401K
Some Friday thoughts…
Lemonade spent $138 million on sales and marketing in 2022 and the bottom line is that it added ~$145 million in in force premium (excluding the roughly $100 million Metromile contributed). Marketing expense as a percentage of revenue is a common way to assess a company’s performance. If we stick to premiums, not revenue, then Lemonade’s marketing expense as a percentage of total in force premium (FY 2022) is 26%. If we look at the percentage compared to 2022 added premiums, the figure is 95%. It can get worse – Root spent $48 million in 2022 on sales and marketing to see its in force premium decrease by $175 million.
Goosehead said that in 2022, it culled over 280 underperforming franchises from its network – not a small number considering the company ended the year with 1,413 operating franchises. Without a doubt, Goosehead has a performance problem – the top 25% of franchises account for about 70% of its new business production, and the top 50% account for about 90% of production. The company blames the pandemic – “We had this weird market phenomenon of the COVID pandemic that none of us really knew with certainty how we were going to manage through it. Recruiting became very easy, franchise recruiting became very easy, particularly early on in the pandemic, because people thought they were going to lose their corporate jobs and they were looking for another way to earn a living as things progressed. So they signed up but they didn’t really commit.” The folks at Goosehead sound like parents criticizing their children for a lack of commitment, but even before the pandemic the company had a performance problem. Based on its franchise disclosure document, in 2018, 40% of franchise producers with 1 year of tenure met or exceeded the premium average of $401k.
At the end of 2019, Allstate had 10,800 exclusive agencies in 10,700 locations, supported by 27,100 licensed sales professionals and 1,000 exclusive financial specialists. At the end of 2022, Allstate had 8,400 exclusive agents in 8,500 locations, supported by 20,900 licensed sales professionals, and 700 exclusive financial specialists. At the end of 2022, Allstate also offered products through approximately 8,700 independent agents, marking a significant milestone for the company that up until a few years ago didn’t consider independent agents. “We bought National General. So we have a broad-based independent agent,” Allstate CEO Tom Wilson said last week. “We’re building on their nonstandard auto business with adding our standard auto and our homeowners business to really expand that. And that gives us the ability to really challenge Travelers and Progressive in that channel.” Progressive and Travelers may soon face a new player in the independent agency space as there are rumors that GEICO and Goosehead explored a potential collaboration.
Root has been improving efficiency, but not enough. On December 31, 2021, the company had 1,571 full-time employees and 354,371 policies in force, which translates to 226 policies per employee. On December 31, 2022, Root had 765 full-time employees and 220,354 policies, bringing the figure to 288 policies per employee. The company cut its workforce by ~50% yet policies per employee only increased by 27%. As the company continues to shrink despite their embedded insurance efforts, Root will need to make additional (major) cuts (as we said – Root is shrinking).
Between September 30, 2021 to September 30, 2022, Lemonade increased direct premiums written (DPW) for its renters/home line of business by $56.8 million (24%). For the same period, the company grew DPW for its pet business by $47.3 million (105%). For years, Lemonade has been telling investors that it looks to grow with their large customer base as they go from renters to homeowners, but so far the company has been attracting more pet owners than homeowners.
Ethos laid off a bunch of folks again, and the relatively conservative Ladder also made cuts recently. Most insurance companies and startups are talking about loss ratios and efficiencies, but the big obstacle to overcome was and still is – distribution. Years ago we shared with you that insurance companies don’t have the right to be consumer facing brands. That’s half the solution right there.
