Columbus insurance technology companies Root Insurance Co. and Branch Insurance have formed a business league with competing digital-first startups to try to shape public policy.
Chicago-based Clearcover Inc. and New York City-based Lemonade Inc. (NYSE: LMND) and Boost are fellow co-founders of the InsurTech Coalition, penning an "open letter" inviting the rest of the industry to join them. The coalition website shows other members have joined.
"Big changes bring tremendous opportunities, and technology-focused insurance ('insurtech') companies are at the forefront of this powerful shift in the insurance landscape," the letter said. "Our agility and ability to serve the ever-changing needs of today’s customers through cutting-edge technology position this group as the voice for the future of the industry."
The startups won't discuss business plans or insurance pricing in the coalition, it said. The group is seeking IRS 506(c)(6) status for trade groups.
While the huge legacy insurers have adopted technology, the startups "have different perspectives and experiences on technology, regulation, and the future of insurance and how it is governed," a Root Inc. (Nasdaq: ROOT) spokeswoman said via email. "This is a group coming together so our collective voices on these topics are heard by major stakeholders such as media, regulators and customers."
Insurtechs aim their products at customers shifting more of their daily transactions to mobile and online applications, while advances in telematics, data science and AI rapidly change how companies price policies and how customers want to interact with insurers.
But regulations aren't always in line. California, for example, bans the use of telematics – using GPS, vehicle computers and other real-time measurements to assess driving safety – to price insurance. Root doesn't use telematics for its policies in California.
"We’re committed to the responsible use of technology in insurance and in assisting regulators in taking on the difficult task of building frameworks to regulate new and emerging technologies," the letter said.
Even combined, the insurtechs today make up a tiny sliver of the industry.
State Farm, Progressive, Geico and Allstate control 55% of U.S. market share for private auto insurance as of 2022, according to the latest data from the National Association of Insurance Commissioners. The top 10, with Columbus-based Nationwide in the 10th spot at 2%, combine for 77% market share.
Root's $593 million in direct earned premium for 2022 put it at 0.2%. With a $1 billion unicorn valuation as a company in a 2022 round, Branch had direct earned premium that year of $49 million. Clearcover and Metromile (acquired that year by Lemonade) are about the same size as Branch, according to an S&P Global report. Boost is more of an insurance platform working with insurtechs and reinsurers, and its insurance products are in sectors such as business and pet policies.
The startups also struggle with financial losses, so growth is paramount – any insurer needs to generate enough volume of policyholders for the difference between premiums and claims losses to cover administrative overhead.
Mayer Brown LLP in New York City is the coalition's legal adviser.
Root Insurance does not employ its telematics technology on policies sold in California because of state regulations. An earlier version of this story based on outdated information incorrectly stated the company does not sell in California.
