 364 days to be less unlucky for this portfolio.

I don’t think there is any need to adjust that loss ratio…only to know that it is not (statistically) relevant.

However, the analyzed startups have portfolios of more than 100,000 policies. So, bad luck can’t explain eventual unfavorable loss ratios.

It could be that some approaches are specially targeted for fraud, and it only takes a few fraudsters to cause big problems in the loss ratio on a small book, as the above illustration shows. Some startups have advertised how quickly they pay claims, sometimes not even having a human review them, which invites unsavory people to pay a small amount to start a policy and then “lose” a valuable item. Early on, when less premium has been earned, this fraud is particularly impactful on the loss ratio. Over time, in a bigger and more balanced book, fraud gets tempered by the law of large numbers.

Additionally, some startups have offered large new business discounts. If they can retain customers reducing the premium leakage, their second-year loss ratios should be more reasonable, but the overall loss ratio will be elevated for however long they are acquiring new customers with aggressive discounts.

Expense Ratios

I would love to discuss also the other lines of the income statements, but unfortunately they are not meaningful nor comparable anymore, since companies now move expenses among their entities not represented in the yellow books. The cost amounts represented in the yellow books are only a part of the real costs necessary to run the insurance business.

The statutory information I’m commenting on is reported only for insurance companies—not agencies, brokers or service companies. The term “insurance company” or “insurer” has a very specific meaning: “the person who undertakes to indemnify another by insurance.” Within an insurance holding company, it is typical to have an insurer and an affiliated agency, and sometimes other affiliates such as a claims administrator. The insurer pays the agency to produce policies. This may feel like moving money from one pocket to another, but there would be reasons for it which I won’t get into now.

The point is for commentators and investors to be aware. If an insurer (for whom the public receives financial data) pays an affiliate 25 percent of its premiums to provide certain services, then the insurer’s expenses (which are reported in the yellow book) are set at (or close to) 25 percent of their premiums, regardless of what they actually are.

Major investors are typically privy to large amounts of information and can disentangle the back-and-forth between the insurer, agency and holding company. For smaller investors, or those who simply pick up a statutory filing, it is easy to be misled.

At the beginning of 2018, Lemonade was no longer consolidating its parent and affiliate expenses into Lemonade Insurance Co., its statutory entity. Lemonade’s CEO commented on our article that this was at the request of their home state regulator. Root followed suit Oct. 1, 2018, so the fourth-quarter 2018 expense ratio moved to 28 from the 70 in the third quarter. So, the “new” expense ratios (and therefore combined ratios) are artificial and not comparable to the previous ones or to competitors.

While regulators may have reasons for their actions, it is better for students of insurance innovation to know the full, real financials, so as to determine if the startups are ever able to “walk the talk” of better expense efficiency from “being built on a digital substrate.”

Unfortunately, bloggers are not the main audience of statutory filings. Nonetheless, innovation cheerleaders, investors and journalists…please pay attention to these accounting differences before commenting the performances.

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SocGen Assurances and Roadzen team on contextual insurance venture

Societe Generale Assurances has joined forces with AI insurtech specialist Roadzen to build a “digital and contextual” insurance player. Under the …
Under the deal, Roadzen will buy a “significant” minority stake in Societe Generale Assurances’ insurtech Moonshot-Internet.

Incubated within French giant SocGen and launched in 2017, Moonshot-Internet specialises in contextual insurance with a heavy focus on technology, data and customer experience.

The start-up delivers e-commerce, payment and travel companies modular products, offered as an API that can go on-the-shelf in less than three months and uses predictive data processing, real-time pricing and automatic payment for customers without any administrative paperwork.

Roadzen which uses AI to improve insurers’ underwriting and claims management, has built up a customer base of 10 million in India, China and the US since launching in 2015.

The partners believe that their technology strengths complements each other and that they can help each other crack new markets, with a combined footprint across three continents.

Rohan Malhotra, CEO, Roadzen, says: “Our vision is aligned and we share a common DNA of innovation. Roadzen’s goal is to bring technology, capital and a strategic view of different markets to accelerate Moonshot-Internet’s development.”

Ingrid Bocris, executive chairman, Moonshot-Internet, adds: “The growth potential is very strong. Moonshot-Internet is already on a path to success with more than ten existing partnerships. This agreement opens a new chapter in our development story.”

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VC-backed Silk Road Medical debuts IPO

Silk Road’s pre-IPO backers included Norwest Venture Partners, Janus Capital Management, Warburg Pincus, the Vertical Group and CRG.

Sunnyvale, California-based Silk Road Medical Inc, a medical device company, has raised about $120 million for its IPO after pricing its 6 million shares at $20 per share. The stock began trading April 4, 2019 on the NASDAQ under the ticker symbol “SILK.” J.P. Morgan Securities LLC and BofA Merrill Lynch are the lead underwriters. Silk Road’s pre-IPO backers included Norwest Venture Partners, Janus Capital Management, Warburg Pincus, the Vertical Group and CRG.

PRESS RELEASE

SUNNYVALE, Calif., April 03, 2019 (GLOBE NEWSWIRE) — Silk Road Medical, Inc. (Nasdaq:SILK) (“Silk Road Medical”) today announced the pricing of its initial public offering of 6,000,000 shares of common stock at a public offering price of $20.00 per share. All of the shares of common stock are being offered by Silk Road Medical. In addition, the selling stockholders have granted the underwriters a 30-day option to purchase up to an additional 900,000 shares of common stock at the initial public offering price, less the underwriting discounts and commissions.

Silk Road Medical’s common stock is expected to begin trading on The Nasdaq Global Market on April 4, 2019, under the ticker symbol “SILK”. The gross proceeds from the offering, before deducting underwriting discounts and commissions and other offering expenses payable by Silk Road Medical, are expected to be approximately $120 million. Silk Road Medical will not receive any proceeds from the sale of shares of common stock by the selling stockholders if the underwriters exercise their option to purchase additional shares. The offering is expected to close on April 8, 2019, subject to the satisfaction of customary closing conditions.

J.P. Morgan Securities LLC and BofA Merrill Lynch are acting as joint book-running managers for the offering. BMO Capital Markets and Stifel are acting as co-managers for the offering.

A registration statement relating to the shares being sold in this offering was declared effective by the Securities and Exchange Commission on April 3, 2019. The offering is being made only by means of a prospectus, copies of which may be obtained, when available, from: J.P. Morgan Securities LLC, Attention: Broadridge Financial Solutions, 1155 Long Island Avenue, Edgewood, NY 11717 or by email: [email protected]; or BofA Merrill Lynch, NC1-004-03-43, 200 North College Street, 3rd Floor, Charlotte, NC 28255-0001, Attention: Prospectus Department, or by phone at 1-800-294-1322 or by email: [email protected]

This press release shall not constitute an offer to sell or a solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or other jurisdiction.

About Silk Road Medical

Silk Road Medical, Inc. is a medical device company located in Sunnyvale, California, that is focused on reducing the risk of stroke and its devastating impact. The company has pioneered a new approach for the treatment of carotid artery disease called TransCarotid Artery Revascularization (TCAR). TCAR is a clinically proven procedure combining surgical principles of neuroprotection with minimally invasive endovascular techniques to treat blockages in the carotid artery at risk of causing a stroke.

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