Good morning, everyone. Welcome to Hippo's Investor Day. My name is Cliff Gallant, Investor Relations. Before we begin, we got the exciting disclaimer statements to read. Certain statements included in this presentation, including financial projections, are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally are accompanied by words such as believe, may, will, estimate, and similar expressions that predict or indicate future events or trends. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied upon as, a guarantee or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions.
These forward-looking statements are subject to a number of risks and uncertainties, including those set forth in Hippo's most recent reports, Form 10-K and Form 10-Q. In addition, this presentation includes certain non-GAAP financial measures for comparable GAAP measures and reconciliations. Please see the slides on Hippo's website and furnished with the SEC today. You can read the full detail if you like. This is our presenting team today. We will start with Rick McCathron, our President & CEO, who'll give an overview and talk about our value proposition. He'll be passing that on to Lukasz Strozek, our Chief Technology Officer. Tech is the backbone of what Hippo does. Then we're gonna have three case studies. We'll have Chris Donahue, our Chief Underwriting Officer, talk about how tech is integrated into our underwriting systems.
Yuval Harry, our Chief Revenue Officer, will talk about distribution. Daniel Blanaru, our Chief Growth Officer, will talk about product and product innovation. They'll pass it off to Stewart Ellis, our CFO. He'll talk about our business model and our financial outlook before passing it back to Rick for a closing statement. We'll go into Q&A. For Q&A, we'll have Assaf Wand, our Executive Chairman and Founder, join us on stage for questions. We'll leave ample time for that. For people on the webcast, if you have questions, you can email me at investors@hippo.com. I'll be gathering the questions, and we'll light 'em up. With that, we're ready to go. Rick.
Let's make sure I know how to push this. Big green button must mean forward, right? Awesome. Well, welcome everybody, and very happy to have you here. Very happy to see you here. One thing that's funny for me is that normally Stewart, our CFO, has to tell me, "Okay, you can't say that here. You can't do this. You can't do that." But my understanding that this is a public forum, so I can really say anything that I want. That's why we kept Stewart close, so he can throw something big and heavy at me if I'm not supposed to say something. But it's been a year since we've been listed on the New York Stock Exchange, and very excited to host our first Investor Day here with each of you.
As Hippo's newly appointed CEO, very excited about the future and things that we'll share with you. We've got a lot of content to cover. They surround four main points. First, how we're going to redefine the home insurance industry and the home protection industry. Second, we're gonna talk about our new generation technology and how that impacts everything that we do, both from a customer perspective and from a company perspective. Third, we're gonna talk about proactive home services and how proactive home services are critical for what we need to do to really meet the customer's expectations and their changing views and behavior.
Then fourth, we're gonna talk about what does this mean for our financials, and how do we accelerate our path to profitability, specifically what that looks like from a timeframe perspective and the amount of free cash we'll have afterwards. With that, let's go ahead and get started. First, I wanna talk about the opportunity for Hippo. Home insurance is a very fragmented industry, and the industry has not done a great job generally on making sure customers' needs are met. There's significant gaps that are not met by the current incumbents, and that's one of the things that we're trying to do, is really fill that gap that is necessary, to meet customer expectations. There's a lot of pain points related to this.
One thing that we find very interesting was a recent New York Times article in which it said that nearly 3/4 of Americans actually place homeownership above other significant components in their sort of move to prosperity. What's interesting about that is when those 87% actually buy their house, or when those people actually buy their house, 87% of them experience anxiety and dread as to what can go wrong when they buy that house. Because it starts as a very happy time. It's an opportunity now to not only purchase what's likely their largest asset, but the area in which they can raise a family and really focus on sort of what's next in their life, and then things go wrong. In fact, 75% of them actually think that it was a mistake because of the challenges that go wrong.
What we're trying to do is close that gap. We're trying to partner with customers to protect the joy of homeownership, so they have the opportunity not to experience that anxiety and regret and not have that feeling of dread that when something goes wrong, how do I go ahead and take care of it? The main difference from us versus incumbents is we have a very proactive approach as opposed to most insurance organizations have a reactive approach. Proactive to us tries to avoid the claim from happening in the first place. Are there things that we can do for the customers to make sure that they avoid that claim from happening?
Generally speaking, from an industry perspective, the best possible outcome is somebody has a claim, and with that check in hand, the customer, "Thank you very much," but they still have significant problems with their destroyed whatever it is. It is still not a great experience. From our view, it's what can we do to avoid that, to mitigate that, make sure that that experience is a positive one. It comes with several different components, o ngoing underwriting versus one-time underwriting. You've heard us say before that from day one, we continuously underwrite a house for two main reasons. One, make sure the customer is properly covered. In a period of inflation as we're experiencing now, 67% of all customers actually are underinsured after three years. We wanna make sure that doesn't happen.
We wanna know when a customer puts in a pool in their house, that they have appropriate liability coverage. We wanna know when they make an addition, do different components. We wanna make sure that they have the coverage they need. That also allows us to identify hazards in a changing environment. It allows us to see those hazards, proactively reach out to the customer before their renewal, let them know that there are things that are going wrong. What can we do to help the customer, partner with the customer, to make sure that we take care of those particular situations? To us, it's about proactive partnership.
We can't fulfill our promise of restoring the joy of homeownership without partnering with customers, and that's something that is very different than what the industry does, which is simply say, "You had a financial consequence, here's a financial solution." We wanna make sure you avoid that consequence to begin with. We're seeing in other industries customers are very much comfortable with proactive measurements in othr aspects of their lives. Wearables for health reasons. People love 'em. They wanna wear 'em. They want to take advantage of it. They want to say, "What can I do to avoid a health situation down the road?" It's the same thing related to homeowners insurance. From our perspective, it's what can we do with you proactively to avoid the problems that you might experience down the road?
We're seeing a significant amount of customers very much embrace this idea of proactivity. This is a great quote from one of our customers that we think is symbolic of the way that most of our customers view what Hippo provides them "An insurance company that would help me actually stay on top of maintenance and home protection would be such a relief." Customers today really struggle with the idea of what can I actually do to maintain my house, to reduce the likelihood of claim, to help me when something goes wrong, or to help me prevent something from going wrong in the first place. Let's talk just a few minutes about the size and the opportunity.
There's 100+ million households in the U.S., and those households spend $750 billion per year on home insurance and home services, and there isn't a dominant player either on the home insurance space or on the home services space. Customers that absolutely believe and want a partner to help them protect the joy of homeownership. We call it Generation B or Generation Better. Generation Better are homeowners that really are optimizers, maximizers, ambitious tech-enabled people motivated to make things better. These are customers that actually welcome proactivity in their lives. These are ones that are identifying what companies and what partners can we have to actually work with us to help protect the joy of homeownership.
These customers traditionally are low loss ratio customers, low churn customers, and when we size the opportunity, 33% of that 100+ million homeowners actually fit in the Generation Better category, and that's what we're really focusing with proactive preventative services to motivate them to come partner with us that helps protect the loss ratio, helps generate fee revenue, and helps. One thing that's very important as you'll see in our new ad campaign, the idea that we wanna give customers the tools and the capabilities, so they take ownership of their house and things that can go wrong in their house. We wanna help them stomp out the problems that exist and help them avoid that negative situation that a check 5 minutes later doesn't really help them all that much.
Our new brand campaign is called Feel the House Power, and I think we have an example of that right now that can help you feel the house power a little bit.
I think they got it.
It's a beautiful day if I am with you.
When people really have confidence that they know what removed the anxiety that we chatted about in the New York Times article. Trying to give customers control of what they do is our first and foremost responsibility and obligation to them. You're gonna hear a lot today about how we are doing that, how we are accelerating that, and how that impacts our core business. Now we're gonna jump into a few slides relating to tech before we kick it off to Lukasz, our new Chief Technology Officer, that can give you a deeper dive into the tech stack. First of all, everything related to our tech stack helps both customer and the company. Our tech stack allows for a superior customer experience, a differentiated opportunity for a customer to find Hippo, to sign up for Hippo, and have that ongoing, experience post-purchase experience.
It facilitates everything we do. Yuval Harry, our Chief Revenue Officer, is gonna talk a little bit about our omni-channel distribution approach and partnerships. It allows us to embed homeowners and home services offerings into our partners' flow through customized APIs that allows us to really meet the customers where they are. Finally, for us, the technology stack allows us to adapt to changing markets very, very quickly. It allows us, not just on the insurance side, to make 60+ rate filings this year. It allows us to continually evolve the business in an accelerated fashion to take advantage of market conditions. The tools that we have from an efficiency perspective and the differentiation that we have of these changing conditions. With that about our tech stack and our technology. Lukasz?
Green button.
Green button.
Thank you, Rick. Thank you, everyone. I would love to talk to you a little bit about our technology. I think Rick set it up to think about what it allows us to do, what it allows Hippo to do. I really think of these three categories of benefits: superior customer experience, more efficient distribution, and business. Here are some of the examples of how our technology specifically creates these benefits. On the customer experience, we can lower frictions with features such as the quote in 60 seconds, and unique benefits and features that aren't available anywhere else, such as the dynamically calculated home health score.
More efficient distribution, our technology allows Hippo to grow across a wide range of channels, as well as onboard new partners and entirely new channels. What we can do is release a rate change in under one day. For continuous underwriting, we're able to adjust to business needs. All these benefits are made possible with what we call our home intelligence platform. It's a truly infinitely scalable, resilient, all in the cloud ecosystem that allows us to support all of the Hippo experiences, whether that's hippo.com, consumer experience, experiences for our partners, or APIs that our partners use.
Underlying this platform is a modern tech stack, which I'll talk about later, a proprietary data ecosystem, and maybe most importantly, a DNA of rapid constant experimentation, learning from failure. We practice what we call API-first mindset. We structure our teams and our systems around contracts with each other. That way, one team can evolve and improve without having to wait for another team. We built Hippo on these capabilities, and we believe that they will continue to serve us well and continue to allow us to build technology that's ahead of the others. Let me illustrate a little bit how our technology specifically improves customer experience. Consumers hate frictions.
From the very beginning, Hippo focused on lowering the frictions for customers, creating instant experiences, as well as making it so that customers don't have to do a lot of work. With our technology, we're utilizing third-party data sources to offer things like pre-filled applications, and by moving away from batch processing, we're able to do things like real-time quotes and policies that become active instantly. Once someone becomes a Hippo customer, we keep their information up to date. We do that through things like IoT integrations, and first and third-party data sources. We know when our customer installed a new security. Finally, most important value proposition for Hippo is this notion of proactive management.
Our platform enables features such as virtual home concierge and home health score, allow our customers to perform actions to lower the chance of issues in the future. Also on a very simple consumer experience, but behind the simplicity is a very advanced platform. We built this platform with modules in mind, and so we can work on all of these modules independently, but more importantly, we can take these modules and combine them in a way that allows us to serve any current and future use cases. Not just hippo.com, but also our mobile app with home care as well as partner APIs and embedded partner experiences. What's really remarkable here is the speed with which we can really bootstrap a new channel and a new experience.
Experimentation is a really important part of our engineering culture. Basically, a weekend of coding that our team did to explore possibly novel data source. We had a hypothesis that a geographic model may be superior to one that's based on simply zip codes in terms of understanding weather events, and so the team explored that. Through this hackathon, we gained a lot of understanding of how we can identify and process and gain insights from data. To be very clear, it allowed us to move much faster in terms of the future work that we did. Another example, we don't just explore existing data, we also analyze our own data.
Here's an example of another hackathon project where we used natural language processing to analyze claim transcripts and notes in order to give insights to the claims team as well as to our product development team. As I mentioned, our technology drives process efficiency. Here's an example. We've analyzed 85 processes, automated them, and that, according to our estimates, gave us a run rate of 150,000 hours saved, which translates to $12 million in both wages, but also risk reduction through automation. An important point here is that automation has these indirect effects. In this case, it also leads to improved customer experience. Finally, I would really like to impress on you the capabilities of our platform.
We've architected our system so that it not only supports our current scale, but also gives us insight into how much more we can scale. In a way, it gives us ability to proactively understand system bottlenecks. The benefit of being built on a modern tech stack is we're able to take advantage of a lot of the innovation over the last few years of our technology infrastructure. The examples here give you just a sense of what we've been able to do with our technology, and we continue working on that. One example I wanna give you is we moved from releasing our code into production every two weeks to being able to do it multiple times a day.
Let me pass it on to Chris, our Chief Underwriting Officer. Thank you.
For our attendees, the slides are available.
Great. Thank you, Lukasz. I'm gonna take you through, in just a moment, a case study around underwriting, really the collaboration between our insurance business and Lukasz's technology team, and how we're using that to create a differentiated experience for both our customer and also differentiated results as an insurance carrier. First, I wanna take you through our insurance team and introduce you to some faces. Some are in the room, some are not here today. I'll start with myself. I've spent 27 years in the insurance business. I started in 1995 with Prudential Property and Casualty, looking at homeowners and auto risks. In the last decade before joining Hippo, I've spent time as a personal line COO with AIG, with Chubb, with ACE before that.
