Established in January 2015, Hippo Insurance is headquartered in Mountain View, California. It is a start-up insurance company dedicated to providing families with new types of simpler, smarter home insurance. Hippo allows homeowners to obtain quotes and purchase home insurance products within about 60 seconds online. Hippo greatly simplifies the insurance process and saves up to 25% on the price compared to similar insurance products. Hippo insures consumer electronics, home offices and home appliances.
The company received US$14 million in Series A round funding in 2016, led by Horizons Ventures. Other investors include GGV Capital in California, Abstract Ventures in San Francisco, RPM Ventures in Michigan and Pipeline Capital in New York. According to Assaf Wand, CEO of Hippo, the A round funding was used in early 2017 for product development and marketing. In April 2017, Hippo Insurance was approved by the regulatory department in the California Department of Insurance and launched its first home insurance products that are cheaper than traditional insurance products. Hippo’s team members have different employment backgrounds, including McKinsey, LinkedIn, SoFi and Facebook.
Home Insurance Market Status in the US
Home insurance is used to provide financial protection against disasters. A standard insurance policy generally protects the house and other items. Home insurance is a package policy that includes both damage to property and liability for damage to property caused by homeowners and family members (pet injuries). Most of the losses caused by disasters are covered, but there are also exceptions (floods, earthquakes, and maintenance inaccessible losses). Flood and earthquake insurance policies must be purchased separately and floods are in the National Flood Insurance Plan (NFIP). Moreover, it's generally the homeowners’ responsibility for maintaining the houses properly.
Home insurance is generally divided into the following types:
HO-1 Limited coverage policy: provides protection against 10 types of disasters. Most states no longer use it.
HO-2 Basic policy: provides protection against 16 types of disasters and includes HO-2 for mobile homes.
HO-3 Special policy: the most popular policy. Single-family houses and townhouses generally purchase HO-3.
HO-4 Renter policy: protects the personal property in the rental housing.
HO-6 Condo coverage: Condo premiums are generally cheaper than that of Single House.
HO-8 Older home policy: designed for the elderly. The market price of the old house is lower than the reconstruction price. The older home insurance allows homeowners to insure at a market price lower than the reconstructed price.
According to a market report released by J.D.POWER, the premiums for housing and tenant insurance have remained relatively stable in recent years. In 2016, homeowners spent an average of $1,186 dollars on housing insurance, and tenants spent an average of $259 dollars, both of which have basically remained unchanged in recent years. This also means that in the absence of major changes in the product, it has been difficult for insurance companies to compete by simply reducing premiums. In 2015, property damage insurance (fire lightning, storms, floods, severe cold, theft, etc.) accounted for 97.1% of the source of housing losses, and liability insurance accounted for 2.9%. The annual loss is mainly affected by weather-related events such as hurricanes and winter storms.
The Space for Innovation in the Internetization of Home Insurance
It is not without reason that online insurance has gained a high degree of attention from capital in recent years. Even in the highly mature and high coverage US insurance market there is plenty of room for innovation. Online marketing methods and big data technologies can solve the problems that have existed in traditional insurance ecosystems such as old policies, complex intermediary environments and obscure insurance tables. Online insurance companies often have insurance brokerage licenses but lack primary insurance licenses. Therefore, product-based innovation is a major direction for online insurance innovation. Specifically, through the cooperation with large-scale insurance companies online insurance companies can sort out products, redesign policies, and finally promote through Internet channels.
Although the housing insurance market is a viable market, there has been no major production innovation in this market over the 50 years. Many housing insurance products still protect paper products such as stock certificates, or furs that have not been kept by households in the past ten years, yet the same products lack sufficient coverage for electronics, home offices, and rental housing. While electronics has evolved for households, traditional insurance companies have lacked the motivation to improve their coverage.
Similarly, improving the user's experience via consulting, communicating and purchasing is also an innovation direction for Internet companies. According to an online survey conducted for US homeowners between the ages of 21 to 65, 70% of homeowners did not conduct research when purchasing homeowners' insurance, 73% of homeowners miscalculated how much insurance the family needs, and 64% of households have insufficient insurance coverage. According to J.D.POWER's statistics, homeowners and tenants increased their satisfaction with housing insurance prices in 2016, but the insurance premiums did not change much. The improvement in policies and the increase in communication efficiency are the greatest driving force in the increase of satisfaction.
Hippo Insurance: Aiming at Product Innovation
Hippo Insurance is adopting a new approach to the housing insurance market. Home insurance is one of the few products that can’t be easily purchased online. Hippo not only uses its technology to optimize the pricing of potential policyholders, but also provides technical support equipment such as leak detectors and other IOT tools to monitor the home and ensure its maintenance. By breaking down the previous industry offerings to providing quick and easy home insurance for online purchases, Hippo Insurance provides a more transparent range of insurance products to suit modern lifestyles. Hippo Insurance is also directly oriented toward consumers, removing expensive commissioning agents.
