Hippo in talks with regulator about increasing writings in California

By Chris Munro

March 7 - (The Insurer) - Hippo is in discussions with California’s Department of Insurance as it considers writing more homeowners business in the state, with CEO Rick McCathron stating that following the wildfires there is an opportunity to assume more risk provided it is properly priced.

The Palo Alto, California-based company in its Q4 and full-year letter to shareholders revealed it suffered an estimated $42 million of losses from the wildfires that hit parts of Los Angeles earlier this year.

The estimate includes its expected portion of the California FAIR Plan assessment and is net of subrogation.

Of the total, $30 million is attributed to the Hippo Home Insurance Program (HHIP) and $12 million to non-Hippo programs supported by fronting carrier Spinnaker.

Hippo said the sale of the subrogation rights, which relates to its losses from the Eaton Fire, is expected to save around $15 million on a gross basis and $11 million on a net basis, figures which are reflected in its estimate.

On an earnings call with analysts, McCathron said the wildfire losses Hippo incurred related to legacy HHIP policies, which the company has been working to reduce exposure to over the past few years.

“None of these losses related to homes we cover that came from our new homes channel, which represents a substantial majority of the new business we've been writing in California for some time,” McCathron explained on the call.

Hippo’s New Homes Program (NHP) provides builders access to insurance products that are specifically designed for new homes from a panel of carrier partners.

Talking to The Insurer on Thursday, McCathron said Hippo continues to write NHP business in California, and noted that the firm did not suspend taking on new risks even as the wildfires were burning.

“We were able to support our builder partners, support the customers for which we had given quotes, and continue to give new quotes to customers,” he said.

Following the fires, McCathron said the challenges in California’s homeowners market could see Hippo grow its business in the Golden State.

“I do think this creates an opportunity with properly priced, properly underwritten new home business,” he said.

“We have open lines of communications with the Department of Insurance to figure out a way for us to expand what we currently do in California and to bring more capacity to the state,” McCathron added.

“I do think there's going to be some opportunity. I think it's still massively in flux … I'm hopeful that over time, this will resolve itself.

“And California is a big state. It's an important state. Hippo’s home office is in California. So we'll continue to do everything we can to add capacity to the state, not to retract it.”

McCathron said that Hippo will only write new homes business that has a probability of being profitable.

The home builders that Hippo partners with tend to be those that build new communities – they are not constructing new dwellings on existing plots.

As McCathron explained, one of the advantages of new home communities is they are built with current thoughts about risk.

“So for the peril of wildfire, many of these communities have very large defensible spaces. They do what they can to properly pipe firefighting equipment and fire hydrants.

“They have new roofs which are more fire retardant than old, shake shingle roofs. And so they’re generally community based with some underwriting quality related to defensible space.

“We also work with our builder partners to talk about what areas are more insurable versus less insurable. What we would think an expected insurance cost would be, and is this something that they'll be able to get home insurance for.

“Because unless somebody's paying cash for a home, you need home insurance before you can actually close the new home and move in. We really do partner a lot with our builders in this specific area," he said.