Since I've joined here, we've added the top row of folks to the team as well. Rich Primerano is in the back as our Chief Risk Officer. Mike Stienstra also here as our Chief Actuary. Torben Ostergaard, who is the CEO of Spinnaker, and Grace Hanson, who's our Chief Claims Officer. You'll see the names of the insurers that they came from. This is a good list of really successful, really profitable, growing insurance companies. USAA, Hiscox, Homesite, going back to RenRe. It's insurance and reinsurance experience. We've joined a team that already had significant experience. You've met Rick, who grew up in an insurance family. Tracy Bowden, who's our General Counsel, has worked with QBE and RenRe in her past. It's...
We're developing teams with an incredible amount of insurance experience to try and execute on our insurance strategies. We're also guided at the board level with some member of the board for some time. Lori Dickerson-Fouché joined within the last year, and our latest addition was John Nichols Jr. From RenaissanceRe, Fireman's Fund, Prudential, even brokerage, we've covered reinsurance, we have insurance experience, we have brokerage experience. It's a great deal of insurance experience. We spend a lot of time when we talk about InsurTechs leaning towards the tech side, and indeed we're doing that today. That's how that's going to be a differentiator for us, but it has to be based upon good, sound underwriting and pricing and claims and insurance knowledge. We're...
You know, on the way in this morning, I was sitting, commuting in from Jersey, and I was looking at my outfit. Okay, I'm an insurance guy, I've been an insurance guy for 27 years. This is not my normal outfit. I get a lot of ribbing for this, right? But this is kind of the point. I didn't come here to be comfortable. Seven years in other companies, even though they've done it very well and very effectively, w e're here to do something different and use technology to present a different offering to the client to change from indemnification to risk mitigation, to think about risk differently. That's what we're going to talk about how we're doing that today. Over the last year, we have seen improvement in our loss ratio.
It's not yet where we will be, but we have seen significant improvement. This is really built upon strategies that were supported by a flexible tech stack and data analytics. We'll go through a little bit what those strategies are. There's four that I wanna hit on today. One is our portfolio management strategy, where we align our target customer in target geographies. Number two, we will talk about an aggressive rate plan that we put in over the last year, which is really to talk about a multi-company plan where we've launched last year, and we're leveraging our own paper, and we're leveraging third-party paper to support our strategic growth.
The fourth is talk a little bit about data integration and how we're using data within the customer journey to help both our underwriting results and also the customer experience. First, our portfolio management strategy really has two main components. One is our target customer. So who is a Hippo customer? Who's our target? Rick went through Generation Better with you before. This is a client that values mitigation, that values what we offer them in home services, that want to prevent a loss. Their best claims experience is to avoid the claim in the first place. We want clients who engage with smart home technology, that wanna prevent loss. We've done data analysis, tried to find risk characteristics that predict this customer, that show us who will be one of the...
Who will be a Hippo customer, who is Gen B. We've implemented that into strategies, and we're starting to see our book move towards these customers. About a year ago, a year and a half ago, these clients made up a little over 50% of our book of business. Today, they make up 2/3 of our book of business. We're starting to see a change in the profile of the customers that we're writing. Second, geographic diversification. I think when we talk about geographic diversification in insurance terms, most of the time we're talking about, you know, avoiding volatility, creating a resilient portfolio where we don't have risk aggregations, where a single event is going to cause us disproportionate loss. I shouldn't try four-syllable words while I'm up here. We should look at geographic diversification in that way, and indeed we are.
We've diversified outside of California and Texas over the last year. It takes a little while, but we've gone from about 70% of our premium generated from those states to just over half. We're moving in the right direction there, and we're gonna continue that effort, and we'll talk a little bit about some of those efforts in a second. There's also additional benefit. Certain markets have more Gen B customers, the customers that look like those that are going to engage with smart home technology and are going to prevent loss. There's also markets that are more conducive to underwriting profitability. Either it's from a regulatory standpoint, from a market condition standpoint, markets that are not overheated from a competitive standpoint. We want to identify those markets.
We want to grow in those markets disproportionately to more difficult markets. This next example is probably the best example of tech enabling insurance data analytics. We've implemented an incredibly aggressive rate plan in 2022, such rate filings across 28 states, which represents about 93% of our premium base. This is incredibly aggressive. These were also not simple base rate changes where every client sees the same rate increase. They were segmented, highly segmented. Poorer risks, less attractive risks saw a higher rate increase. More attractive risks that are target to us, saw a lesser rate increase or even perhaps a rate decrease. Overall rate level is up. We needed to do that to improve the loss ratio. This was done through a collaboration of our actuarial and insurance product teams and Lukasz's technology teams. Speed to market is real.
It means money, right? From a cycle time standpoint, we are faster in getting from analysis to implementation of that analysis. Our insurance team is empowered to make quick decisions, to review the model results, to translate those into acceptable filings. Get them filed, get them approved, and as Lukasz stated before, we can turn a refiling around and program it, say, in a day. That's incredibly quick. In my experience, I've never really participated in a rate filing strategy as aggressive as we've executed this year. I have not been part of an organization that has turned rate filings into actual product in as quick a cycle time as we're doing here today.
Second, we've launched two additional writing companies through different partnerships with Incline and Ally Financial, and they are also in addition to our own owned writing company, Spinnaker. We've used them to launch new product and to expand our capacity. In Incline, we've launched two new states, Massachusetts and North Carolina, and we've expanded our capacity in our builders channel, which is our best performing line of business. In Spinnaker, we used that to launch New York earlier in the year, and Ally, we've expanded our HO3 offerings in eight states. It sits alongside of Spinnaker in those states and provides us additional capacity and additional rate flexibility. The expansion into Massachusetts, North Carolina and New York is key to our portfolio management strategy, provides us opportunities for geographic diversification, and they are both, you know, very strong Gen B states.
There are a lot of customers that would fit our risk profile sit within those states. We're expanding our product offerings using this third-party paper. Lastly, data integration. Rick hit upon it, Lukasz hit upon it. We have a robust ability to adopt or bring information into our customer experience and into our workflow through APIs. This is a win-win situation for the customer and us. On the customer side, you've heard it several times, you can get a quote in 60 seconds with just your name and the address. Answer a few more questions, five minutes, you have a policy. That's a great customer experience. We bring the data to them so that they have what they need quickly. It also helps them get to the right coverage level.
One of the worst things that could happen for a client is I'm underinsured. My house costs $500,000 to rebuild. I have it insured for $400,000. That's great when you're trying to save money. It's really bad in the unfortunate instance that your house is damaged significantly. You may not have enough coverage to be able to rebuild your home. It's important that we bring in that information. Most homeowners don't know everything that they would need to know in order to get to a right replacement cost for their home. We help them fill in those gaps by bringing the data in from third parties, putting it into the customer flow, verifying it with them, and then getting an adequate coverage level at the end. That also benefits us.
We don't want to underinsure houses because then we're not charging enough money for the risk. For us, we have the peace of mind knowing that we're charging the right amount. They have the peace of mind of knowing that they'll be properly indemnified should a loss happen. That ultimately will help all our loss ratio. This isn't also just a new business game. This is also a renewal game, and we proactively rerun all of this information at renewal. As Rick said, risks change through time. You know, your house isn't the same house it probably was 20 years ago. As those changes happen, as people put renovations, they add to the square footage. We'll be identifying that. We'll be proactively engaging with the client, adjusting their coverage levels to make sure that they have them at the proper level.
On the flip side, we're getting the right risk information so that we can properly underwrite and price that risk at the same time. Again, it's a win-win proposition. For us, I hope this gives you a little sense of, you know, we're taking all the things that, you know, the team that I showed earlier with 200 years of insurance experience, what we've learned. The name of the game hasn't changed. The name of the game is still growing a profitable, solid portfolio. How we're doing that, though, how we're trying to reach that end, that's really where we're trying to implement change for the customer and for us. I'm gonna pass it off to Yuval. Go through the next case study.
Thanks, Chris. Hi, everyone. Good morning. My name is Yuval Harry. I'm the Chief Revenue Officer at Hippo. I've been with the company now for five years, so since the very early days of distribution, and I'm very excited to talk to you about some of the things that we're doing here on the distribution side. I'll try to keep this extremely simple and easy to understand. We have three distribution channels. The first one is a traditional, I would say, direct-to-consumer, traditional in the sense of you know modern companies. What we do there is we basically drive a lot of traffic to the website. Folks have mentioned this before.
We collect a few very simple data points: name, address, date of birth, and from there, within 60 seconds, you would get a quote. Folks are able to then complete the transaction online in minutes. I also want to highlight that when they don't complete the transaction online, we have a fairly substantial call center with Hippo agents, and they help customers. You know, sometimes they have a question, they want to verify a piece of information, they want to tailor a certain portion of the coverage, and that's where our agents help them complete the purchase.
I would highlight that the nature of the conversations that our agents have with customers is very different than the traditional insurance model because we typically get these customers after they've already visited online and have completed a form. You know, basically the nature of the conversation then with an agent tends to be about the content, right? Like, they have a specific question, they tailor it. It tends to be a much quicker conversation. They don't have to fill huge cumbersome forms. From a sales aspect, it's a lot more efficient, right? In a traditional call center, it's you know, considered decent if you're doing 50, 60, 70 policies per agent a month. At Hippo, we achieve much higher levels of productivity in the call center.
The second channel is producer agents. This is selling Hippo through a variety of legacy carriers, independent agents, aggregators. I mentioned, you know, we have some fairly substantial, I would say, carriers that have agencies that when they can't sell their own product, they sell the Hippo product. For example, Liberty Mutual, Allstate, GEICO, USAA, they're all also using Hippo. What we've done here for agents is we've replicated the simplicity of the direct-to-consumer flow for agents such that they can also, you know, once they use the data points that they ask the customer over the phone, the process of both quoting and binding a policy is a lot quicker for them.
We've taken the technology in the direct-to-consumer flow and made it available for agents external to Hippo. The third channel is what we call embedded partners. What this channel is really about is attaching home insurance when customers are in the process of buying something else. That something else is typically a home. They're in the process of buying a home. Home insurance is a requirement in order to close on a home. What we've done is embedded the insurance purchase process into the purchase process of typically the home. There are other verticals that we have, but the main ones are mortgage origination and new home construction, new builds. I wanna highlight one more point here, which is around the mix of sales.
If you look at our total sales, Hippo and non-Hippo policies, 50% now comes from the embedded partner channel. If you asked me a year ago, I'd say that it was probably flipped between producer agents and embedded partners. We have, you know, focused a lot on our embedded partnerships and have managed to scale it very nicely. Let me talk about builders as an example. What are we specifically doing? How does it work? What are the mechanics here of this channel? What we do with builders is, we have a dedicated tech stack that we've built. It accepts from a builder on a continuous basis data relating to every home that they're building. The spec for every particular home, we get it.
These are dozens of data points that have to do with the home. We take those data points, and we essentially then bid out to a variety of different carriers that we work with, Hippo being one of them, but not the only one, the spec of the home. We get back the quotes and the coverage that is relevant to that particular home. From there, we choose the specific policy that has the best coverage and price for that particular home. What happens is that when a buyer is identified and they're actually going to close on a home, that policy that we prepared is already ready. All they really have to do once we present them the policy is literally to put their name on it. This is a very simple process.
We also, to make it very easy for them, integrate the offering of this policy into other closing transaction services the builder provides. You know, the majority of customers get their mortgage through the builder, and so when they go through the builder mortgage flow, they will also see the insurance offer. That same insurance offer will appear there, same as if they happen to get to the end of the process, typically title comes last. They happen to get to the end of the process title, they still don't have a policy, that insurance offer will appear there as well. Again, what it enables us to do is to tailor the coverage and the price to every specific home. Basically the customer is left with a digital experience.
They go through the coverage, they see it, they're able to complete it very simply. Then finally, once they complete the transaction, all that information goes back to the builder. It goes to the mortgage, it goes to the title, the policy itself, the evidence of insurance, such that nobody's waiting for documents. Closing can continue as planned. I just wanna highlight one more point here about builders. It's, you know, it's a massive space. 1.5+ million new homes built every year in the U.S. Even in a downturn, you know, it'll go down a few hundred thousand, but it's still massive. Today, there's probably, I would say, less than 20% of that market where an insurance policy is even offered to the customer as part of it.
You know, customers are buying their most important purchase with a builder. When a builder also offers them, here's a way for you to also gain insurance. You could imagine that there's a lot of trust in the builder for what they're buying, and it's just natural that insurance is also an option. With that, I'll pass it on to Daniel.
Thanks, Yuval. Lukasz spoke a little bit about our technology platform and how it enables various aspects of our business. I'd like to spend a little bit of time going more deeply into the customer experience side of things, and specifically how our technology platform enables our proactive strategy. Some of you may know Hippo has been pursuing a proactive home insurance and home protection strategy basically since inception. To date, our focus has been on smart home, which is Internet of Things, the IoT, the hardware and sensors we provide customers, as well as basic home services in support of general home care needs. Our smart home program is truly at scale now and has been in development for years.
Our technology platform allows us to ensure that every customer in almost all our states is offered a complimentary smart home kit with a set of multipurpose sensors. If they activate that kit, we're able to maintain a premium discount as approved in that state with the regulators. The majority of our customers opt into this program, most of those customers actually activate the kits. This is one of the programs where you really see our technology shines. It's not only enabling us to trigger the right kit sent to the right customer at the right time, but it also enables us through integrations with the various providers to ensure on a continuous basis that the kit is actually on.
