They Ran So We Could Earn: The Insurtech Lessons.. What Smart MGAs Are Doing Instead
Insurance Math: The Calculus of Broken Dreams and Hard-Won Wisdom
Root, Lemonade, and Hippo tried to blitzscale insurance.
The results? Mixed.
The lessons? Priceless.
I. The Era Recap: Fast Didn’t Equal Durable
How Root, Lemonade, and Hippo taught us that in insurance, the numbers don't lie—they just wait.
Insurance isn't really about technology, user experience, or even customer service. It's about math. Cold, patient, unforgiving math that compounds over time until it either builds sustainable businesses or devours them whole.
But here's the thing about insurance math that makes it different from every other kind of business math: it's backwards.
In most businesses, you learn quickly if you're wrong. Ship a bad product, lose customers immediately. Price incorrectly, see it in next quarter's revenue. Hire the wrong person, feel the friction within weeks.
Insurance math is crueler. It lets you feel successful while you're actually failing. It rewards you for decisions that will bankrupt you three years from now. It punishes you for caution that would save you.
The companies that understood this survived. The ones that didn't became case studies.
Between 2015 and 2021, three companies—Root, Lemonade, and Hippo—raised over $2 billion combined betting they could solve insurance with Silicon Valley speed and venture capital audacity. They brought fresh energy to a sleepy industry, introduced technologies that are now table stakes, and forced incumbents to wake up.
They weren’t the only ones making these bets—but they were the ones who IPO’d, so we got to see behind the curtain.
They brought urgency and attention to a sleepy industry.
They made telematics, chatbots, and embedded flows feel mainstream.
They taught carriers to take tech seriously.
They also lost spectacularly.
But their failures weren't just expensive lessons—they were a masterclass in why insurance math is different from every other kind of business math. And why the operators building the next generation of insurance companies need to understand that difference from day one.
Between 2015–2021, capital was cheap, story beat substance, and insurtechs raised like SaaS companies—fast, loud, and far ahead of infrastructure.
Raise big
Tell a bold story
Ship sleek onboarding
Call it disruption
Figure out loss ratios later
And for a while, it worked.
Until the math showed up.
And insurance doesn’t reward speed—it punishes imprecision.
They played the game the market rewarded at the time:
They got punished publicly.
But they gave us something better:
A map.
A warning.
Clearer rules—and fewer miracles required.
II. The Cascading Miracle Trap (All Three Made the Same Bet)
But beneath each bold thesis was the same trap:
Each company built their business on what I call a "cascading miracle"—a stack of assumptions that all had to prove true simultaneously for the unit economics to work. Insurance math doesn't forgive single points of failure. One broken link, and the entire model unravels.
And in insurance?
But here's the seductive part: for the first 18-24 months, you can't tell which links are broken. The policies are in force, the premiums are collected, the growth metrics look beautiful. The math hasn't had time to reveal its secrets.
It’s like building on a Jenga tower—Distribution, Pricing, Regulators, Data, Loss Ratios, Retention… every block has to hold. One weak link and the whole model unravels.
III. The Hardest Truth: Insurance Math Is Patient
Between 2015 and 2021, three companies—Root, Lemonade, and Hippo—raised over $2 billion combined betting they could solve insurance with Silicon Valley speed and venture capital audacity. They weren't stupid. They weren't reckless. They were seduced by the same thing that seduces every generation of insurance entrepreneurs: the gap between premium collected today and claims paid tomorrow.
That gap is where dreams live. And where they die.
Root peaked at a $7.2 billion valuation in 2020. By 2024, it traded at roughly $300 million—a 96% decline. Lemonade hit $10.4 billion at its peak and now hovers around $1.8 billion. Hippo went from $5.3 billion to under $500 million.
Here's what makes insurance math so dangerous: the scoreboard lies for years.
In software, bad product-market fit shows up in retention metrics within months. In insurance, bad product-market fit shows up in loss ratios after the policies have already renewed twice. The brutal truth? For two years, these companies looked like they were winning. Revenue grew, customer counts climbed, press coverage glowed. The insurance math was working perfectly—it was just working in reverse.
