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3 Lessons for Independent Agents and MGAs from the Lemonade/Metromile Deal

3 Lessons for Independent Agents and MGAs from the Lemonade/Metromile Deal

by  Eric Ayala  |  28 Feb 2022

What can independent insurance agencies, MGAs, and brokers learn from this $500 million M&A deal between two insurtech giants?

Novidea’s Eric Ayala, SVP Americas breaks it down.

At the end of 2021, Novidea released a list of trends that we believe will shape the insurance industry in 2022. One of our top predictions was increased merger and acquisition (M&A) activity. As our CEO, Roi Agababa, pointed out in his interview with Insurance Edge, “This trend shows no sign of abating, and with competitive pressures as high as ever, the US, UK, and Global markets are likely to see even higher levels of M&A throughout 2022.”

One of the most surprising deals to hit the market at the end of 2021 was the $500 million merger between Lemonade and Metromile. The intent for the deal was announced in November 2021, but the two companies don’t plan on closing the M&A agreement until Q2 of 2022, once they’ve secured all regulatory approvals. By acquiring Metromile, Lemonade is making an aggressive move into the automobile insurance line of business. However, there’s much more to this deal than meets the eye.

While the dust is still settling on this transaction, what can independent insurance agents and MGAs learn? Here are three key takeaways:

  1. Deal size and frequency will increase. We’ve already predicted a rise in the number of deals between larger players and young, digital-first upstarts, but I’d like to add a second prediction. We can also expect to see more deals with higher price tags. Why? To put it simply, the larger insurtech companies need to move faster to enter new lines of business and create new risk products. They have two choices: build or buy. For a player like Lemonade, buying a smaller company that has already built the infrastructure makes far more sense than reinventing the wheel. As Lemonade CEO Dan Schrieber pointed out, “It would take us years to build this kind of data.”
  2. A future-forward technology stack is no longer optional. Yes, Metromile offered a nearly turnkey market entry for Lemonade into the auto insurance sector, with licensed operations in 49 states, $100 million of in-force auto insurance premiums, and more than $250 million of cash on its balance sheet. However, there’s a reason why Metromile calls itself “the data science company focused on auto insurance.” The company understands that a modern agency’s top assets are its technology and data. Lemonade evaluated Metromile’s unique pay-per-mile technology and its ability to use near-real-time data to identify low-risk drivers and decided the technology was the missing piece they needed to complete their auto insurance offering. The lesson here for insurance agencies and MGAs is that it’s no longer a sustainable business model to lag on your technology solutions. To remain relevant as an insurer, you must be able to deliver a digital-first customer and employee experience across the entire policy distribution lifecycle.
  3. To grow, personal and commercial insurers must add new lines of business. While this deal highlights the success of adding a new personal line of insurance (auto), the same lesson applies to commercial insurers. Adding new lines of business and risk products is the lifeblood of your agency’s growth. For instance, commercial insurtech startup Sayata recently raised an additional round of capital ($35 million) with the express purpose of expanding its lines. As Sataya CEO remarked, “There is a lot of market demand for a better way to secure commercial insurance for SMBs. Further, our clients have specifically asked for us to add more lines of insurance to the Sayata platform.”
However, attempting to add new lines of business without having clear visibility into current operations is a recipe for disaster. Your company’s data tells a story of where your agency is profitable and where it’s not. It can also reveal where the real opportunity lies for expansion. Attempting to expand lines of business without an accurate analysis of your business is a shot in the dark.

It may be too soon to understand the full implications of the Lemonade/Metromile merger, but this deal highlights a trend already started in 2021 and seems to be escalating. Cloud-native, tech-savvy insurtechs are leading the charge in the industry’s quest to evolve and meet customer needs for fast, easy service on new and existing policies. For legacy insurers, this means that the writing is on the wall if you want to stay competitive. Whether your agency focuses on personal lines of insurance, commercial, or a mixture of the two, it's vital to have a clear understanding of how much profit each is contributing to your firm's bottom line. And then, you must make informed decisions that deliver a modern customer experience, close more sales and renewals, and allow your agents to stay connected from any device, anywhere in the world.

The good news is that this isn’t as challenging as it sounds. The dedicated, responsive experts at Novidea have already done the heavy lifting by creating a modern technology platform built in the cloud to support every step of the insurance distribution journey. Novidea’s customizable, automated analytics tools enable independent agencies, MGAs, and brokers to leverage actionable intelligence and drive greater insight across your business. With a fully integrated system and 360-degree visibility, agents and brokers can make more timely, better-informed decisions that will open new doors of opportunity. At last, agents and brokers can extract more value from their valuable customer and policy data with actionable intelligence from any device, anywhere.

It’s all about turning your agency’s data into insight at the point of need, enabling better-informed decisions, and delivering greater customer value through risk products and services tailored to individual needs.

Are you ready to make the change? Get in touch today and find out more about how Novidea can help.
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