We know, and we have the ability to electronically verify those kits are on and maintain that discount in collaboration with the regulators in the state. From a home services perspective, we have what we call Hippo Home Care, and that's a destination where our customers are able to reach out to our home care experts and get consultation around any home care need. That's another area we're really proud of, and we see very high satisfaction rates there. We have a CSAT of those services of around 80% pretty consistently, and it's something that we're continuing to develop. Our vision here is a lot more ambitious. We truly believe that caring for your home should be as simple as ordering an Uber. In order to achieve that, we're building a holistic home protection platform.
When we say home protection platform, we really mean several things. First, a customer should be able to customize the protection they get for their home. They should have a solution for anything that might arise in the home. Second, they should have the intelligence and the knowledge to know how they're doing on their homeownership journey and what they need to further do, what else do they need to accomplish to care for their home. Finally, they should be able to take action. This is where you close the loop. This is where we actually want customers to take action against some of those tasks, either that we recommended or that are well-known as part of general home care.
This is where we're gonna spend a little bit more time kind of talking about some of these pieces and how we've been recently and are going to, on a continual basis, develop these offerings. Back to the smart home world, one example of how we're kind of increasing what we do, on the smart home side as part of kinda customizing protection for the home is through some of our collaborations in the industry. Take our collaboration with SimpliSafe as an example. SimpliSafe is the maker of award-winning home security systems. With them now, customers in select states who enroll in our smart home program are eligible to receive a professionally monitored smart home kit from SimpliSafe. With that, which comes complimentary, and with that, also a premium discount.
Those customers can opt into a self-monitored or a professionally monitored kit, and the discount that they would receive would be in accordance with the level of the security kit that they've received. Ring is another example. We've expanded our strategic collaboration with Ring, and here too, customers in select states can opt into receiving an alarm security system from Ring that would also be provided on a complimentary basis and would come with significant premium discounts. A more recent example that I'm actually very excited about is the recent launch of our mobile app. We're a technology company at heart, and it seems almost bewildering as to why it took us so long to launch a mobile app.
We actually really wanted to make sure that we had the confidence that what we were launching had enough richness and sufficient homeowners across a set of needs, but also engage with them on a regular basis. We think we've achieved that based on the results we've recently seen. This mobile app obviously has all the bells and whistles you'd expect from an insurance application. You can see your bill, you can update your mortgage lender. But beyond that, there are a set of home care features that we already see customers really engaging with. One such example is this notion of home health. It's a home health assessment that allows a homeowner to understand where they are on their homeownership journey, what else needs to be done, how they're doing on that journey.
There's one result from that is a personalized checklist of home care items that we would recommend for them to further advance their home health assessment. This is actually completely separate to insurance. This is something we do that does not influence any of the underwriting or actuarial work to date, but really addresses some of the needs that customers have around home care. Since launching this actually in the last few months, we've seen amazing results, as it pertains to adoption and engagement, both exceeded our expectations. We see, over half of our customers that download the app actually activate the home care features, and over a third of those actually take and implement a recommendation that we've given them, through the app. On the services side, we've expanded what we do with Hippo Home Care.
As mentioned earlier, customers can reach out to us to get reactive support for any issue that arises in the home. Beyond that, customers can also schedule a proactive checkup. They could spend 30-40 minutes on a virtual video conferencing call with one of our home health experts and go through a broad checklist of items to proactively care for their home and identify new risk areas or other steps that they need to take. One example here actually from just the past week, a homeowner, Jennifer. I got that report after the service was completed. Jennifer calls in. She has an issue with her hot water. The home care expert gets her on a video conferencing call and is able to help her troubleshoot the issue and identifies that the pilot light on her water heater was off.
Using augmented reality through our app, was able to then guide her around reactivating the pilot light, and she got her hot water right back on. That shows not just the quick impact. Somebody could get answers to a need in almost real time or very soon thereafter, but she saved a service call, and it was a meaningful money saving for her. Finally, I'd like to leave you with a glimpse into the future. Our roadmap is extremely aggressive here. One example is just in the next couple of weeks, we're planning to launch an ability to Book a Pro.
Basically, this is where we will kind of close the circle and enable customers to take additional action against some of our recommendations or that come through either the checklist that we've given them through the app or through a virtual service call. This will be another example where we'll use our technology foundation to integrate with an outside partner and open up the ability for our customers nationally to quickly book a trusted service provider to come to the home and complete a service based on their need or based on some recommendation that we've given them. Again, an illustration of where we can use this technology foundation to truly continue the innovation around our home care offerings.
It all goes back to this concept of innovation and using our technology to quickly iterate and experiment around the features that would actually engage homeowners and would get them to trust us in this homeownership journey as partners of theirs. This is not just something that, you know, we do for the benefit of Hippo. It's really truly something that we already see benefits customers at scale, and it's something that we're going to talk about more and have been talking about more publicly to truly capture the minds of Generation Better customers, where those are the types of things they care about. I'll just use this video here to illustrate how we're talking about this thing and delivering this message more holistically.
Hi, Trevor. Hey. I kicked my soccer ball into your yard. Oh, okay. Also, do you know where the water shut off valve is? Your dad didn't get home insurance through Hippo like I suggested? No. So instead of getting advice from them, he's just gonna keep sending you over here? Yep. There's not really a soccer ball in my backyard, is there? No. Come on in. We'll start with plumbing basics, then move on to electrical.
You bought it. It's time to own it. Help prevent small things from becoming big problems with on-demand expert advice. Get Hippo, Home Insurance Reinvented. Just to close, Rick, spoke earlier about the immense number of homeowners that truly feel anxiety and dread around this concept of homeownership. We believe that through these types of solutions and messaging, we can truly start addressing this unmet need in the market and are very excited about the roadmap we have going forward to solve this problem. I'll pass it on to Stewart Ellis, our CFO, to talk about how all this translates into a superior business model.
Morning, everyone. Thank you, Daniel. In this section, I'm gonna provide an overview of Hippo's business model for those of you who may not be fully familiar with it. I'll talk about our key revenue streams, and importantly, I'll talk about how our unique approach of combining home protection services with a core insurance offering results in an economic model that over time more closely resembles that of a technology company than that of an insurance business. Okay, so in addition to investment income, we have three primary ways that we earn revenue. First, we earn recurring commissions from selling insurance policies, and those policies can be Hippo policies, where we are the MGA, and we do all of the underwriting, we do the claims administration, you know, full service MGA. That's what I think we're known for.
It can also be a policy from a third-party carrier. We're only available in 40 states. There are areas of the country where we have higher levels of geographic concentration than we want. Being able to augment a Hippo homeowners policy with a third-party policy or a suite of third-party policies, whether it's homeowners or whether it's auto, for an existing homeowners customer, that allows us to take a more policy neutral approach across different geographies. In the case where we're selling a Hippo policy where we've done the underwriting, we do have a small percentage of risk participation. That's something that the reinsurers, who will be paying us the commission in exchange for sourcing that risk for them, have generally insisted upon. That will show up in earned premium in the middle.
In the case of a third-party policy where someone else is doing the underwriting, it's gonna be purely an agency commission. There's not gonna be any risk exposure associated with that piece of our revenue. Second, in the middle, earned premium. That's, I think, fairly obvious for everyone who's focused on insurance. This is the risk that we retain on our balance sheet. We earn the premium associated with that, and then the cost side of that piece is the losses associated with those policies. Third, other fee income. This is where you'll see policy fees and other things that are related to the sale of the insurance policies. Over time, this is where independently monetized home protection services will show up in the P&L.
For the business that we're writing today, we think we have extremely healthy unit economics. We have a lifetime value per customer that's high, that's supported by the long customer life, increasing premiums over time, and access, in our case, because of our embedded partnerships to channels that we believe represent structurally better risk. We also have an acquisition cost that is low enough that we think it's a compelling value proposition to continue to invest aggressively in growth. The ratio of lifetime value to customer acquisition cost has come down a little bit over the past year.
I think it's not a surprise to anyone that the hardening reinsurance market has taken some of the economics, and shifted that to the ultimate bearers of risk, and we benefit from that in the piece of our business that we retain. It's a cost to us more generally. We also have some important tailwinds, which we've talked a little bit about today in the earlier parts of the presentation, and I can highlight here, which is that we are getting better at finding and targeting and ultimately appealing to and converting our target customers, our Generation Better customers. These are customers who have inherently higher lifetime values for Hippo. They have average premiums that are 27% higher than non-Generation Better customers.
They are more likely to keep their smart home devices activated, and the policy churn is lower, so they have a longer customer life. We see more of those in channels like the builder channel. The fact that the builder channel is growing as a percentage of our overall policies means that we have tailwinds that are gonna be benefiting us from a unit economics standpoint over time. I'm gonna talk for a minute about how the addition and the evolution of the smart home program that Daniel mentioned and that really has been a feature of Hippo's customer offering and service offering since the beginning forms a virtuous cycle, especially over time on the business model.
This program started as a way for us to support our own economics by helping our insurance customers, the people whose policies we've underwritten, better protect and maintain their home. You know, our belief was that showing up five minutes after a negative event for a customer with a check. That's sort of what people were expecting. But if we can actually help them prevent that loss from ever occurring, then we've somehow gone above and beyond, and that's a better experience. The best claims experience is not having to file one. This was kind of the origin of the smart home program.
Over time, it's transitioning from something that is really for Hippo's benefit, to something that is really designed and built around the benefit of the customers themselves, and it's taking on more of an independent role in our customer experience. You know, when you add proactive tech and services, and we're talking about now the home health score, the app, and other ways of engaging with our customers, that becomes a way that we can provide differentiated support relative to other players in the industry. In exchange for providing that differentiated support, we get higher value insurance customers, stronger retention, better risk. Like, this is the story we've been telling for years now.
As the proactive technology and services starts to take on more of a life of its own, we start to see other benefits, right? This can be a highly efficient, low friction on-ramp to be able to bring customers who identify with these services as useful or who are proactively interested in protecting and maintaining their home. It's a very easy way for them to come into the Hippo ecosystem. And that makes for probably the best dedicated marketing channel that you can imagine, right? You've got people who have downloaded the app, who've engaged with the recommendations that we've made about how to protect their home. They've self-identified as willing to make those investments of time and money.
You know, if they're having a good experience there, then they can. It's an easy way for us to engage with them on the insurance side as either an agent or as an MGA in offering home insurance. One of the problems that we've seen in other areas, I mean, Rick talked earlier about how customers are resonating with proactive approaches in other parts of their life. One of the problems that you have, though, is you get too much information. There's too many different recommendations. One of the questions that naturally occurs to me is why will Hippo be better at offering proactive technology and services than other people who might take this approach in the market? I think this is where the combination of the two starts to really show the benefits in both directions.
Our actuarial and underwriting teams know what works. We are pricing that into our filings. We know where, if you have a limited amount of time or a limited amount of money to spend as a homeowner, where can you get the biggest bang for your buck? Feeding that into the product development roadmap for Daniel's team is something that Chris and our insurance organization have as a priority. I think it will end up with a better result because of that cooperation. Now thinking about how does this impact the business model itself. The work that we're doing on the smart home program is evolving, but it's not really new to the story. This is something that's been consistent throughout the time that we've been public and well before that.
I think today we're most known as an MGA and a carrier. The drivers of value as an MGA and a carrier are being really good at risk selection and participation in the selection or in the risk that we have taken. That if you're successful and it leads to premium growth and improving loss ratio, right? That's fairly standard, fairly straightforward. The addition, though, of these services really help us evolve from just an MGA and just a carrier into what we have talked about back in our S-4, you know, the home protection platform vision.
On that piece of the business, especially as we start to monetize those things independently, the drivers of success, they start to tilt more toward differentiated customer experience and less around just being able to choose the right customer and to, you know, get lucky with the weather or to have a portfolio management strategy that positions you for success there. By offering customers a differentiated experience that is a high quality one, whether we're an agency or whether we're monetizing those services directly, being able to grow non-risk recurring commission and fee revenue becomes the outcome or the output of success in that dimension.
This is where we start to see, I think, what I mentioned before, the business model start to look more like a technology company over time as this piece of our business grows relative to the rest. Okay. In the next section I'm gonna talk a little bit about, I guess, in more concrete terms about our expectations for our future financial performance. Before I do, I wanna spend a little bit on the past, and the recent past performance, and the incredible pace at which we're executing on the initiatives that we have. I'll start here because this is in many ways a foundation for the future, and the trends that I'll talk about for the future are really a continuation of the work that we've been doing over the past year. Okay.
First, I think if you've been following along with our earnings calls, you know that we are very, very focused on improving loss ratio. It's been probably the primary topic of conversation we've had with investors and analysts since we went public. That's continued. You know, I think we've made a lot of progress there. First, we've really focused on geographic diversification and this is a map of Texas, but it's by no means the only place in the country that you see this.