This creates what I call the "insurance math paradox": the decisions that drive short-term growth (loose underwriting, aggressive pricing, rapid expansion) are often the same decisions that destroy long-term profitability.
Insurance Math: Premiums grow → future costs unknown → profitability determined by past decisions
Consider Hippo's trajectory: In two years, they nearly doubled total generated premium from $606 million to $1.1 billion and more than doubled revenue from $91 million to $210 million, all while lowering fixed expenses from $140 million to $138 million. Every growth metric screamed success.
The brutal truth? For two years, these companies looked like they were winning. Revenue grew, customer counts climbed, press coverage glowed. The insurance math was working perfectly—it was just working in reverse.
The Moral of the Math
Here's what Root, Lemonade, and Hippo actually taught us:
Insurance doesn't reward innovation—it rewards better math.
You can have the sleekest app, the most sophisticated AI, the most embedded distribution channels. But if your loss ratios are wrong, none of it matters. The math will wait patiently for two years, then destroy you.
The market will let you fail for a very long time.
Unlike software businesses where failure is immediate and obvious, insurance businesses can fail slowly and beautifully. Revenue grows, valuations climb, press coverage glows—all while the underlying math rots.
The real competition isn't other startups—it's time.
Every insurance company is racing against the same enemy: the moment when their historical loss ratios catch up to their current pricing.
IV. The New MGA Mathematics: Lessons From the Wreckage
The failures of the blitzscaling era have created a new playbook for insurance operators. The U.S. MGA market now exceeds $102 billion in premium, with the global MGA sector generating around $17.3 billion in revenues and growing at roughly 19% annually.
But today's successful MGAs operate with a fundamentally different mathematical framework. They've learned that in insurance, there are no shortcuts to the math—only better ways to do it.
1. Underwrite First. Grow Second. You can't outspend bad pricing—or SaaS your way around risk.
The most successful MGAs understand a simple truth: binding authority is the only moat that matters. Everything else is just distribution wearing a fancy hat.
Here's why underwriting authority changes everything: MGAs are insurance intermediaries, but unlike retail and wholesale brokers, they're often granted binding authority from insurance partners. This means they can quote and bind policies that fit within agreed-upon risk parameters—without asking permission for every single decision.
The math here is simple: binding authority means you control pricing. Control pricing, and you control profitability. Control profitability, and you control your destiny.
The Discipline: Today's smartest MGAs operate with carrier-grade rigor from day one. Not "we'll get disciplined when we're bigger." Not "we'll hire underwriters when we have more capacity." From. Day. One.
This means:
Underwriting authority that's earned, not assumed
Loss ratio targets that are realistic, not aspirational
Risk segmentation that's granular, not generic
Exposure-level tracking that's real-time, not monthly surprises
When you control underwriting, you control your destiny. When you don't, you're just hoping someone else got the math right. And hope is not a strategy—it's a prayer.
Old Math: Customer acquisition cost (CAC) + lifetime value (LTV) = growth New Math: Underwriting precision + risk selection + pricing discipline = sustainable profit
The Hardest Truth: Growth without underwriting discipline isn't growth—it's just expensive customer acquisition for risks you can't price properly. The market will let you do this for 18-24 months. Then the math shows up with a bill.
Can you explain your loss ratio assumptions for every risk segment you write? Can you defend your pricing to a room full of actuaries? Can you show month-over-month improvement in your combined ratio? If not, you're not ready to grow. You're ready to learn.
2. Earned is the Only Credibility.
Policy count is vanity. Premium written is dangerous. Premium earned is the only metric that matters.
Here's why: earned premium represents risk you've actually taken on and been paid for. It's the denominator in every important ratio—loss ratio, expense ratio, combined ratio. If you can't track earned premium by peril, by partner, by cohort, you're flying blind.
