Hippo’s McCathron: Insurtech ready to “go on offence” with sights set on H2 profitability

Hippo CEO Rick McCathron has reaffirmed the insurtech’s commitment to reaching profitability by the second half of this year, with the company now ready to “go on the offence” having built a diversified business amid peaking homeowners hard market conditions.

McCathron spoke to The Insurer TV from the InsurTech NY Spring Conference late last month, where he joined a panel entitled ‘CEO Perspective: Paving the Path to Profitability’ alongside Root CEO Alex Timm and Cowbell CEO Jack Kudale.

Hippo’s CEO said he and the other insurtech CEOs on the panel were in agreement on the ambition of their firms to “compress the timeline of innovation”.

“Insurance companies have been doing what they've been doing for over 100 years and we're trying to compress that timeline into 5 to 10 years,” McCathron commented.

The insurtech executive said achieving that goal involves blending the lessons of “traditional insurance” with technology, while adding that it “takes time to get the traditional insurance right”.

“Technology helps, as an accelerator to that, and I think you're finally starting to see investors – private or public – recognise that insurtech companies can make a profit, they're poised for profitability, and once they do, the sky's the limit,” McCathron argued.

Investors responding positively as insurtechs approach profitability

McCathron was speaking against a backdrop of rebounding insurtech stocks, which have seen Hippo’s share price has more than double since November to $19.27 as of Monday’s close.

Hippo’s CEO echoed his previous comments that investors have tended to “lump all insurtech companies” together.

“It's a challenge that I think is real, and it's a challenge that I think is finally starting to break through,” he commented, pointing to the success of auto insurtech Root.

“Auto insurance is very different from home insurance and home care and the other aspects” of Hippo’s business.

“I do think the market is starting to recognise that these companies can get profitable, and once they get profitable, there's real opportunity,” McCathron said.

The insurtech CEO said that one of the things his company is starting to benefit from in the public markets is the recognition that it is more than just a home insurance MGA and has a much more diversified business.

Investors appreciating Hippo’s diversified business model

“We have other aspects of our business that are growing significantly and quite profitabl[y],” McCathron said, highlighting Hippo’s fronting carrier Spinnaker, which runs on a fee-based revenue stream that McCathron said is growing “exponentially”.

Hippo also has an agency business which it calls‘Service’ and includes Hippo’s own insurance agency, First Connect, which it recently announced has the backing of over 100 carriers.

“Those are also not exposed to underwriting risks and [that] creates real opportunity for us to grow,” he said, noting that 77 percent of all of Hippo’s total generated premium are in those two segments.

McCathron said that the piece that has been under stress – predominantly because of weather inflationary trends – has been Hippo’s home insurance program, but he said the insurtech has over the last few years made “a marked improvement”

“And the industry is starting to recognise that, thus our stock price has been going up,” he explained.

Optimism homeowners hard market has peaked

Discussing the home insurance segment in more detail, McCathron called market conditions “tough” citing weather patterns, inflationary trends, and regulatory postures as adding to the difficulty, but expressed optimism that hard market conditions for homeowners have peaked.

“We now have rate adequacy. It takes time for that to work itself into the financial results of the company. Remember, when you make a change on a homeowners insurance policy, it takes a year to get that on each policy, and then, it takes a year for that to work itself in,” he continued.

“And we're more than two years into that process. And so, you're starting to see it. But I think those headwinds start to become tailwinds over time, provided that the market continues to soften, not harden,” he explained.

“I really think, when people look back at it, they're going to say Q4 2023 was the quarter that Hippo turned the corner,” the insurtech CEO said.

“We are poised to be profitable in the second half of this year. We've said this publicly on many occasions. We only say that where we have extreme confidence that we'll achieve it,” he continued.

“Now is the time that we can start focusing on the future of Hippo, and that's really doubling down on the areas where we have a comparative advantage,” McCathron added.

Time to “go on the offence”

The CEO said that Hippo is now doubling down in areas where it has a competitive advantage

“It's the segments where we have done a very good job, where we build technological moats that don't exist, with embedded insurance,” he said.

“The best example of that is our home builder channel. It's time for us now to get on the offence, which I personally have been waiting a couple years to do, and we're ready,” McCathron declared.

“One thing that I do think all insurtechs should understand, and I think the industry, generally, understands this as well, is that if you try to cast a wide net, you can't be all things to all people and do all things well,” he said.

To that end, McCathron said Hippo is casting “a more narrow net” in areas like new home insurance and its Hippo app – available to customers and non-customers alike – that provide “home health checkups” to make home improvements in order to avoid eventual claims.

Watch the full interview with the president and CEO of homeowners-focused insurtech Hippo Rick McCathron to hear more on:

  • Developing offering to a greater focus on mitigation
  • Distribution trends, including Hippo’s omnichannel strategy
  • The opportunities presented by embedded insurance relationships
  • The importance of blending technology with insurance
  • Diversified revenue streams at Hippo, including its fronting and independent agent platforms