If you look broadly at other parts of the country, if you look at the country as a whole, what you'll see is a fairly substantial shift in concentration from places that were problematic from a catastrophic weather event, you know, experience in 2020 and 2021 to a much more diversified exposure. Texas is a big state. Texas will continue to grow, but we're taking a much more balanced approach in our growth. Second, we've also, as Chris mentioned, we've completed 64 rate filings across 28 states that represent nearly all of our premium. That, in the amount of time that we're talking about is, I think a fairly Herculean accomplishment.
It has helped us to bring not only the loss ratio down, but it's also helped us to find areas in the country where we are now rate adequate. It's started to allow us to open up our marketing spend in the second half of the year. We talked at the beginning of the year about how we're taking it a little bit slower in the first half of the year because we don't wanna go sell heavily into areas where we don't feel like we're adequately priced. Being able to make this kind of shift over that period of time will pay dividends for us from the second half of this year from a growth standpoint, but also into 2023 and beyond.
We're getting better, as we've talked about at finding and targeting our Generation B customers, who are more aligned to our value proposition. They have, as I mentioned, higher lifetime values. They are also more interested and have better conversion once we get through and get them into the funnel. Finally, we have been spending a lot of time taking more aggressive underwriting action. That happens both in the funnel for new business, but also for our existing customers.
We have been going back through and re-underwriting, and if there are customers who are not a good fit with Hippo at this point, whether it's from a risk concentration or from a pricing standpoint, we're doing our best as an agency to help them find another carrier where they will be a better fit. Even though we have spent a lot of our energy and our time focused on the improvement of our loss ratio, it's by no means the only thing that we've been working on. We have continued to try to make investments to lay the broadest possible foundation for future growth. We've expanded the suite of products and services that we offer our customers.
We have expanded the areas within the country that we're offering those products and services, and we are making it easier for customers in the states where we are live to find us in the form of new embedded insurance partnerships. I'll talk a little bit about a couple of these things, but I think going forward, some of the drivers of growth and the expansion in the nature of the business that we're writing or the services that we're offering will come from some of the new products that we've launched. New York, North Carolina, Massachusetts, we're only at the very beginning of the growth curve in those states.
You know, the loan originators and the home builders that we have launched just this year or in the past year give us access to tens of thousands of new homes that are being built every year and upwards of several million potential customers in a mortgage context. We're excited about the growth potential ahead. We've been able to do these things in a way that I think is certainly surprising for many who have paid attention. Being able to improve the loss ratio while continuing to grow at a healthy clip is an awfully difficult balancing act to achieve.
I think our ability to do this is really where you start to see the power of the technology platform and the facilitating role that it plays for our insurance and our marketing teams and our sales teams. You would not be able to make these sorts of changes to the rate filings and the policies and the underwriting to bring the loss ratio down like you see on the left side while continuing to grow on the right without something that's different. I think that difference for us is that lubricating effect of the technology platform and the APIs and the ability to bind via an API, which has been kind of inherent to Hippo since the very beginning. All right.
As we look ahead, we're gonna see a continuation of the trends that I just talked about. You know, the next few years in many ways will be the payoff for the investments that we've been making over the past few years. Operationally we're gonna continue to target the Generation Better customers. We're gonna continue to improve and use the data and the analytics that we have available to us to get better at that. We're gonna continue to add new embedded distribution partnerships. We're gonna expand the portfolio of services that we're offering as part of that, both insurance by offering more third-party policies as an agency, but also the home protection services that we're offering.
We're gonna continue to iterate quickly and to respond to changing market conditions on the underwriting and on the actuarial side of the house, which will help us to continue to drive improvements in loss ratio. We're gonna maintain. We've always been a relatively conservative company from an expense and a spend standpoint, but we're gonna maintain discipline in that area. That's gonna lead, we think, to significant customer growth in both revenue and variable profit per customer, which is gonna lead to a higher level of variable contribution in the business overall. With the expense discipline, we believe that the fixed cost levers that we'll get from that will allow us to converge to profitability and beyond. All right.
We'll talk about a few of the specific trends that we'll start to see. By the way, we've heard your feedback both from analysts and investors around the kinds of metrics that we're disclosing. I think as we go forward for the rest of 2022 and also into 2023 and beyond, you'll start to hear us talk more about, and we'll report more information on our execution against our strategic objectives and operational KPIs that will be leading indicators of our future financial results. Customers is one of those.
Excuse me, this is insurance customers, so whether agency or MGA consumer customers. This does not include people when we open up the home health app to people who are not yet insurance customers. It doesn't include a forecast of people who are coming in from that who are not insurance customers. We think we'll continue to grow in excess of 30% annual growth rate over the next few years by doing largely what we've talked about already, adding new builders, targeting the people who are within our core customer base, adding additional partnerships and continuing to penetrate newly launched states as well as to continue to grow in the states that we've been live in for a while. We're gonna grow revenue faster than customers.
We'll grow revenue, we think, in excess of 50% annually. Revenue in our business is a recurring base that builds over time with the customer base. Beyond the kind of growth that comes naturally with scaling customers, we are also going to be doing more on the agency side, where we'll be selling non-homeowners policies to our existing homeowners customers. We'll be selectively in certain markets or in certain channels, like the builder channel, ceding less earned premium to reinsurers in areas that are specifically, I would say, disproportionately attractive to us. The natural mix shifts in the business where the builder channel is growing more quickly. It is itself structurally a higher monetized channel.
That natural trend in the business will lead to higher levels of revenue as well. Over time, our business is going to be exposed to less risk. What we're talking about here really are two trends that are going on in the business. The first is the rise of our agency business. There are parts of the country today I mentioned where we're either overweight from a risk or a concentration standpoint, or that would be Texas, especially North Texas and California. There are parts of the country where we're not even available with a Hippo homeowners program. Today, we are not doing a lot of marketing in those areas of the country.
There's no reason why with a national brand and a national presence that we can't market our differentiated, you know, augmented support for a homeowner, and where a third-party carrier's policy might be the right answer. As a customer of Hippo's agency, you'd get the same sort of, technology support and homeowners proactive maintenance suggestions and other things. By creating a policy-neutral experience within the agency, we think we'll be able to sell more third-party policies, which means that placed premium will be going up as a percentage relative to written premium. Even, excuse me, within the Hippo program, we have launched Ally and Incline as balance sheets.
Even when we're doing the underwriting for the piece that we don't retain as risk in Spinnaker or on our captive reinsurance company, we see an opportunity to make more efficient use of our own regulatory capital, but also work with partners who have regulatory capital to be able to sit behind the policies and that will allow us to continue to grow without having to add more regulatory capital. But it's also gonna reduce our exposure to the underlying tail risk and the volatility that comes with that, which has been a source of increased cost in the reinsurance market, with the cost of CAT XOL going up.
Over time, as we add new builders, we're still at the very beginning of this journey. There are a lot of home builders out there, and we have very strong relationships with a small number of them, but we're continuing to add home builders. Despite the headwinds on the mortgage side in the broader industry, we're such a small percentage of this market that it really hasn't affected us from a growth or a volume standpoint. We're gonna continue to add new builders, and our builder business will be growing as a percentage of our total. As a reminder, this is one area of our business where the tech platform, the ability to bind via an API in a partner's experience gives us a special advantage.
For the builders, this is not about trying to monetize a little bit more. This is really about removing one of the biggest pieces of friction and one of the areas of their customer experience that they don't fully control. Working with a partner like Hippo gives them an enormous amount of a benefit in that area, and you've seen this in our partnership with Lennar, where we've been able to meaningfully increase the attachment rate and the conversion rate of insurance, Hippo or otherwise, managed through our Hippo agency, at the time that someone purchases a home. We've always had relatively healthy premium retention. I've talked earlier about the strengths, the customer benefits that come from adding additional services and additional proactive support to our customers.
We think that, combined with, you know, the trend that's been around for a long time related to higher retention as cohorts age, will help our already healthy premium retention continue to rise further. Which means more of our marketing spend will be able to drive net new growth as opposed to having to replace customers who have lost or who we've lost over time. All of these trends when, you know, combined together to be able to get us to from our current adjusted EBITDA loss, 2022 will be around $200 million, up to our forecast of $20-$30 million of adjusted EBITDA profit in 2025.
The assumptions that sit behind this forecast don't require us to do things we haven't already started to do or the trends to take radically different trajectories. You know, getting the loss ratio down to industry levels is what we're assuming in this forecast. We're not assuming wildly more profitable underwriting results than what we can see in the industry. On the reinsurance side, you know, as the loss ratio continues to improve, as we continue to diversify our book to states with lower cat exposure and our underwriting results get more and more predictable, we think that we will be able to take a look at new and more cost-efficient ways of approaching reinsurance. As a reminder, we have a fairly complex reinsurance treaty, and actually more than one.
Some of our reinsurance is multiyear. We're in year two of a three-year reinsurance treaty with those partners. The rest of it is placed annually. You know, it's a bit early to talk about the specifics for 2023 'cause we haven't really started those negotiations yet. We're optimistic that as the loss ratio continues to come down and as we get validation for that from the reinsurance partners that we work with, we will continue to be able to save money and cost on reinsurance.
Talked a little bit about adding additional agency support for our existing customers, being able to sell them other kinds of policies, and in areas of the country where we don't wanna sell more Hippo policies or where we're not available, to be able to sell third-party homeowners policies. That's been growing as a percentage of our overall business, and the continued trend there should give us incremental profit. Talked about the builder growth and the continued expansion of that channel, adding new builders, increasing penetration within existing builders, fixed cost absorption. Ultimately, we think home protection services can be something that we profitably monetize, but it's not required in order to get us to profitability.
We're optimistic about that being able to monetize it, but it's not a massive driver in this time horizon, and it's not a make or break sort of piece of the forecast. We think we'll turn profitable in the fourth quarter of 2024. I've already mentioned last earnings call that we're at the peak of the loss in Q2, Q3 of 2022. We'll start to see that come down in the fourth quarter.
That trend will continue and pick up pace as 2023 progresses, as the reinsurance treaty that we have placed for the policies we're writing in 2022 becomes, you know, less prominent as our policies that are written on the 2023 treaty become a bigger part of our P&L. Probably the most important part, as I think about the future, is making sure we have sufficient cash to continue to invest in the business. I think that my level of comfort with our future and our financial ability to continue to invest is very high. You know, we do have a larger loss position right now than we will ultimately have in a few years.
We have a substantial amount of cash on the balance sheet. We think that we'll be able to start to generate cash and to bring that balance back up from its low point, with a substantial amount of cushion that could help us protect against unforeseen events, and other things that might come our way that we aren't expecting. With that, I'd like to turn it back over to Rick, our CEO, for a few closing remarks, and then we'll take your questions.
Thank you. Perfect. All right. I think what you've done, or I think what the team has done and what we've showed you is the evolution of our business. I do have people periodically ask questions like, "Are you doing this because of the macroeconomic trends? Are you doing this because, companies like ours have been hit, over the last year from things like stock prices?" That's an emphatically no. We're doing this because we now believe we have the insurance infrastructure in place to evolve on Assaf's original mission, which is to protect the joy of homeownership. Everything that we are doing is to fulfill that mission. It's taken us a few years to get our insurance house in order.
Grace Hanson, Chris Donahue, Mike Stienstra, along with the rest of our insurance leadership team, have really gotten the ship right as it relates to loss ratio. We've created the infrastructure. The tech stack is ready for us to take the business to its next level, and the next level is to solve the gap in the industry that does not include insurance. We have great conviction that you will see continued improvement on the insurance result. The work that we've done, the 64 rate filings, those are just starting to work themselves into the book of business. We have a view that is more forward than what you have because we see what's going on, and now is the time that we're ready to evolve to the next stage in Hippo's growth. We're a young company.
We have high expectations. If all we're trying to do is optimize around the edges, if all we're really trying to do is say, "Here's an insurance industry. Let's use technology to tweak, to change, to subtly impact the economics for the business," we've missed our opportunity. Our opportunity is to redefine an entire industry that is fragmented, that is massive, that customers are demanding changes. They're demanding that somebody partners with them. Over 30 million Generation B households exist. We are primed to protect those customers. With that, I'd like to invite the other speakers on the stage to, including Assaf, to answer any questions that we have. I think they're gonna bring a few chairs up. Everybody, if you can bear with us for a minute or two.
Thank you.
Have to shift down a little bit here.
Okay.
Yeah. All right. I think Cliff is going to
Sure.
Direct questions our way.
All right. Yaron, we have a microphone too here. You raise your hand, yeah.
Thank you. Yaron Kinar with Jefferies. Thanks for the presentation and the update here. I guess my first question would be, sounds like you are pivoting or maybe expanding more into the non-insurance space of homeowners protection. With that in mind, I guess, do you still need to be in the insurance business? Why not just be a full kind of SaaS model fee, non-balance sheet model altogether?
Yaron, it's a really good question. I think it's necessary for a couple different reasons to maintain the insurance stance that we have. First of all, one mistake we made early in the company's history when we were an MGA was we didn't have our own carrier. We didn't have our own balance sheet. We didn't have the capabilities when market conditions were shifting to make sure that we had a place to put customers, and that's why we acquired Spinnaker. We acquired Spinnaker to make sure that as we attract Generation Better customers, ones that we believe will ultimately provide a better loss experience, we need the place to put those folks, and we're gonna continue to do that.