The Daily Question: "What did we earn yesterday, and how does every dollar reconcile to an actual policy in force?"
The Monthly Discipline: Month-end shouldn't feel like a crime scene. If you're discovering surprises about your earned premium, you're not running an insurance company—you're running a very expensive science experiment.
3. Focus Beats Full-Stack Fantasy. The most successful new MGAs aren't trying to be everything to everyone. They're becoming exceptionally good at one thing, then earning the right to expand.
The Math: Deep expertise in one niche → superior risk selection → better loss ratios → higher margins → capacity for expansion
According to research from Marshberry, as of 2024, in the UK, over 350 MGAs place more than 10% of the country's £47 billion in general insurance premiums. But the most profitable ones aren't the biggest—they're the most precise.
The Operator's Discipline: Master one risk class completely before you even think about expanding. The math compounds when you're right, but it also compounds when you're wrong.
4. Kill the Fantasy Funnels.
It's not about how you distribute. It's about whether distribution earns its keep on the P&L.
The Channel Math:
Acquisition cost per channel
Loss ratio by channel
Retention rate by channel
Lifetime profitability by channel
Every distribution partnership should be a mini P&L. If it doesn't earn, it doesn't earn a place in your stack.
If you can't explain exactly how each channel contributes to your combined ratio, you don't have a distribution strategy—you have a distribution hope.
5. Channel is Strategy—If It Earns.
It’s not about how you distribute. It’s about whether it earns.
Embedded is table stakes.
Brokers still matter.
Partnerships are back.
But every quote and dollar must justify its place on the P&L.
6. Tech That Earns. Not Tech That Impresses.
The most important technology question isn't "What can we build?" It's "What improves our margins?"
Technology ROI in Insurance:
Does it improve risk selection? (Pricing precision)
Does it reduce operational costs? (Expense ratio)
Does it speed up claims processing? (Customer retention)
Does it enable better data collection? (Future pricing improvements)
Sidebar: Are Root, Lemonade, and Hippo Taking Too Much Heat?
Root, Lemonade, and Hippo did what most won’t:
They went first. They went public. They got judged in real time.
When the math caught up, they overcorrected—hiring armies of insurance veterans to bolt on the discipline they skipped at launch. But they weren’t alone in skipping pricing rigor. They were just the ones brave (or loud) enough to let us see behind the curtain.
They didn’t fail the category.
They moved the Overton window on what insurance could be.
Before them: Telematics, chatbots, embedded flows—unthinkable.
After them: Table stakes.
They made the radical feel obvious. They forced incumbents to modernize. They seeded a talent pipeline of operators fluent in data science, modern product, and digital distribution. And they gave us a map—showing which miracles are required, and which are optional.
Others made the same bets. They just failed quietly.
Even now, these companies are learning. Hippo projects a net loss ratio below 75% for 2025. The math is getting better.
VI. The Quiet Class
While Root, Lemonade, and Hippo dominated headlines, dozens of other insurtechs made similar bets and failed quietly. Their stories are equally instructive:
Trov
Play: On-demand insurance (e.g., insure your camera for 3 days)
Why It Mattered: Pioneered usage-based coverage with elegant UX
What Happened: Couldn’t find a sustainable path to scale. Pivoted to B2B before being acquired by Travelers. Being early looks the same as being wrong until the market catches up.
Legacy: A visionary in embedded and modular insurance—just too early for market readiness.
Metromile
Play: Per-mile auto insurance + strong telematics stack
Why It Mattered: Built some of the most robust in-house data infrastructure of the early players
What Happened: Great tech, but struggled with underwriting precision at scale. Acquired by Lemonade in 2021.
Note: Their downfall helped reinforce the idea that good data alone doesn't make good pricing.
Lesson: Data volume isn’t pricing power without actuarial depth
Bunker (Sunset Quietly)
Play: Specialty commercial insurance for freelancers and gig workers
Why It Mattered: Understood the structural gaps in certificate issuance and compliance tracking
What Happened: Couldn't achieve escape velocity in a narrow, fragmented niche
Lesson: Distribution alone isn’t enough without sticky economics or channel power. Solving a real problem isn't enough—you need to solve a profitable problem.
