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Hippo plans to acquire Spinnaker as it eye big growth

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  • Hippo, an insurtech based in Palo Alto, Calif., announced plans to acquire Spinnaker Insurance Company for an undisclosed amount on Wednesday. 
  • Rick McCathron, chief insurance officer at Hippo, told Business Insider the pending deal came at a critical time for the home insurance startup, which has raised over $200 million and has a unicorn valuation
  • Bringing an insurance carrier in-house allows Hippo to grow at its own pace and get better financial terms on some of its products, McCathron said. 
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Unicorn home insurance startup Hippo announced Wednesday plans to acquire Spinnaker Insurance Company in a deal that expands the startup’s reach, give it more independence and puts it in the best position to grow, an executive said. 

While the deal with Spinnaker, of which the details were not disclosed and is still pending regulatory approval, won’t change the day-to-day operations of Hippo, it comes at an “inflection point” for the five-year-old startup, Rick McCathron, chief insurance officer at Hippo, told Business Insider.

Hippo is a managing general agent, meaning it does not carry any underwriting risk but instead works with multiple carriers that have different risk appetites and footprints. That model is one Hippo plans to maintain, McCathron said, however its growth was starting to be limited as a result of carriers not having enough capital to support the policies the startup brings in. 

The insurtech was left with a choice: bring on additional carriers (it was already working with Spinnaker and Topa) or establish a strategic partnership with one of the existing carrier to help increase its capacity.

Hippo is no stranger to soliciting investments. The startup has raised $209 million thus far, including a $100 million Series D in July 2019 that pushed it into the unicorn club (new companies with a valuation of $1 billion or higher).

“It became very clear that Hippo’s ability to raise capital surpasses Spinnaker’s ability to raise capital,” McCathron said. “We now have a carrier that we can help raise capital and put capital into it, to fuel our growth over the coming years.”

Read more: Goldman Sachs-backed fintech Even Financial just bought a life insurance startup. Here’s why that bet could pay off as policy applications soar.

Hippo sees big benefits from bringing an issue in house

The benefits of the planned acquisition isn’t just about keeping pace with Hippo’s growth, McCathron said. 

For one, Hippo was previously entirely reliant on other carriers supporting their business and working with them. Bringing a carrier in-house reduces that risk, allowing Hippo to stand on its own, if need be. 

Spinnaker also brings with it licenses to operate in all 50 states. Currently, Hippo operates in 26 states, with hopes of expanding into 35 before the end of the year, McCathron said. 

Finally, there is an economic benefit to the deal. In addition to being a profitable enterprise, Spinnaker becomes a more cost-effective carrier to work with due to being under Hippo’s holding company, he added.

“We actually make more money per policy writing on paper that we own,” McCathron said. “Whereas Topa, we rent their paper. We have to pay them a rental fee that we don’t necessarily have to pay with Spinnaker or structure it in such a way that is more efficient.”

To be sure, McCathron said Hippo doesn’t plan to move all of its business over to Spinnaker. The startup still plans to work with other carriers, as it doesn’t want to be responsible for raising all the capital for its growth. 

Also, while Spinnaker can operate in all 50 states, there are some, such as Florida, where capital requirements make it more likely for Hippo to work with a local carrier that specializes in the region. 

McCathron said Hippo’s long-term plan wasn’t necessarily to go down this route, but its hand was forced. 

“The success that we’ve had and the growth rate that we’ve had, it became evident we had to control at least a portion of our capacity providers,” McCathron said. “It really became a no-brainer.”

Read more: Buzzy insurtechs say AI and big data could soon transform insurance policies. But how the tech treats riskier customers is raising regulatory and ethical questions.

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