We will continue to grow the business that we have for the Hippo core homeowners insurance with the customers that we have great conviction will be profitable customers. We will also though, because this is homeowners insurance, there is weather, there is geographical concentration concerns. We will continue to put those customers not just with us, but with other balance sheets and other carriers. We think it's important to have a home for customers that really resonate towards total home protection, and we have to have that core piece of our business to make sure that we are in control of our future and destiny.
All right. My second question is one that I get often from investors when I talk about Hippo, and that's kind of the technology race versus maybe data and history. Thinking about the incumbents who may have the data, they have the history, they have the maybe unit economics or the economies of scale, if you will, and then we have the startups, you know, Hippo with a real new tech stack, new capabilities, an embedded platform that you can offer. Ultimately, I would think the incumbents may be racing to get that tech stack up and running and the partnership capabilities up and running. You guys are probably still catching up or building the database and underwriting capabilities. Ultimately, who wins in that race? Who gets there first?
Yeah, that's a really good question. Lukasz Strozek can talk about some of the tech challenges of getting a legacy organization to this type of technology. I'll share with you something that I learned about 20 years ago in the insurance space, and I was speaking at a conference on auto insurance in the 21st century. There were other insurance companies. I worked at Mercury Insurance Group. We were the small kid on the block in comparison to some of the others that were there. The question was asked about how can smaller companies compete with larger companies that have all the data. One of the very large companies got up and said, "We've got more data than anybody.
We've got, you know, millions and millions and millions of customers, and we know how to segment it." Then the next company, also a huge company, said, "Yeah, but we have multi-pricing variant analysis, and we can segment customers. With all the data we have, we have the number two amount of data, but we can segment customers." Third carrier said essentially the same thing, and then it got to us, and back then Mercury was probably $2 billion in premium. They said, "Well, Rick, what does Mercury think about it?" I said, "Well, I fully agree with my colleagues." I said, "But how do you know your data's accurate?" "How do you know you actually have the right data? Because in most instances, legacy players get data inputs from customers or from agents.
How many auto insurance companies, when they want to effect a rate decrease, tell their agents, "Just quote everything pleasure use 5,000 annual miles, or kick everything up to business use 20,000 miles." We have to make sure the data is accurate. That's one of the benefits from our platform, is we get verifiable third-party data from multiple sources, and we have the technology and the data analytics to determine which one of these three identical data elements that have three different sources, which one do we actually believe? Square footage is a great example of that. You get square footage from tax records, you get it from MLS, you know, different components. Which one do you believe the most? It's a combination of new verifiable third-party data sources. Then as we continue to grow, what are our actual claims experience?
I think the blending of those, the intersection of those is where InsurTechs I think have an advantage. From a tech stack perspective, Lukasz, do you wanna talk quickly about how tough it is to build what we've built?
Yeah, I will. I've emphasized some of those capabilities, but I think the important thing to really stress is that it's not just sort of an incremental change. You know, it's really a step function change that we've been able to achieve, right? Things like a rate change in a day and be able to sort of make real-time changes, that's not something that you can get to just by taking a legacy stack and chipping away at it. You know, I've seen companies try to do that, and it is very, very difficult to do. In a way, we have an advantage being a company that really took advantage of that and built our own modern stack early on, where we can sort of continue compounding on that.
Yeah. I want to add a couple of other things. It's also about architecture. This company, at the heart of it, is still a technology company with an insurance company, which means that the CTO is on stage and not a CIO in another insurance company, but basically gonna explain to you how they're implementing Duck Creek or Guidewire or anything like that. The second thing is that the pace of innovation in the world is improving, it's not decreasing. What we're working on now are things that we're only gonna be implemented in like, you know, that we're gonna see in 18 months or in 24 months, as opposed to what you're seeing now. Data sources is getting bigger and bigger and more abundance, and it's about implementing and plugging them in, and it's something that we're doing.
There's gonna be more and more data sources. The pace of stuff that's going on is not that we're dependent on reacting to what maybe, you know, Guidewire is deciding to implement in an X time and stuff like that. Think about the builders. The builders happened as in, you know, it is, it's a thing we found a partnership in a company that we think is preferable of risk for us and need that capabilities. We had to build the entire stack for them in the API and plug it into something. There's no data because there's no address. We need to plug in, you know, lot 17 in area 16. Nobody knows. You can't even type an address because nobody know what the address.
You don't know what the features of the home, but they actually know exactly how much it costs to build this home, which is the main thing that we need on the rebuilding cost. We had to build all of these capabilities into companies that actually don't have the technology to implement it, and all of that comes. This is just an example. We're not dependent on someone else to implement this stuff and think of what we need. Data keeps on moving way, way faster. The combination of targeting from the marketing to the underwriting, which is something that I think would be good if Chris can briefly talk about. We build customized aspects for us.
We had numerous discussions about, let's outsource all of the technology stack to other insurance companies, get steady revenue, SaaS revenue, and all of that kind of stuff. But every time we have this discussion, we keep on realize that the advantage of the company is by implementing the technology in-house and keep on this pace of improvement. Now, to your point from the other stuff, we're trying to basically build an insurance company that took 50, 60, 70 years in a span of 5, 6, 7 years. Yes, there are, you know, challenges with that. Now, every year that improve, we also have an aging of our book, which is a positive thing in insurance because older cohorts usually perform over time better than the newer cohorts. We get improvements on that stuff.
We keep on learning way, way faster. Lastly is that most of the data sources now are addressing 130 million households. You can go to Zillow as a simple, I'm just, you know, throwing a very simple thing, and write whatever address you want, and you have a full stack of what's going on in the home, as opposed to someone that 17 years ago plugged in the specific data on their home, and that's what we're doing their underwriting. Most of the carriers now are basically underwriting on the 10 million or the 5 or the 3 million households that they have on their stack, as opposed to look at all of the stuff that's going on, all of the 135 million households that are out there. I think that over, you know, it's.
It wasn't easy, and we're still bearing some of the challenges of that. Over time, it keeps on moving way, way faster. The technology is in a significant, more better place than it used to be before, and it's just moving forward. I would not, you know, I would actually spend more on the technology stack and keep on improving that rather than let's outsource it or doing anything else.
Yeah. I maybe have one more thing to add on that, which is that I think it's absolutely the right question in a medium-term kind of frame of reference. Behind us on the screen, if you take a look at point number one, I think that Hippo has really attempted to try to reframe really the role of a company like Hippo. If we're successful and Daniel's team adds meaningful value to the lives of the homeowners who are our customers,
It's not simply gonna be about who has better data or who has a better job of pricing the risk. It's really about what kind of relationship can you build with your customer. What kind of partnership can you build with them? It's gonna lower our acquisition cost. It's gonna, I mean, it will fundamentally change the way we think about and the way our customers think about their relationship with us. That's the longer term holy grail, right? Which is where we have better customers because they are the ones who have self-identified as being good candidates to partner with us. And I think that virtuous cycle will take a little bit of time to play out, but it's ultimately.
I think we're one of the few companies who's even aiming for that goal at this point.
To build. I think Asaf was asking if I could build upon, you know, the cycle time that we're also looking at data. Over the last year, just the experience that we have from the first X number of years of Hippo's lifecycle, we were able to double that information in a year. That data that we're making actuarial choices on, underwriting pricing decisions on has doubled in a year. Next year, okay, it's not gonna keep up at that pace every year. Our dataset and our credibility and our numbers and our understanding of our business and the insights that we're gleaning from that is significantly growing every year. Legacy carriers don't necessarily have that. They, of course, have the 30, 40 years of experience that they have, and there's no doubt that that's an advantage.
That gap closes every year that we write more business. The other piece of that is what are you looking at? Are we looking at the traditional, you know, you're looking at your traditional 10 rating variables, or are we looking at things that are beyond that that'll help us create a competitive advantage because we're thinking of things differently. Are we trying to only predict loss costs, or are we trying to predict the behaviors of clients that align with our value proposition, their engagement with smart home technology, their engagement with us? Will they retain with us over how long a period of time? I think that is all an evolving science across the industry.
The third thing I'll say is our ability to implement change quickly and have the ability to disrupt our own client base. If you're a legacy insurer, you have a huge renewable book of business that you have to be very protective of because that's generating profits for you, and it's renewing year-on-year. That's your base, and you wanna be very careful about disruption. Earlier on, we do have a little bit more flexibility to react to insights that we find in our books quickly using the technology that Lukasz supports us with.
Thanks, guys. I think it's on.
Thanks. Good morning, guys. Mike Phillips from Morgan Stanley. I wanna marry two different ideas. It's specifically to Stewart, your slide 56, the changing mix of total placed premium and how that's gonna change over time. I mean, how do we marry that comment with, as your loss ratio is improving, you might be changing the reinsurance structure and keeping more risk yourself?
Yeah, I think that there's. Do we have that slide up? Yeah, I'll get it. Yeah, I think it's, it is two concepts that we should make sure we keep them in the appropriate lane. The amount of risk that we're exposed to today shows up as earned premium in the place or in the segments of our business where we're just retaining the risk through our captive reinsurance company. That's what you'd think about as proportional risk. Then we buy down the top piece of the, you know, the cat tower with additional cat protection, which is ceding off incremental premium. Our effective exposure is smaller than the proportional share of the risk that we'll take.
We also have some exposure that is not showing up as earned premium in the form of loss participation features in the reinsurance treaty. There's essentially an opportunity to take risk either at the revenue line in the form of premium, or you can take risk in the cost side in the form of loss participation. Over time, as the loss ratio comes down, we will be less exposed because the loss participation features will be less prominent aspects of our reinsurance treaty. That will give us the ability to take more of the risk in certain portions of the book where we think we have some structural advantages there that'll show up in the revenue line.
Yes, we will be writing less business on Spinnaker, and writing more business on Ally and Incline proportionally. The piece where we are actually participating in the risk, I think will get cleaner in the form of more just participation via the captive reinsurer that we own. There's a second trend, which is also playing out in this number, which is that we are gonna be writing an increased amount of business just as an agent. When we cross-sell an auto policy to an existing Hippo homeowners policy, on behalf of a third party, that's gonna show up in our generated premium, but there will be no exposure associated with that. We can, by writing more business with Ally and Incline and taking less of the tail, that's gonna give us capacity to.
By also writing more business as an agency, it's gonna give us capacity within the overall economic model to take more risk directly in the builder channel.
Just to make sure, there's one thing that's very clear. If we put business on Ally or Incline, we still can participate in that risk, the underwriting risk as a reinsurer. We have the ability. Something interesting is happening. The reinsurance market is hardening while our loss ratio is improving pretty dramatically. Both of those are pretty dramatic. We have the structure that allow us to be opportunistic on which segments of our business do we wanna take risk? How do we wanna structure it as a primary carrier on Spinnaker or as a reinsurer on Spinnaker through our RH Solutions Insurance (Cayman) Ltd. captive? Or is it on Ally and Incline as the primary carrier? They may or may not participate in some of the risk, and we can participate as a reinsurer.
Our ability to be flexible to take advantage of these two very interesting colliding trends is part of the infrastructure that we've been building.
Thanks.
Go ahead.
Yeah, one more. A lot of talk, Rick, in your comments about this Generation B, and how you're identifying those guys. I mean, it sounds like we all wanna be Generation B. How are you specifically identifying those people? Because again, seems like we all wanna be part of that. What are you doing specifically to identify that class of customers?
We're gonna take advantage to your proximity to our Chief Marketing Officer, who's right there. We'll have Simon go ahead and answer that question.
Yeah, we've done a tremendous amount of first-party research and segmentation of literally every U.S. household. We've worked with Chris and his underwriting team to identify where we're rate adequate and where we wanna target these people and how we prioritize them. We quite literally know which households these people are. We know which cities they're in, we know how to find them, and we target our media to go after them. Yeah.
Great. Thanks. We got Alex.
Hi, this is Alex Scott, Goldman Sachs. I wanted to expand on the gross placed premium expansion. What are some of the positives and drawbacks though from it as well? I assume from an economic standpoint, obviously makes you more efficient from a balance sheet standpoint, but you know, are you giving up anything around control of the relationship, you know, ability to have them on your platform? I assume, you know, if it's a homeowner's policy passed to another carrier, they're probably not on the Hippo platform, not doing Hippo Home Care. How do you think through all of that?
Yeah, maybe I'll start and then Stewart can jump in. I think it's important to recognize that ownership of the customer is key. Making sure that we can identify customers either directly or through partnership, that we have direct communications and relationship with that customer. I think, Alex, one of your points of your question sort of predisposes that we will only sell Hippo Home Care to a Hippo Home customer, and I don't think that's an accurate view, at least not from us. The ability for us to sell Hippo Home Care, whether or not we are the balance sheet carrier for that particular customer, creates a few things. One is we believe it to be better, a better customer.
It might be a better customer in Dallas, Texas, where we don't really want any extra premium because of the severe convective storm impact. Maybe there's another carrier out there that has also recognized that Hippo as an agency generates very solid customers. They won't know what Generation B is specifically, but they know Hippo's loss ratio as an agency is actually better than others.
