Lemonade to Acquire Auto Insurer Metromile in Merger of Insurtechs

Digital insurer Lemonade plans to acquire California-based pay-per-mile auto insurance startup Metromile in an all-stock transaction as it continues to expand, Carrier Management reported.

With the agreement, the New York-based insurtech stands to gain a national foothold in car insurance, on top of its expanding presence in home, renters, pet and life insurance.

Lemonade’s own auto insurance product -Lemonade Car – only launched in Illinois a week ago. Metromile has 49 state licenses. In addition, Lemonade will add Metromile’s more than $100 million of in-force auto insurance premium, more than $250 million of cash on its balance sheet, and the pay-per-mile insurer’s experience using big data and artificial intelligence for car insurance.

Lemonade’s auto products includes an app that uses telematics to measure how much and how safe people drive.

Metromile has “been down this road billions of times, and their proprietary data and machine learning algorithms can vault us over the most time and cost intensive parts of the [auto insurance expansion] journey,” Daniel Schreiber, Lemonade CEO and co-founder, said in prepared remarks.

The deal has a fully diluted equity value of approximately $500 million, or just over $200 million net of cash. Transaction terms call for Metromile shareholders to receive Lemonade common shares at a ratio of 19 to 1. Plans call for closing the M&A agreement during the 2022 second quarter, once all regulatory approvals have been secured. Metromile stockholders must also sign off on the agreement, which is additionally subject to other customary closing conditions.

Schreiber added in a blog posting that both companies employ “kindred spirits” and that they had a “near-perfect overlap of vision and culture – yet also have zero overlap in products and licenses.”

Dan Preston, CEO of Metromile, said the combined company “will create the most customer-centric, fair and affordable car insurance, and is a great outcome for Metromile shareholders, who will benefit as shareholders of the combined company.”

Neither side commented on what will happen to Metromile initiatives such as its partnership with Hippo Insurance to offer home and auto insurance production by way of a new bundled discount

Schreiber said that Metromile can identify low-risk drivers with “unrivaled precision” and give savings commensurate with their reduced risk – as much as 47 percent savings for those who switch. But, he claims, Metromile’s pure loss ratio is within 10 percentage points of the direct business of full-stack carrier rivals GEICO and Progressive.

Technology advantages aside, Metromile has struggled to gain traction in the marketplace.

Metromile, which was founded in 2011, became a public company in February 2021 after a reverse merger/special purpose acquisition company transaction, and it has been widely rumored to be struggling in recent months. Schreiber appeared to acknowledge this in his blog posting.

“While Metromile may not be celebrated for its growth, those in the know recognize its primacy at harnessing telematics and data science to match rate to risk,” Schreiber said. “The extent of this mastery became clear to us once we got a good look under the hood, though Covid-19 provided the industry with a glimpse too” as customers went more digital.

Metromile reported 95,314 policies in force as of Q2 2021, compared to 95,958 at the end of Q1 2021, according to its second-quarter shareholder letter. It had 93,117 policies in force in Q2 2020. The company booked just $27.8 million in direct earned premium in the second quarter and remains unprofitable.

Metromile had vowed to be all digital but launched an independent agent program earlier this year arguing they could also be a good source of revenue.

Lemonade reported a customer base that surpassed 1.2 million as of the 2021 second quarter, up from 814,200 the previous year. The company lost $55.6 million, versus a $21 million loss the previous year. Lemonade was scheduled to release its 2021 third quarter earnings later on Nov. 8.

Lemonade’s stock closed at $70.97 on Nov. 8, though it dropped 5 percent in after-hours trading after the M&A news broke. Metromile’s stock closed at $3.16, and it jumped more than 8.5 percent in after-hours trading.

Source: Lemonade, Metromile