By William Rabb

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TypTap CEO: Pause in Florida Writing was Planned; Growth Continues

By William Rabb | March 22, 2022

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The February news that five Florida-admitted property insurers had stopped writing new business in the state painted a picture of impending doom for the insurance market in the state. But officials with one of those companies, the relatively young TypTap Insurance, have said that things aren’t so bad for everyone, and that its pause on new homeowner policies was not unexpected.

It’s part of an overall strategy of “diligence,” aimed at making sure potential losses don’t exceed capital in Florida’s troubled market, explained TypTap’s president, Kevin Mitchell.

TypTap, part of HCI Group, a holding company for P/C insurers, reinsurance and real estate firms, started out as an insurtech. It’s still relatively small in the Florida market, with just over 48,000 policies in force through the third quarter of 2021, according to regulatory reports. That’s less than a tenth of the number of policies held by Florida’s largest market-based property insurer.

But TypTap over the last 12 months has gained considerable attention, from Wall Street to Beach Boulevard, thanks to its phenomenal growth and potential for more: At the beginning of 2021, TypTap was in one state. By the end of the year, it was in 12. By the end of 2021, policies in force in Florida had jumped to almost 56,400.

The firm reported it had raised more than $100 million in capital, had $90 million in surplus, and was planning an initial public stock offering for early this year. On a recent earnings call, HCI’s CEO, Paresh Patel, said TypTap could reach $1 billion in premium by 2025.

Company officials have said the growth and TypTap’s strong financial picture are partly the result of its own insurance technology. While more and more insurers now rely on gobs of data to quickly assess the risk of a property, TypTap began developing its own system a decade ago, before most firms began thinking about it. That has made it possible to focus on the data that’s most relevant to a property’s risk, Mitchell said last week.

So, when TypTap announced in January it was holding off on the IPO, then said it would stop writing new policies, just as other companies did the same and two other Florida carriers were deemed insolvent, it led to some “another one’s in trouble” comments and concerns in and out of the industry.

Mitchell

Mitchell recently sat down for an interview with the Insurance Journal to explain TypTap’s journey through the treacherous Florida landscape. The conversation has been lightly edited for clarity and brevity. Mitchell declined to say what the company’s combined ratio is. Information from the Florida Office of Insurance Regulation shows the insurer had $155 million in total premium written through Q3 last year and more than $18 billion in potential exposure for policies that include wind coverage.

IJ: Explain the thinking behind why TypTap decided to stop writing new business in Florida this year.

KM: For TypTap, placing a pause on new business in the spring is something we’ve done since 2018. We find it to be a good, healthy way to evaluate the business we wrote year-prior and make sure that we have a balanced book of business from an exposure standpoint. And it allows us to evaluate cost of goods sold, specifically what our future reinsurance pricing will be on June 1.

For us, we think it’s a thoughtful, prudent, balanced step in managing a long-term viability of an insurance company. While we’ve been somewhat lumped in with the other companies that have stopped writing new policies in the state, we were doing it for different reasons.

IJ: Is there a target date for when you might start writing again in Florida?

KM: We evaluate on a monthly basis. I think a determining factor will be the cost of reinsurance. So once we understand that – it’s our biggest cost – and once we are able to better understand where that falls on June 1, we’ll have a better sense of when we can release the pause and start writing organic business in Florida.

IJ: There’s been a lot written about Florida’s market and the shape it’s in. Is that part of the solution – diligence, as in “slow and steady wins the race?”

KM: There are so many factors that go into it, but what we’re seeing from a TypTap standpoint is the technology we’ve developed through our technology division, Exzeo, is driving a better underwriting result and allowing us to make better risk selection.

The technology that was built goes down to the specific house level and is able to determine if that risk has the potential for long-term profitability.

IJ: How does Exzeo work?

KM: We started this journey in 2012. The whole thought process at the time was, 10 years in the future, how is insurance going to be transacted? We felt strongly that people would type in their name and their street address and answer a few questions and be able to get a quote. We had to build a number of elements because back in 2012, you didn’t have these data aggregators that you do now. So we had to gather the data. There’s roughly 5.5 million homes in Florida and we have full underwriting data on every single one of them.

Why this is critically important is that it allowed us to figure out what was key to underwriting success and what data weren’t important. Think about 2022, today. If you’re a new company and you’re using a data aggregator, maybe it’s HazardHub or Cape Analytics, and you put in an address and they’ll give you back a series of data points; it might be 50. But the benefit of building it yourself is we know which data points are important and which weight to put on them. We also know if data points are missing. If data is missing might be the key if you decide to underwrite that risk.

IJ: Does the data include things like type of roof, age of roof?

KM: I think there’s a whole host of characteristics that fall in there. You have roof material, metal, shingle, tile; one story, two story; distance to coast; maybe even the shape of the roof: it it’s hip or gable.

IJ: The Florida Legislature just concluded without doing much on property insurance. What needs to be done in Florida, in your opinion? Are we really in crisis?

KM: I guess for us, we can only speak about what TypTap and HCI is doing. One of the things we’ve always done is we’ve tried to run the business regardless of legislative reform and that has served us well. Our job is to develop underwriting philosophies that allows us to pick the policies that have long-term profitability and sustainability, and that is our sole mission right now.

IJ: Does TypTap put limits on the age of homes it will insure, as some carriers do?

KM: We’re pretty interesting. I believe in the state of Florida, we’re insuring (year built) 1900 to 2014. We write primarily south of Interstate 4 (which runs from Tampa to Daytona Beach). A lot of the homes we write are older, built in the 1950s, 60s, 70s, 80s and 90s. Because there is a need there. There are plenty of markets that are ready willing and able to write new construction, and we can provide a service to the agents. We are agent-focused. We think agents bring a tremendous amount of value to the process.

IJ: TypTap doesn’t use a dedicated home-repair network, like some companies, does it?

KM: We do not. For us, we think the homeowner should decide who the appropriate repair company might be. We want to give them the choice and the flexibility to choose someone they’re most comfortable with.

IJ: Any idea when the IPO may come back around?

KM: A lot of people are asking that question. We don’t communicate timing or intention. One thing CEO Paresh Patel did mention in the earnings call is that we’re ready to execute on it as long as we can get appropriate value for the company. When look at potential IPO for TypTap, the earnings call spoke to some of the fundamentals that need to be achieved. You have to show that you are good stewards of capital; you have to show growth and profitability; and be able to show that your technology drives a differentiated result. Those are going to be key because when you think about 2021, when a lot of the hype and buzz was in the insurtech space, the focus was on growth at all cost. We never really subscribed to that model. The other piece of it is, we’re not a user of quota-share (reinsurance). So, if you’re not a user of quota-share, you have to grow in a thoughtful manner.

IJ: There’s been some news recently about the St. Johns Insurance Co. insolvency and Slide Insurance getting their book of business. Is that something TypTap would have wanted to bid on?

KM: From a TypTap side, our focus is on organic business in Florida. I think it’s great Slide has come in to help smooth the transition for those St. Johns policyholders, so wish them best of luck with the transition.

TOPICS FLORIDA