They may be more willing to say, "We would love to get some of that on our balance sheet because we're not overexposed in a place like Dallas." The ability to make sure that we own the customer over time, and that we have a product in Hippo Home Protection that does truly create a better class of customer is something that we benefit on both sides, whether it's a Hippo Home policy or somebody else's policy that we're selling as an agency.
Yeah. I'll just quickly add to that. I think the difference between gross placed premium and gross written premium functionally is which balance sheet is it actually written on. The written premium falls in two categories. It's on Spinnaker paper 'cause we own Spinnaker and that can get ceded off, and then it becomes net. We'll keep the piece that is net of the ceding. Or it can be where we're participating as a reinsurer in our own treaty and writing it on the balance sheet of our captive reinsurer. The distinction of whether it's on a balance sheet that we own or not on a balance sheet that we own, that impacts things like the regulatory capital that we'll need, and it impacts ultimately the tail exposure.
It's unrelated to who owns the customer and the agency relationship. Like, we write business on our Spinnaker paper where we are not the agent of record. I think what we're talking about on this particular slide is really the level of exposure to the tail risk and to the ultimate risk of the portfolio, not making a statement about the percentage of our customers where we will have the ultimate customer relationship and the contact. What Rick said at the beginning is accurate, which is that as an agency, we can offer a differentiated agency experience that is supplemented by the Hippo Home Protection Services without necessarily being the carrier whose paper that policy is written on.
It can be a Hippo homeowners policy written on an Ally and Incline paper, or it could be a third-party homeowners policy where we're just the agency, and supplementing, you know, providing our support through the services even though we're not doing the underwriting.
Got it. That's helpful. Second question I had for you is just on the cash. You had the slide where you showed it getting down to $400 million, I think. I always struggle with how to model it in terms of the regulatory capital, and it kind of goes to the whole placed versus written discussion as well. I mean, how much cash do you need? Because some of this is cash backing. I mean, you have over $200 million of loss reserves on your balance sheet today. I assume that grows over time, right? So how much of the $840, you know, sort of or, you know, where it is as of 2Q 2022 do you need today to support the business?
You know, when you get out to 2024, like, that 400, I don't think is, you know, relative to zero is the buffer. Like, how much higher is that than sort of where you expect regulatory capital requirements to actually be at that time?
It's a great question. I think the specific mix of regulatory capital, or not regulated, or sort of encumbered cash, depends a lot on the choices we make about reinsurance. It depends a lot on the choices we make about the mix of whether we're writing business on Ally and Incline or whether we're writing business on Spinnaker. It depends a lot about whether the premium that we're talking about, from a growth and, you know, monetization standpoint is agency premium or whether it's managing general agency premium. The way I think about this is that we have today a relatively small percentage of our 840 is actually captive at the carrier.
It's less than $200 million of cash in the 840. I expect that will grow a little bit over time. I don't expect that it's gonna grow to become, you know, the lion's share of the $400. I think that, you know, we have levers that we can pull in terms of how we manage the business and our approach to capital that will allow us to make that as much a choice as it is something that we're having dictated to us.
This is Alex, this is one of those examples where Stewart's gonna wish I don't say what I'm about to say. The way that we look at this, we sort of break it down between free cash and, you know, encumbered cash. Our model has us with $200 million-$250 million free cash at the end of 2024. That is extra cash that we can use for operations that is not involved in sort of the risk-bearing component.
Got it. That's all really helpful. Maybe if I can sneak one last one in here.
Sure.
The net loss ratio versus gross loss ratio has been sort of a sticky point for investors that are sort of interested in the story and looking and trying to get more involved, but it's something that's hard to get over, the bigger difference between the two, right? How much of the net loss ratio being elevated is more purely associated with, you know, the catastrophe experience last year and sort of, you know, paying for some of that? I mean, I would think you'd have pretty good visibility around that piece of the reduction. Can you give us a feel for, you know, how much of it's driven by that and how much just getting that down would help the net loss ratio?
Sure. Rick, you're welcome to add at the end. But no, I think basically what you're seeing there's a couple things going on. First of all, the net loss ratio is a reflection of the economics of the earned premium, right? It's not a reflection of our overall economics because the ceding commission that we get back from reinsurers in exchange for sourcing that risk from them is wholly absent from that calculation. It's a measure that is probably most appropriate for businesses that don't look a lot like Hippo, where they're retaining the bulk of the risk, and they're maybe buying down volatility in the form of CAT XOL and other things where they're ceding off premium.
I always like to give that caveat because we're missing, from an economic standpoint, the primary economic model of Hippo's MGA, which is to produce risk that other people can take in exchange for ceding commission. That said, you'd say, "Well, okay, if it's proportional reinsurance, why is it that you are having such a big difference between the gross loss ratio and the net loss ratio?" The reason for that, I think, is exactly what you said, which is that we have features in our reinsurance treaty in the 2022 treaty specifically. Not the multi-year treaty, but the 2022 treaty specifically, where you know, we're seeing the cost of the extraordinarily high loss ratio that we had in 2020. That is or in 2021 in the case of Uri.
That comes in the form of loss participation features, which will show up in elevated loss and loss adjustment expense, but do not have a corresponding benefit in the form of earned premium. You get this small denominator effect, which is compounded by the fact that, we're seeing increases in the cost of CAT XOL in the reinsurance market. Like when we buy the corporate CAT coverage that we have, that's resulting in a reduction in the earned premium on the P&L. The earned premium is already so low because it's not our primary business model that represents a huge percentage of the earned premium.
You end up with a metric that's designed for a business that doesn't look like us, that's made worse because of a reinsurance market where we're protecting our ultimate balance sheet. I think over time, as the loss participation features become a less important part of our reinsurance treaty or less prominent as we bring our loss ratio down, as we actually take more primary risk ourselves in the form of the builder channel and other things, that you'll see the net loss ratio decline rapidly. There's one other example I've used in some of the earnings calls, which is that, like we administer the claims for our entire portfolio of Hippo policies, whether or not we're taking the risk.
We have ULAE that on a gross basis is, you know, a small single-digit percentage point contributor to loss ratio, and on a net basis represents close to 50 percentage points of loss ratio. Like, is that a true indicator of the sort of underwriting result, or is it just a kind of a quirk of having a small denominator in the form of earned premium? I think it's the latter. I think as the business evolves, net loss ratio will come down at an accelerated pace, but also loss ratio in general will become a less important part of our overall economic story.
Yeah. The only thing that I'll add to that is, in my experience, reinsurance is always a year behind the performance of a portfolio. There were features that we put into the reinsurance treaty this year because the reinsurance partners had a belief that we are doing the right things and we're getting to where we want to be, which is why we were oversubscribed for our main treaty. It's a little bit of proof in the pudding. We had to take certain features that showed to them, "No, we are aligned with you. We will take these features." As our loss ratio continues to improve and has improved, that creates a very different dynamic when we're having these conversations.
Thank you.
We do have some questions from online. One comes from Matt Carletti of JMP. He asks, "Within the builder channel, of those quotes prepared, what percentage are ultimately bound or purchased by the home buyer regardless of carrier? And of those, what percentage are Hippo policies?
Yeah. Yuval, do you want to take that one?
Yeah, sure. Just to explain, there's really like three stages here in a builder process. First, a customer has to opt in to see a quote, right? There's regulatory around what you're able to do, so they have to opt in to see a quote. You then present a quote. They either buy or they don't buy. As you start with a relationship with a builder, there are components in which you can improve all three aspects. You can show the opt-in in a better way. The language can be better.
Your quote presentation, you can, you know, you can present it to the customer via email marketing, but if you're integrated over time with the builder in the mortgage or in the title, of course they're seeing it more often, and there's a much higher likelihood that they attach. There's the capabilities of our sales team to convert a customer once they've seen a quote. All these three aspects over time improve. At a builder where, you know, we've been for a substantial amount of time, I would say today that the majority probably two-thirds of people that see a quote buy with the agency. Of those, the mix of Hippo is roughly half.
Yeah. Just one small thing which is important, especially for the builders, there is a certain amount of risk that we wanna take. A lot of them are set up as communities. There's, I don't know, 500 homes in a community, so we don't ever wanna take that, you know, the vast majority of this thing. There's still a mix of risk that we wanna take, especially on the builders. It's important to. That's why the number is not about improving the Hippo percentage, but more of the attachment of the entire.
I should clarify. We're trying to find the right policy with the right coverage and price for that particular home. If it happens to be us and it's at a rate where we wanna take the risk, great. If it's not, that's also fine. We're maximizing for the attach rate and not for which policy is being sold.
Yeah. I think maximizing for the customer is probably the most important thing there, making sure the customer is getting the right solution. We monetize it either way. We monetize it. The agency that Yuval was mentioning, these are, in this specific example, like Lennar, it's a joint venture between us and Lennar. Now, we prefer the economics when we sell a Hippo policy because we also benefit on the underwriting aspect of that. But we still monetize if we sell another company's policy and any cross-sell that we may do. Asaf brought up a very good point in that, you know, for all intents and purposes, a quarter to a half of loss ratios are weather related. We've yet to see an IoT device that can stop a hailstorm or a tornado from hitting.
Because of that, we do want to make sure that we are diversified within communities. Now, as our reinsurance gets more sophisticated, there are ways to take more underwriting attritional loss within a community but cede off proportionately the weather-related claims to multiple reinsurance partners. That has the same impact as not writing as many houses in a community 'cause we are perfectly comfortable taking the attritional losses on these. Where we're less comfortable is taking the weather losses, and these are the types of creativity we have. We had mentioned earlier, John Nichols Jr. is a newly installed board member at Hippo. John Nichols Jr.'s got 30 years reinsurance experience. It's these kinds of creative structures that we are engaging in to really solve the concentration, yet still write more policies.
Greg?
Good morning, everyone. My name's Greg Peters. I'm with Raymond James. Hey, Cliff, I wanted to go back to the EBITDA walk slide where you go from negative EBITDA to pro forma positive EBITDA in 2025. It's building on your answer just now, but then what you were talking about with Alex, and I'm focused on the reinsurance structure piece of your savings there and 'cause there's a whole bunch of cross currents, right? Property reinsurance rates, XOL are going up. You're talking about reducing some of your reinsurance. What is your reinsurance structure gonna look like in 2025 to generate the savings that you're projecting for an adjusted EBITDA? How should we be thinking about that?
Yeah. It's a really good question, and I'll try to answer it as specifically as I can. Obviously, the reinsurance market is in flux, and it will determine, you know, our stance will be determined by what that market looks like. As a whole, as we continue to write more builders business, as we continue to expand our total home protection, as we continue to expand sort of the IoT devices, the partnerships, the protection, the proactive, the preventative, all of those things gets us a lot more comfortable taking the underlying attritional losses. I suspect over time, we will continue to increase the amount of attritional losses we're willing to participate in 'cause we believe we have enough data now to support what Daniel's building.
My personal belief is total home protection along with insurance is the future and core of the company. We now have enough conviction this does meaningfully improve the loss ratio. From a reinsurance perspective, I'm way more comfortable taking things that we actually think we can control through those aspects I mentioned. Where we are less comfortable is weather, and that's why Chris and his team have done a very good job of diversifying away from weather. We will continue to protect our balance sheet for catastrophic events. I suspect you will see a shift going from what I would consider proportional quota share to more XOL over time.
I'm gonna summarize what you just said in my own words, and then you're gonna correct me. Ultimately, what you're talking about is you're gonna cede, there's gonna be less ceded premium for dollar of risk in 2025 than there is today. Is that an accurate inference of what you're just talking about?
Bifurcated attritional versus weather, yes.
Okay. Thank you.
I will, I'm gonna clarify one thing. Remember, we are on our own balance sheet where we participate in risk. We want to make sure those are Generation Better customers. We don't want to cast a wide net and say, "Whoever wants to come to Hippo, we're gonna put them on our balance sheet." That's not what we're looking at. We think the marketing efforts, the targeting that we're doing for Generation Better will allow us to do what we just talked about.
Yeah. Let me just add one thing, which is that this is not really different than what we've said before. You know, we've always talked about how we thought that our ultimate retention of premium per dollar of premium or, you know, earned premium per dollar of premium was gonna rise over time, from I think in the S-4 presentation, we talked about it, you know, going from 10 to somewhere in the 20 percentage. This is in line with what we've been talking about all along.
I think the part that's newer is around the fee for services, that a larger portion of our revenue as a company over time will move more towards the non-risk-based components of agency and total home protection. That's why Stewart mentioned earlier our revenue increase will outpace our customer increase because we will monetize in non-risk-bearing ways the other aspects of our business. Also, as Stewart said, the walk here does not assume a lot of that. It assumes some of that, but not a lot of that.
Question from online. Can you talk about the cost efficiency measures disclosed last week and any financial impact on the company?
Yeah. I think it's only prudent during these macroeconomic trends to make sure that we are responsible. Part of our responsibility was to look at every expense aspect of the company and identify where our technology has improved, so where we're more efficient. What our roadmap is in terms of development and improvement on our business model. With that, we recognize the opportunity to sort of right-size the organization in such a way that aligns with the plan that we've outlined today. All said and done, just the people cost of the measures that we've already taken and took last week is somewhere in the neighborhood of $27 million-$30 million run rate. It's a meaningful change.
