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Pie will ‘definitely’ expand beyond workers’ comp in next few years: CEO Swigart

Pie logo with Swigart.jpg

InsurTech Pie expects to expand its business beyond workers’ compensation insurance, CEO John Swigart said in an interview with Inside P&C, adding that Pie is “actively thinking” about what the “right” line would be.

“We’ve evaluated it at a generic level, and we’re looking more specifically at the next couple of years,” the executive said. “We will definitely be expanding beyond workers’ compensation.”

Pie has had a heavy early focus on the roughly $50bn workers’ comp market and operates in contrast to some direct distribution peers via an omni-channel distribution strategy that includes retail agents, wholesale brokers and online.

While workers’ comp remains its key line, it now also offers business owners’ policies, commercial auto, cyber, errors and omissions, and general liability.

Founded in 2017 in Denver by Swigart, Pie was set up to target businesses that the CEO believed were underserved by large carriers. The company initially operated as an MGA and has since began pivoting to full-stack carrier through the acquisition of Western Select Insurance, an Illinois-based shell company.

The InsurTech was valued at approaching $900mn during its last funding round in March, and as of April this year, it had run-rate premiums of $185mn, pointing to the likelihood of ~$250mn+ at this point.

Full-stack was ‘always’ the plan

Swigart said that Pie’s transition from MGA to balance sheet carrier has always been a part of the company’s “roadmap”.

“It has always been our plan,” he said. “I spent 13 years at Esurance, and through that experience, I knew that we were going to need to own our own insurance paper as we got to some scale. We just didn’t need to start that way.”

In May 2020, Pie raised the money to launch its own insurance company with backing from PE house Gallatin Point Capital and Bermudian (re)insurer SiriusPoint, becoming one of the earlier InsurTech MGAs to become a full-stack player.

On the increasing trend of MGAs transitioning to balance sheet carriers amid a widespread market tightening of capacity for InsurTechs, Swigart said capacity constraints were not part of Pie’s motivation.

“We don’t have constrained capacity,” he said. “We are taking some of our own risks because we want to produce strong underwriting results, and we think that is an important piece of the overall business model.”

Swigart said that as of today, all the business Pie writes is still on SiriusPoint paper. However, that will start transitioning in the second quarter of 2022, when the InsurTech will start issuing policies on its own insurance companies.

He added that Allianz, which invested in the company’s Series C funding round, will also take on risk, as well a panel of third-party reinsurers that will come on board in 2022.

“That is the next level of capacity; now that we are getting sizable and larger [relative] to Sirius’s total book of business, we will be diversifying capacity,” Swigart said.

Further, the executive said that Pie is “actively pursuing” and looking at additional shell companies in commercial insurance to further facilitate its transition to full-stack insurer.

“There is value and almost necessity in having multiple insurance companies,” Swigart said.

However, he drew a line between acquiring shell companies to support Pie’s full-stack transition and engaging in M&A opportunities to promote growth.

“We are not actively looking at any [M&A] opportunities,” he said. “We are focused on building out Pie organically. It doesn’t mean we wouldn’t consider M&A in the future, certainly, but it’s not something that we are actively focused on.”

Swigart also noted that while Pie is shopping for additional shell companies, those are “pieces of paper” and not “actual business opportunities”, drawing a distinction between companies writing live business.

Plans to explore IPO at ‘appropriate’ time

Earlier this month, Inside P&C reported that Pie is in the preliminary stages of work to go public via a traditional IPO in 2022.

While Swigart did not outline the company’s plans, he said that he does view the public markets as a potential funding mechanism for Pie.

“When it is appropriate and [the] right time for us, and [the] right time for the markets, we would explore that,” he said.

Pie had previously indicated its plans to go public, but after valuations for publicly listed InsurTech businesses surged last year and into this year, share prices have since crashed over investor concerns regarding profitability.

Earlier this month, Lemonade moved to accelerate its expansion into auto by acquiring Metromile for around $500mn, less than the $1.3bn implied pro-forma market cap of Metromile’s SPAC merger deal.

Shares of the homeowners’ InsurTech MGA Hippo have crashed by 63% to $3.72 in trading on Wednesday afternoon, down from the $10 per share where its SPAC merger partner, Insu II, listed.

On InsurTechs tapping the public markets, Swigart said that as public investors look into InsurTech businesses, they will focus on unit of economics, profitability, sustainable economics and high retention rates.

“I think there is just a tremendous amount of future growth and real value creation to come,” he said. “Those businesses that execute on those are going to be well rewarded.”

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