Lemonade to acquire fellow insurtech Metromile

The news: US-based insurtech Lemonade has announced it will purchase auto insurtech Metromile “in an all-stock transaction that implies a fully diluted equity value of approximately $500 million, or just over $200 million net of cash,” per a company press release.

Why Metromile? The auto insurtech is a trailblazer in the space—and Lemonade can tap into its technology and reach to power its new insurance launch.

• The new auto offering that Lemonade rolled out in Illinois a few weeks ago will launch nationwide in the coming months—and its car insurance will be telematics-based.
• The pricey acquisition tag confirms our expectation that Lemonade is betting big on its car insurance offering becoming a substantial revenue driver.
• Metromile’s telematics, usage-based insurance technology has disrupted the space over the past decade. Lemonade will get pricing capabilities that save drivers 47% on their premiums.
• Lemonade will also gain access to Metromile’s customer base: It had around 95,000 policies in force as of Q2 2021.
• The auto insurtech also has a B2B arm through which it sells technology to insurers (like Tokio Marine Holdings), opening up a new potential revenue stream for Lemonade.

The bigger picture: An established insurtech acquiring another following a string of public listings and mega-rounds shows the space has matured. This could make it more difficult for younger insurtechs to compete.

• Several insurtechs followed Lemonade’s lead from last year and went public this year —including Oscar Health, Root, and Hippo—as some established players matured from disruptors into direct competitors in their lines of insurance.
• Mega-rounds dominated the previous two quarters of 2021: Q2 was the highest insurtech funding quarter on record ($4.8 billion), yet just 15 insurtechs commanded two-thirds of the capital and Q3 also saw deals concentrated at the top.
• More mature insurtechs that are awash with capital from large raises might seek to purchase smaller players to strengthen their offering—which might make it harder for B2C insurtechs to establish themselves.
• A further barrier to entry will arise if more players follow the lead of Metromile and Root in partnering to bundle their offerings.