There are other cost-cutting measures that we are looking at taking, both with real estate, with contract renegotiation, all of the things that I think any public company, frankly, any company should be doing when there's uncertain macroeconomic times. We have the fortitude and will to do it. Every employee in the company also has ownership in this company, and we, I think, have the benefit of having employed a lot more missionaries than we have mercenaries. Generally, the team, obviously not those that were directly impacted, but everybody else, thought, "You know what? It makes sense. The company's evolved. The company's more efficient. The company is focusing on other things." You know, when you're new, you have to try a lot of different things.
A level of A/B testing that we do at Hippo is astonishing. Well, now that we've got 3-4 years of doing this, now we've identified, like, builders as an example, this is an area that we really need to focus on. That focus is also helping us be responsible as it relates to cost.
Yeah, just one point of clarification. Rick mentioned that there's people-oriented savings or savings related to the reduction in headcount, but then there's also other savings. The piece that relates specifically to the measures we took last week is more in the line of about $13 million-$15 million of cash. Then there's obviously some stock-based comp that would be on top of that. There's other stuff that we're doing from an efficiency standpoint that would bring us-
Yep.
-up to the-
Good clarity.
the higher number that Rick mentioned.
Yep.
Morning. Kaenan Hertz from InsurTech Advisors. A couple of things that you had talked about. One of the slides had shown your desire to improve retention. You know, within the insurance space, bundled products, which encapsulates also, I think, part of your total home protection approach, the auto and home. I'm curious, given Metromile Lemonade, has that changed sort of your trajectory or your direction, and what will you do to sort of continue to be able to meet the broad products spectrum?
Yeah, it's a really good question. I think there's a couple different ways you can bundle a product. You can manufacture two or three products and bundle them together. A lot of companies, a lot of traditional companies do that. Through your agency, you can bundle different companies' manufactured products and create an agency-like experience that puts all of those needs within a single agency. I think GEICO is probably the best example of this. GEICO sells a heck of a lot of homeowners insurance, yet they don't manufacture a homeowners insurance product. We have always bundled other people's products, but we are doubling down on that effort in order to make sure that we can maximize the agency experience.
Because in an agency, we own the customer relationship, and sell them other non-risk-based revenue streams for us that make sense to the customer.
Great. Thanks. Just a follow-up question about the loss ratios. There was a slide where you had originally talked about the four components to sort of how you're driving down loss ratio data, tech, prevention, et cetera. Can you share a little bit of clarity as to sort of the relative impact of each of those sort of areas in terms of how, you know, how they're contributing to the loss ratios? And related to that, you know, you have a program business with Spinnaker. How much of Spinnaker's non-Hippo businesses is sort of already built into some of the loss ratio work?
Yeah. Chris, do you wanna talk about the Hippo program?
Sure. On the Hippo program, without getting into specific dimensions, in order of importance, the rate is number one. There's nothing more important than we did this year than take rate and take it in an intelligent way, in a segmented and sophisticated way, so that we are driving not only improvement in loss ratio, but improvement of profile of the book of business. More attractive customers are more likely to retain with us through time.
The second most important thing that we have done is implement underwriting controls, re-underwrite the book of business, really taking a look at the bottom 10% of the book of business that is driving poor loss ratio performance and doing what we can within regulatory and legal constraints to make sure that we're moving that business and finding a home for it elsewhere if at all possible through the agency. The third thing, claims. I think we still have some improvement on the claims side in terms of direction. Grace Hanson joined as our Chief Claims Officer at the beginning of the year and has done a lot of work on basic blocking and tackling.
We believe that from an operational standpoint, there's some improvement we're going to do, you know, some things along subrogation and other fraud type of measures, just basic blocking and tackling to get at claims leakage. I think those are the three primary levers. They're traditional. They're basic fundamental things that we need to do and improve upon. I think in the order of importance, it would be in that level.
Related to your question about Spinnaker. When we acquired Spinnaker was a fronting carrier. In fact, we were Spinnaker's largest program. Through that, you know, we acquired them not because they were a fronting carrier. We acquired them, as I mentioned earlier, to have control over a balance sheet for our core product. Through that acquisition, as we learned in the due diligence and then managing it now for almost two years, we recognize that there's program business in Spinnaker that is additive to Hippo in a couple different ways. One is it creates non-risk-based revenue because Spinnaker does not take a meaningful portion of underwriting exposure for the programs. It takes a little bit here and there, but only where it believes that it's a profitable book of business.
It does help Hippo diversify the total portfolio when we start thinking about things like XOL and Corporate CAT, because it goes over a wider, diversified product set. We've found it to be a favorable business that we've invested a bit in. Not our core business, but one that we have good partners that we think is additive to what we're doing and we don't have any plans at this point of changing that.
Hey, guys. This is Tommy McJoynt from KBW. The channel mix shift just over the past year has actually been pretty remarkable with the independent agent and the embedded partner basically flipping their mix. What's to stop the partner from becoming the vast majority of the business going forward? I assume some of the partnerships are still getting ramped up. Could you talk a little bit about are those partnerships exclusive? What are the time limits for those partnerships?
Yuval, do you wanna start?
I expect it to continue in terms of the mix shift. I do wanna note that in the partnership channel, right, you're adding also cross-sell and upsell of additional policies. That mix included both Hippo and non-Hippo policies. Whereas in the producer agent channel, right, what we're counting there is that they're selling Hippo policies. That's a bit of a difference. Your second question was in terms of are they exclusive. I wouldn't say that they're exclusive in both directions, right? You see, you know, there's folks in the same space that are there. I would say that when it's integrated in a very detailed way, it makes it very sticky.
Yeah. Just a couple points that I would add to that is this is where our tech stack makes a huge difference. Embedding these products where the customer wants us to find them through a partner's flow is a technological challenge. It requires customized APIs for every single partnership that are very different. Our tech stack allows us to do that and maintain those tech integrations between the two. A meaningful amount of time went in with each partner to build those and to dismantle those. As Yuval said, they're not exclusive, but to dismantle those, there's really no motivation for either side to do them. One, because they're working well, and two, there was a tech lift to achieve it.
We've yet to find a competitor in the space that has the ability to offer the partners the same level of insurance offering with even remotely close to the same embedded tech stack. We're not riding on our laurels. We're constantly looking at ways that we can improve those relationships. One really interesting thing about the partner channel is, I mentioned earlier, owning the customer. This is one of those strange situations where you have joint ownership of the customer with somebody who wants to sell the customer a new home the next time they've had two or three kids, and they don't wanna move the insurance business or the home protection business. Yet we have ownership of the customer for the types of business that we wanna motivate people, insurance and home protection.
This is one of those really positive partners, the positive channels that allow us to have ownership of the customer and quite a moat on the tech side.
The next question has to do with actually an announcement I think that was made this morning between State Farm and the ADT, the home security company.
ADT.
ADT. I'm sorry. Not the paycheck company. State Farm is making an investment equal to the size of Hippo's market cap in a home sensors company with a massive field sales force. Can you comment on the implications for Hippo?
Assaf, do you wanna take that one?
Sure. You know, it's a new announcement, but it's not a new development that we've seen in the market. Almost all of our partners, and it can be, you know, an ADT as well, and Ring, and SimpliSafe, and Notion, they always have. There's no exclusivity, and they can offer it to other vendors as well and other insurance companies. There's, like, several components. One, it took us four or five years to get to the state of where we are now. There is an attachment. There is where you offer. It's how we offer, what's the package, et cetera. It's I think when we started it was, I don't know, 10%, 12%, 15% attachment, and then we got to the 70%, 80%, and it was done with meticulous, basically implementation and fix-up. It's something that takes a while to do that.
Second thing, it's always there are nuances on the technology on sign of life and where you are attaching and what you want. There's also opt-in versus opt-out. There are customer-specific customers, Generation Better that we want to lean in and basically offer, and they want that. So the targeting has to do with that kind of stuff. We had times where we used to offer it or even send it to everybody, but then a lot of people, it was just sitting on the mantle, and that was a waste of money and attention and all of that kind of stuff. Then comes the second question, what do you do with the discount? I give you a discount, or I didn't give you a discount. I gave you, and I pulled it off. There's a lot of iterations.
We've been seeing it going. We don't think it's one kind of offering. I think it's like every other thing that's been done in Hippo. It has to do with technology, customer focus, and just meticulous iterations to keep on fine-tuning on this offering. It's something that we will see. Yuval probably has-
Generally speaking, when these types of things happen, it's actually positive.
Yeah.
It aligns with what we are trying to do with other partners. It's generally positive news because it goes along the lines of what we're trying to achieve. When others are educating the market about the benefits, that's positive for us.
I would say, just to maybe kinda complement this point, we're very excited about smart home and what we've been able to do and how we're still accelerating that. We do see it as part of a much more holistic home protection platform. If anything, I spoke earlier about Book a Pro as a feature that we'll be introducing in our app. It's probably one of the most highest asked for features we've heard from customers. This ability to integrate smart home as part of a much more holistic system and then quickly iterate, experiment, and innovate in response to customers' feedback is actually putting us now a step ahead of where we have been beforehand around taking smart home from a, an all and done solution to just a component of something more holistic. As Yuval said, I mean, we're excited.
The more the industry learns and homeowners understand the benefit of these types of solutions, the better we think the reception of our offerings would be.
Hi. Hi, Jimmy Bhullar, JP Morgan. I wanted to synthesize what we were talking about on the agency side. Thinking about the revenue streams that come in, you talk about owning the customer. How do you think about claims? What are the ways? I think your GEICO example is a great example. Maybe talk about is it just homeowners? Is it auto? What are the ways that we're using the agency side to your advantage?
Yeah. It's a really good question. This is, I think, a major focus for us as a company in 2023 is create an agency-like experience that is as favorable as a Hippo homeowners-like experience. Doing that on the agency side where you can do other things. We've historically had claims concierge for particular claims handling. Well, what about shifting that mindset from a claims concierge to a home concierge that allows different types of aspects for that customer, whether it's Daniel's total home protection or it's a Hippo claim or it's a customer that maybe Chris decided to non-renew. We have another solution with another partner that maybe has a different underwriting appetite than we might have.
I think over time our vision is to have a holistic concierge as an agency that we can do a lot of different things to benefit that particular customer far beyond whether it's something we manufacture versus something that we partner with. I do think those of you that have been around for a while remember. I'm not suggesting we do this by the way, but remember agents used to do a lot more. When you used to have a claim, you would call your agent and the agent would take the first notice of loss, and they'd reach out to the carrier, and they'd walk you through the process and do different kinds of things.
I think there's technology that can help support that through an experience that magnifies Hippo's view of take care of customer first, and I think you're gonna see that evolution over time.
Great. Second question, it relates to SimpliSafe and Ring. How do you think about the data that supports the better underwriting? It sounds like a lot of that comes for free or there's a reduction in premium. How do you have the data to support making sure you're getting the right price for the right risk on that?
Yeah. Let Daniel, maybe you'll start, and Chris can jump in.
Sure. In terms of these offerings and actually more broadly home services, our focus first and foremost is to identify the things that customers want, what they would adopt, what they would use over time. Like even getting the kits to customers' hands, getting the customers to activate them and maintain those kits active is a very laborious, like very sophisticated playbook that you have to implement. That could serve as an indication that this is a generation better customer. An opportunity arises there. While we don't disclose any specifics around the benefits specific to loss ratio, we do have indication that customers that engage with the programs and maintain those actives are superior customers from both a risk perspective and a lifetime perspective.
Yeah, I think from an underwriting and actuarial standpoint, the fact that we were an early adopter or an early implementer of this smart home program. It was the most widely adopted smart home program. We have a little head start on collecting that data and understanding, starting to flow through our actuarial analysis at this point in time. Part of what we're doing with the rate changes and part of the segmented rate changes is taking into account the smart home adoption as well as everything else that we're learning about our customers, you know, quarter on quarter, year-on-year. It's definitely also a piece of what I was saying before, like if we stop just thinking monolithically about loss costs and thinking about customer behavior overall, as Daniel said, who's adopting it?
What are the risk characteristics of people who do adopt it? What does that mean for frequency overall, but also about what the longevity with their propensity to stay with us and retain with us? All of that goes into lifetime value and not just our loss ratio. Overall, we have to think about it a little bit. We have access to this data. We're collecting it. How can we use it beyond just giving a credit for this? How else can we? Do we wanna engage with that customer differently because they're engaged with their smart home technology in such a way? Those are the things that we have to be thinking about, like, next generation.
I just want to add that the data today is concentrated around activation or non-activation, right? It's not around more sophisticated things. We know if the customer is active or not. That's the extent of it. I want to connect it a little bit back to Yaron's, like, first question. If you think about it, right? Like somebody got a smart home kit, installed it, they're active or not active. Getting that data on a continuous basis, enough such that you can connect it with your policy management system and make changes to discounts in a dynamic way. Is it active or not active? It's a simple idea and a simple concept, but it's not very simple to achieve, right?
You need a tech stack behind that can support the dynamic real-time integration of data and decide what to do with it. You know, there's that aspect as well of it's not as trivial as it seems to connect that and then to achieve it.