The pattern is clear: vision without mathematical discipline is just expensive market research.
VII The Operator's Advantage: Building on the Foundation
The Operator's Advantage: Building on the Foundation
If you're building an insurance company today, you have advantages the 2015-2021 cohort didn't:
Clearer rules: The regulatory environment is more predictable. Capacity partners have defined expectations. The technology stack is more mature.
Cheaper miracles: AI is around us in spades, APIs, data sources, and modeling tools that cost millions to develop are now available as services. You can focus on the hard problems that actually matter.
Proven playbooks: You know what works (underwriting discipline, channel focus, margin obsession) and what doesn't (growth at any cost, betting on retention, assuming data equals insight).
A more mature ecosystem: Approximately 17% of total MGA premium is now supported by fronting companies, a share that has more than tripled since 2020. The infrastructure for modern insurance companies is more robust than ever.
The Compounding Advantage: We stand on the shoulders of giants. Every mistake has already been made publicly. Every assumption has been tested. Every miracle has been measured. You get to start with the benefit of their expensive education.
The Mathematics of Sustainable Insurance
The successful insurance companies of the next decade won't be the ones with the best technology or the most funding. They'll be the ones who understand that insurance math is cumulative, patient, and unforgiving.
The Core Formula:
Earned Premium - Incurred Losses - Expenses = Underwriting Profit
Underwriting Profit + Investment Income = Net Income
Net Income + Capital Efficiency = Sustainable Growth
Every decision should improve one of these variables without destroying the others. It's simple math, but it's not easy math.
The Operator's Mindset:
Underwrite first, grow second
Measure what you earn, not what you write
Focus beats full-stack fantasy
Channel strategy is P&L strategy
Technology serves the math, not the other way around
Insurance Is About Trust, Not Math
Here's the thing about insurance math that even the most sophisticated operators miss: the math is just the table stakes.
What insurance is really about is trust. Trust that when something goes wrong, you'll be there. Trust that your pricing reflects actual risk, not hope. Trust that your operations can deliver on your promises.
The companies that failed didn't just get the math wrong—they broke the trust. They sold policies they couldn't price properly. They promised experiences they couldn't deliver. They built businesses on miracles instead of capabilities.
The Trust Math:
Every policy is a promise
Every claim is a test
Every interaction is an opportunity to build or destroy trust
Trust compounds faster than any other asset—and disappears faster than any other liability
The successful insurance companies of the future won't just have better math. They'll have better trust. They'll keep promises that were realistic to make. They'll price risks they actually understand. They'll build operations that can deliver on their brand promises.
Because in the end, insurance isn't about protecting against bad math. It's about protecting against broken promises.
The Future of Insurance Math
The next generation of insurance companies will be built by operators who understand that insurance math isn't a constraint—it's a competitive advantage. In a world where everyone has access to the same data, the same technology, and the same capital, the edge belongs to those who can do the math better.
But "better" doesn't mean more complex. It means more honest. More patient. More precise.
The companies that survive won't be the ones that move fastest. They'll be the ones that calculate most precisely, underwrite most carefully, and compound most patiently.
Because in insurance, the math always wins. It just takes time to show its work.
And for the operators who truly understand this—who respect the math, serve the trust, and build for the long term—the rewards are extraordinary. Not just financial returns, but the satisfaction of building something that actually protects people when they need it most.
The Final Truth: Insurance math is patient, but it's also generous. Get it right, and it compounds forever. Get it wrong, and it teaches you exactly what you need to know to get it right next time.
The choice is yours. The math is waiting.
The insurance industry is in the middle of a mathematical renaissance. The operators who understand this—who respect both the numbers and the trust behind them—will build the next generation of great insurance companies. The ones who don't will become case studies in what happens when you confuse growth with progress.