While most new insurance companies are located in towns with the most residents, Hippo has positioned its services to non-bankrupt household owners and the post-80s generations.
Hippo started with a standard policy and added 10 basic functions which were not covered in the standard policy. It includes:
1) Computer equipment (4 times coverage)
2) Electrical appliances (electrical appliances, heating systems, televisions, etc.)
3) Reconstruction cost protection (Restored homes after catastrophic events, hippo provides 25% over standard coverage)
4) Water insurance protection
5) Service line protection (city sewage or water pipes connected to homes)
6) Regulations or laws (which will increase costs if repairs are required but local regulations have changed)
7) Workers' fees (such as nannies and daily necessities)
8) Top-end smart home sensors (free water leak detectors that issue digital alarms when damaged by water)
9) Replacement cost (other insurance can only cover the depreciation value of an item)
10) MyHippo Premium Members (members of various MyHippo communities, including tips on home maintenance and security, and special events for homeowners)
Hippo mainly offers HO-3 and HO-6 policies, does not provide rental insurance, and is currently only in California. Hippo is underwritten by a large insurance company (Topa Insurance Company, founded in 1984) with 200 years of history and $200 billion in assets, and headquartered in California and was rated A-(Excellent) by AM. Topa Insurance has specialized in property insurance and professional insurance for 30 years, and offers commercial insurance and program insurance. Topa Insurance distributes commercial insurance through designated wholesale brokers and distributors. Hippo also cooperates with Swiss RE. Hippo has been licensed Property Broker-Agent and Casualty Broker-Agent licenses in California and Arizona.
The current position of the company is an MGA (Management Agent). Hippo is now working with an insurance company to jointly launch new insurance products. The cooperation with an insurance company will not only meet Hippo’s needs of launching business and products, but also avoid regulatory compliance discrimination and other regulatory risks because of similar but not identical products in many insurance companies.
Purchasing Process
The housing applicant needs to enter the following information, such as the location, type, establishment year, area, materials used, floors, and so on of the house to get a quote. Family insurance personal history records are also taken into account. The factors that affect the housing premium include the cost of rebuilding the house in the event of a disaster, the materials used, the number of rooms, the home address and personal history of home insurance.
Due Diligence
Due diligence by big insurance companies, such as assessing the risk of housing based on the conditions of the region and state, is often very rough. However, after a more detailed analysis, some housing risks in the relevant regions may be found to be different.
Hippo Insurance is innovative in that it tries to avoid asking questions that they cannot determine, and the relevant data will be docked behind the data service providers. Although the accuracy of the data service provider's data can’t be 100%, the platform verifies the accuracy of the data through as many channels as possible, such as allowing the users to confirm the data. When there is a problem with the relevant data, the insured may also be required to update the information at any time.
The advantage of this is that the user is prevent from uploading a large amount of data and is required to repeatedly confirm the accuracy of data they provide, thereby improving the user's final purchasing experience. In addition, it can also provide users with more refined quotes. If the housing risk is low, the platform will give lower prices, and vice versa. However, this fine-grained pricing will also result in the loss of a higher-priced user. The housing insurance market in the United States has a size of $100 billion, and the platform decides to let users choose.
Ways to Obtain Customers
At present, there are mainly three ways to obtain customers for Hippo Insurance. The first is to advertise on the Internet, such as search engines and social networking websites. The second is to work with companies that are engaged in mortgage loans to acquire users, because home insurance is usually a necessary step for home mortgages. Thirdly, the platform cooperates with some well-known insurance companies. When their insurance agents recommend insurance products, they can also display the interface of Hippo Insurance so that they can have richer content to better serve their customers.
Planning to Use IoT Devices in the Future
Hippo Insurance also plans to use sensor equipment in home insurance. In fact, fire and water leakage accounted for a large proportion of claims cases received by US insurance companies: fires are often difficult to control, while leaks are easier to detect. Hippo plans to provide technical support equipment such as leak detectors and other IoT tools to monitor the home and ensure its maintenance.
However, at present, Hippo insurance only provides leak detectors and provides a free user to buy insurance. For families using the sensor, Hippo has not provided a corresponding insurance discount, and the user's monitoring data has not yet been used in insurance pricing. In the future, Hippo Insurance plans to launch more housing monitoring sensors and consider whether and how to discount and dynamically price houses using IoT testing equipment based on the collected data.
Future Development
The scale of Hippo’s development is still at the early stage. However, designing and updating some insurance clauses, removing obsolete and outdated insurance contents, and attempting to use satellite data, and home IoT detection, to develop active housing protection and to avoid disasters are all future developments for the platform.
At this stage, technologies including Internet of Things and image processing mentioned by the company have not yet directly affected the business or reduced costs. While traditional large insurance companies are facing pressure, they will also seek to innovate in product design and user experiences. If large insurance companies digitize the insurance process, update insurance provisions to keep pace with changing times, expand services to the front end and directly reach users, they will become directly competitive with Hippo.
