FinTech platforms promise to disrupt entire verticals, bringing ease and speed to sectors that have traditionally been marked by complexity and paper-based interactions.
And yet the reality can be something else entirely.
Sometimes the disruptors get disrupted — certainly, their stock prices have been battered — and may find themselves mulling a reset.
Property insurance firm Hippo stands out as an example.
This week, several investors penned a letter in which they dubbed themselves the “concerned shareholder group” as they hold about 2.5% of shares outstanding. They exhorted Hippo Holdings to “immediately announce and run a strategic review process” that addresses “abysmal financial results” as the company has “operated in an unsustainable manner.”
Hippo’s stock trades at about $9.40, roughly 96% below its initial offer price when the company went public a bit more than two years ago through a special purpose acquisitions company (SPAC) merger.
Hippo’s second-quarter earnings results, released Aug. 8, showed a crystallization of what may be spurring the investors to pen the letter. The company’s revenues accelerated in the double-digit percentage points, but operating expenses weighed on results, and the company’s operating loss for the quarter came in at roughly $87 million, up from about $56 million in last year’s second quarter.
There are vagaries in the homeowners insurance industry itself. Hippo’s management noted in investor materials that the “industry experienced significant catastrophe losses in the quarter stemming from hail and severe convective storm events in the central U.S.”
The company “is responding with rate hikes, increased deductibles for wind and hail perils, slowing policy growth, and non-renewing policies in certain regions,” management wrote a letter to shareholders. “We remain committed to achieving underwriting profitability.”
Hippo is not an isolated case. Lemonade, which, like Hippo, is a component of PYMNTS’ FinTech IPO Index, has seen its own share price slip 81% since its initial public offering (IPO). The company, which offers homeowners, car, pet and life insurance, and which has been a visible champion of artificial intelligence (AI) in the service of improving insurance, also reported second-quarter earnings results in August.
Like Hippo, Lemonade posted double-digit percentage gains in its top line, but adjusted EBITDA (a rough measure of cash flow) net loss was up by 5% year on year to $52.7 million due to higher loss ratios, and gross profit margins declined.
In June, car insurance firm Root, which like its peers uses AI and analytics in a move to make over auto insurance, got a takeover bid for a bit more than $19 a share from Embedded Insurance, yet the InsurTech went public in 2020 for around $27 a share, The Wall Street Journal reported.
In the second quarter, total revenues declined year over year to just under $75 million from $80.4 million last year, even as operating losses improved to $25.2 million from $95.5 million last year. The stock was recently trading at about $10.95.
The promise may have been golden, the results less so, as evidenced by the operational losses detailed by several of the “marquee” names in InsurTech.
And what of the investors offering up the capital that is the initial “gas in the tank” that gets these startups up and running or helps them scale? Well, the purse strings are pulled a bit tighter.
In CB Insights’ latest “State of InsurTech” funding report issued last month, the data showed that global funding in the sector decreased 36% quarter over quarter to about $900 million. Deal count fell for the third consecutive quarter, “slipping below 100 for the first time since 2017.”
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