Homeowners insurtech Hippo will use pending acquisition Spinnaker to facilitate its geographic and product expansion as it also looks to a future entry into the Florida market, according to the MGA’s chief insurance officer Rick McCathron.

Neptune and Hippo

In a podcast discussion with Jim Albert, chairman of Neptune Flood, McCathron confirmed that Florida is on the MGA’s “roadmap”.

“As you know, Florida is definitely a unique state with its own unique challenges, and before we ever do anything we want to truly know we can make a difference,” he commented.

In an interview with The Insurer last month, McCathron said that the acquisition of fronting carrier Spinnaker could provide opportunities for platform expansion, including an E&S play or a Demotech-rated entity.

And in the podcast discussion with Albert, which is accessible on The Insurer’s website, he reiterated the appeal of the deal to provide “ample capacity” at the carrier level.

“We love the MGA model and will continue to function as an MGA and use other carriers where it makes sense to do so.

“Having control of a carrier and the ability to infuse capital in that carrier to facilitate our geographical expansion and our continued growth and premium writings really helps us be in control of our future”

Rick McCathron, CIO of Hippo

“But having control of a carrier and the ability to infuse capital in that carrier to facilitate our geographical expansion and our continued growth and premium writings really helps us be in control of our future,” he explained.

The ownership will also address another challenge that MGAs typically face, which is the ability to demonstrate a risk bearing component to their platform to reinsurers.

“Most reinsurers want the MGA to participate – everyone wants interest aligned and the program to eat its own cooking.

“When we own the company we can participate in the risk itself – not at a significant level but one that demonstrates we truly believe what we’re doing and the Spinnaker acquisition helps us do that in an efficient way,” said McCathron.

The Covid-19 accelerant

The executives also discussed the digitalization of insurance, and the impact the Covid-19 changes to working practices has had on the evolution of the industry.

Albert described an acceleration of the trend for digital innovation at incumbent insurance carriers.

“Everybody was trying to get rid of their legacy platform if they had one, trying to simplify the front end, digitize some of their underwriting decisions. All that was happening but not very quickly in the incumbent insurers.

“Now it’s a free-for-all race to get that done. As Hippo grows and Lemonade grows and some of the others out there grab more market share all of a sudden these aren’t just ghosts they are chasing,” he commented.

Asked about insurtechs such as Hippo partnering with incumbent carriers, McCathron said that C-suite executives in organizations recognize the need to modernize their offering as well.

Hippo has had productive conversations with CFOs, CEOs and COOs of incumbent carriers about partnering together, because they recognize that “changing the mothership is very difficult to do while the mothership is in motion”.

“The biggest hindrance is not the legacy tech stack it’s the legacy cultural lethargy within an organization that inhibits so much change and improvement. By partnering companies can bring in that cultural differentiation as well”

Jim Albert, chairman of Neptune Flood

“The challenge a lot of incumbents are facing if they try and do it themselves is it takes a year or 1.5 years to implement, and by the time they get there all the insurtechs are another year, 1.5 years or 2 years ahead on the next project.

“So incumbents are always fighting this battle of catch-up which is why they’re partnering and acquiring because they recognize its difficult for them to do it internally – not because they’re not smart and don’t know what they need to do, it’s just hard getting the mothership to move that quickly. It’s not easy moving the Titanic around the iceberg,” he said.

Albert added that Neptune Flood – also a digitally-driven MGA – can deliver a product to an incumbent insurer in a matter of weeks when it might take them years to build a digital flood product internally.

And he suggested partnering can bring culture change to legacy organizations.

“The biggest hindrance is not the legacy tech stack it’s the legacy cultural lethargy within an organization that inhibits so much change and improvement. By partnering companies can bring in that cultural differentiation as well,” he said.]