Are insurtech startups undervalued?

More fun and games with Lemonade's public valuation

On the heels of Hippo’s funding round and our exploration of how the private markets appear to be more conservative than public investors at the moment, we’re asking a new question: are a bunch of insurtech startups undervalued?

Hippo — an insurtech startup focused on home insurance — put together a $150 million round at a $1.5 billion post-money valuation after growing its gross written premium to $270 million “in the past 12 months.” At that valuation, and at pre-adjustment premium scale, Hippo is super-cheap compared to Lemonade, another venture-backed insurtech startup that just went public.

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There’s no need to relitigate Hippo’s valuation and how the private markets have valued the firm. But our work yesterday does give us the chance to do some fun math on other players in the neo-insurance space, namely, Root and MetroMile. Using data accrued from financial filings and valuation data from Pitchbook and Crunchbase, we can grok how much the two firms are worth using Hippo’s and Lemonade’s current premium multiples.

If you aren’t familiar, the cohort of startups we’re looking at have raised well over $1 billion as a group; VCs really believe in them. How they are priced then, and how they exit, will help determine the results of many a venture fund.

So, are other players in the startup insurance market cheap at their last private price when compared to Lemonade and Hippo? Did their venture backers overpay? Let’s find out.

Cheap? Expensive?

During our Thursday investigation, we found that Lemonade is trading for around 28.4x times its Q1 2020 gross written premium rate, annualized. In contrast, Hippo was worth around 5.6x what we read as its trailing twelve months’ gross written premium result. Obviously, these are slightly oranges-to-plums comparisons, but as we’re doing comparative math instead of precise sums and care more about directional differences than decimal-point nuance, we’re in good shape.

To understand how Root and MetroMile are valued, we’ll need to know a recent written premium result for each to start,1 which we’ve found in this summary from June of 2020:

  • Root 2019 written premium: $451.1 million
  • MetroMile 2019 written premium: $103.3 million

Now we can give each a value at our two multiples to get a spread of what they might be worth at Hippo’s premium multiple, and Lemonade’s far more generous valuation:

  • Root’s valuation using 2019’s premiums and Lemonade’s multiple: $12.8 billion
  • Root’s valuation using 2019’s premiums and Hippo’s multiple: $2.5 billion
  • MetroMile’s valuation using 2019’s premiums and Lemonade’s multiple: $2.9 billion
  • MetroMile’s valuation using 2019’s premiums and Hippo’s multiple: $578.5 million

Now we’ll compare those prices, to what the two firms were actually worth at last private round:

Both companies are stupidly cheap when compared to Lemonade-style premium multiples. And MetroMile, now two years after its last round, is also cheap using Hippo’s most recent premium multiple.

The more recently-valued Root is slightly more costly in premium multiple terms (looking at results from half a year ago) than Hippo. But, as we don’t know their operating expense ratios or most recent growth rates, at some point we’re peering too closely at opaque pictures.

What matters more is that at Lemonade’s multiple, every comparable insurtech startup is insanely cheap. While, at Hippo’s multiple, peer-valuations seem much more reasonable. Sitting here today, it’s hard to parse the gap between the two price bands. Unless, you know, someone on one side or the other of the IPO-line is wrong.

Your call who, though.

1We’re using direct written premium numbers here, which is slightly different than gross written premium. However! As we can see from the Lemonade direct written premium number here, and the Lemonade gross written premium result from its S-1, the two are nigh-identical for 2019. So, we’re going to bend numbers a bit, but we should be pretty close to correct regardless.