None of these things are also in vacuums. Think about one example. When you're doing a home health checkup, and you're snapping barcodes of things like hot water heaters that are in your second-story closet or in your attic, and you know that that's end of life, and you can proactively work with the customer to say, "Hey, we should probably help you find a vendor to come and replace that hot water heater before it ruptures, and you've got 200 gallons down on your grand piano downstairs." That's far beyond home monitoring.
As Yuval was thinking or was talking, I was thinking about one of my favorite quotes of all time, "Vision without execution is hallucination." The vision's pretty easy, but executing on it and the tech enabled to do it, and the learnings that you get as you iterate time after time after time, when this is a core piece of your business, is challenging, and we will continue to iterate. We have, in our history, I think five different smart home providers, each requiring a different integration to get that real-time ping back and forth. It's difficult to do, and you really have to be a tech company to make that happen.
Know which product was basically sent to which customer and basically linked to that. Also, there's a lot more other nuances. I think it's a lot more nuanced program. It's not let's just send ADT to a customer. Like, the builders have embedded water shutoff valve in every home, but I can give a water shutoff valve to any customer, but if it's not in the build time, it's just never gonna be done. Like, to actually install a water shutoff valve, you need a plumber that comes and cut the main water pipe, plugs it in, then you're gonna realize that, you know what? I actually don't have an electric socket near the where the water shutoff valve, so that's a problem. If you even have that, it's not really connected to your Wi-Fi because it's too far.
It's in the basement. You need something to really think of all of that. Every Lennar home comes embedded with this thing. We have to work through that flow in a structured way. It can keep on going, the professional monitoring versus not. Which it's not, let's just say, which is usually the headline that that's why we're used to that. As Yuval was saying, we want the market to be educated. We think that in general, technology is gonna keep on changing. Customer behavior and customer expectation keep on evolving. What was used five, 10, 20 years ago is just not gonna be the same thing.
We're talking about an industry that the average age of an agent moves from, I don't know, when I looked at it, like 50-61 around now, and most agents are actually leaving the profession. People are gonna consume differently. People are expecting something differently. We had COVID, which still we have it. Expectation, behavior, acting in the more. It's just different. Keep on looking at what was in the past is not something that we're looking. It's what's gonna happen in the future. The more education customers are gonna get from bigger and bigger carriers that are gonna train their customers to basically expect that kind of service and that kind of tools is a very positive thing. I think Rick was basically saying first kind of thing. It's a very fragmented industry.
It's an industry that you have one basically carrier that has more than 10%, and then it trickles down. We're never saying, "Listen, we're gonna crush and kill State." It's just not the case. We're trying to find our customers with our offering, and that's where we know that we're gonna win. That's basically our entire strategy that was laid down today.
Go ahead.
This is Alex Scott, Goldman Sachs. Thanks for taking the follow-up. On the placed premium portion of the total generated premiums, could you help us think about, you know, how engaged they are with Hippo? If the homeowner's policy goes to a third party, so, you know, not Incline or Ally, but actual, you know, a different carrier. Are you as the agent or like, do they have your app downloaded? You're dealing with the, you know, billing and all of that. Like, I'm just trying to understand where this is from like, you got paid to send them a lead to like you're the full agent and you have, you know, the app ow engaged they are with you.
Yeah. It's Alex, good question. It's an evolution, right? Right now, not nearly as engaged as we like them to be. Right now we are an agency, right? We do have agents that works with the customer to get them placed wherever they should go, and also cross-sells them other services. What we've talked about today and what Daniel's team is working on with the app and everything related to total home protection is really shifting from what I would consider a Main Street agency to a partner with anything with that particular customer related to insurance and then beyond with the home services component of it. This is why when we did the step, we haven't baked a tremendous amount of this into our economics.
Stewart mentioned these are things that we've already started to do, which is why we have great confidence that we're gonna get there. What we really want to do over time is create a relationship with that customer that we are who they call for anything related to this, even if they don't think it's something that we would take care of, like I locked myself out of my home. We in an app wanna be able to dispatch a locksmith in the next 15 minutes. Think about that type of concept. That's where we are. Whether that's a Hippo customer or a third-party customer, that's the evolution that we are making over the next 12-24 months.
I think also, Alex, think about the benchmark. What do you have now? I would ask this room, who are you guys insured with? And the answer is gonna be, "I think Allstate. State Farm. Farmers. Farmers." That's usually what we get. 'Cause you don't have any interaction with your with your carrier other than renewal. And then when I'm gonna ask you, "Well, where do you have your policy?" "I don't know. I need to look at my Gmail. I need to go, and maybe it's in the." There is no interaction, and there's no differentiation because then the second thing is like what's the difference between each and every one of these carriers? There's none. There's no real differentiation. It's the same kind of product, which is quarterback one versus quarterback two.
We're trying to change the entire relationship with the customer, so we're gonna start a lot more in-depth, as Rick was saying, with smart home, with stuff, with the Hippo customer, and we're gonna add layers to the customers that are on the agency, and we're gonna change this differentiation. It's not, you know, there's gonna be a spectrum, and we keep on implementing more and more things to change the relationship that we have with all of our customers.
Yeah. 30 years ago, when you'd say who you're insured with, "Bob the agent down the street." Right? It changed. Who are you insured with? Progressive. Maybe you bought it from Bob, the agent down the street, but now you're thinking Progressive. We wanna get back to where, "Who are you insured with?" "Hippo." Doesn't really matter where it's going. Hippo has that differentiated customer experience.
Go ahead, Yaron.
Yaron Kinar with a follow-up. Going back to the protection services, the non-insurance protection services. It sounds like it's a home run for an insurance company from a customer acquisition, retention, lowering loss ratio. Wouldn't it behoove a company to actually subsidize that, essentially turn that into a cost, not a revenue source? I just wanna think about it conceptually. Why would that be a revenue base?
Yeah. I think there's a lot of different ways you can skin that cat. The first step of that is to ask the customer what type of cat do they want or what kind of pet do they want. Forget cat. That's the stage that we're in right now. We are not trying to monetize it today. We are trying to understand exactly what the customer wants, and then we figure out a way to either, A, monetize it. Yuval and I have had this conversation a dozen times. Do we monetize it or do we make it a cost center to improve the loss ratio because we'll monetize it that way?
There's a lot of different ways that we can go about doing it, but first we need to understand, and we are already pretty far along the path, of what do they actually want? What is compelling to them? Why do they want to join? I'm not gonna muddy the waters up right now by telling them, "Do you want this?" It's only gonna cost you, I'm making a number up, you know, $250 a year. Most people are gonna say no. Instead of, "We wanna give you something. What is it you want?" "I'll take that. This is awesome. This is great." "How much would you pay for this?" Like, that's the type of approach we're taking.
It's also. Again, it's nuanced. Think about basically, you know, protection for your hardware and your stuff that you have in your home. Now, right now in the market, everybody pays the same, I don't know, $30 a month. You have a 17-year-old fridge, and I have a 1-year-old fridge, but we pay $30. It can be with this checkup that you have, basically take a picture of the barcodes, and then I can do a specific underwriting for the specific product, and I can offer a different offering. Maybe I'll choose to actually take the people that have a 1-year fridge and then, you know, the breakdown is X versus the other. There's so many other nuances. It's not.
There's a tendency to look at everything in one kind of swoop, but it's all about a lot more nuances, I think. It's actually to follow on to your question at the beginning. That's what more and more sporadic specific data that is basically embedded with a deep technology that we can actually do that, and then link it to the marketing, link it to the other stuff. That's what we're starting to see, and these are the offering that we're starting to offer, and that's how we're looking at this thing. It's not let's just offer everybody this or not, or not offer to anything. It's a lot more nuanced, and that's what basically Rick was saying. There's a lot of ways to skin the cat, and we're trying to understand what and when and double down on that, and that's what we're doing.
Got it. Maybe one follow-up on this concept. How much vetting is there, let's say, when you partner with a pro, the locksmith that you're gonna send out to a customer? How well do you know that locksmith? 'Cause ultimately it reflects on your overall customer experience, right?
I'm gonna take this one instead of giving it to Assaf because Assaf's answer to this question is one that we probably don't want broadcast all over. It has to do with the plumber showing up. You can all imagine that story. The reality is, whether they're our employee or we just referred them, the customer's gonna blame us if it goes right or wrong. That is one significant challenge of making sure that whoever is showing up with the Hippo baseball cap is one that the customer is happy with. Not just the service that they provide, but just the general interaction is important to us, and that's something that we're still working on, trying to optimize for.
Now of course, you can still have employee folks doing this, and you could have a bad employee go and have a bad experience. You're not isolated whether you use employee service providers or third-party service providers. We recognize that that service provider reflects on us, and we wanna make sure we have as many checks and balances to minimize a problem in that interaction.
It's actually a critical point and probably one of the biggest challenges in this space in general. I think this is one of the reasons there's no one source you go to to care for your home. There's just this is an existing unmet need. First and foremost, as Rick said, like we will stand behind and by the customer. This is also a reason why we start by partnering and leveraging, you know, others' experience in the space. Finally, we also wanna kind of trust and empower the customer. As long as we're completely transparent and clear on what they're getting, we wanna make sure that they're very understanding of the offering and how they go about it, and we're here to address any questions or concerns. That's part of that iteration and experimentation.
That quality area is probably one that we're and have been and will continue to be the most focused on in terms of kind of understanding the outcomes.
Yaron, think about this kind of experience. We dispatch a pro. Pro goes to the house, does whatever it is they're supposed to do. The pro has to click that they've left the property just like happens with Uber or anybody else. We then immediately reach out to the customer with a push notification, "How satisfied are you?" If the number isn't a 4 or 5, we immediately pick up the phone and said, "What happened? What went wrong?" The customer said, "Yeah, but they didn't really do this," we will have another pro out there this afternoon. "Are you available to take care of? We will pay for that second visit." It's that type of experience that customers are demanding, and that's the type of experience we're prepared to offer.
That pro not necessarily gonna get paid, and if you get 5, you're gonna get the pro is gonna get paid more. There's a lot of nuances that you can actually do. Plus, don't forget that we have hundreds of thousands of customers, and we use pros consistently, and we rank them, and we send them, so they get more referrals and more jobs the better they are and the more, like, they are on track. There are more mechanisms, and that's how we're thinking about this entire thing.
Thanks. Amit Kumar, IPC Research. Two quick questions. The first question goes back to the reduction in workforce of 10%. Do you think we are done here, or is there any room for additional efficiencies down the road?
It's a really good question. I hate the word downsizing 'cause we didn't downsize. We right-sized. We right-sized because we have our path, we have our roadmap, and we know who we need in the organization to actually achieve it. That doesn't mean we're not gonna hire somebody new tomorrow. We will hire somebody new if there's a gap in the organization and we have a need to fill. I believe in terms of the right sizing of the organization, and this is really a message that I'm sharing with our employees, is we decided to do it all at once. Instead of people wondering, 'cause how many organizations have you seen it? They lay off 5%. Six months later, they lay off 10%. Six months later, they lay off another 5%.
I want to avoid that if at all possible because, again, we're in a good financial position to execute on the plan that we've outlined today. We just needed to right-size the organization. We have never done this. We've been around now for six years, and we have never really right-sized the organization. It was time to do it, and because of the macroeconomic terms, it's only prudent. We do not want to find ourselves in a position where we need to go raise outside capital unless it's our choice because of some strategic opportunity that we have. We've got the discipline to do it, and we'll continue to do it if we need to. To answer your question, I think we've done what we need to do.
The second question on the capital discussion. I would imagine the stock price and the cash burn creates a lot of frustration in your ability to pursue what you want to pursue. Do you think you're at that point where you're like, "Okay, let's give this, you know, a few more years, and then maybe we should think about partnering with an incumbent carrier or, you know, maybe consolidating with someone else." Are you still at the point where you're like, you know, we'll keep on pursuing the go it alone strategy, or has there been any evolution on that?
Yeah. We have great confidence in the plan that we have put forth. Frankly, from our view, I mean, we are a public company, so if somebody made an offer, our board would have to entertain the offer. The reality is what we said earlier. For us to just optimize around the edges isn't why any of us are here. This isn't why we joined this company. This isn't what our board has signed up to do. We think we can make a meaningful change to the home protection industry, and we are heads down achieving that goal. We have the capital to do it. We have the time to do it. We need to do a better job, frankly, of educating our investors on what does differentiate us.
I think this today is a start of that to really help folks understand we are not a traditional insurance company. We are not an MGA. We are not an agency. We are not a home protection services company. We are not a fronting carrier. We are all of those and try to explain how those interchange with one another and how that impacts a very favorable economic business strategy. Stewart mentioned in his talk that we've heard you. We need to do a better job of explaining which components of these are meaningful and how we are tracking to the various components. That's where we have not done a great job.
I would really like to take all of our minds and drop them in an investor's mind because when they see the excitement and the things that we've learned and what our path is, I think people get pretty darn excited. That's what we need to do, is we just need to do a better job educating.
I think that's a good comment to close on. Thank you all for coming, and we'll be around. We'll be happy to take more questions. Thank you.
Thank you, everyone.
Thank you so much.
Good job, man.