top of page

Metromile Going Public: Reverse merger with INSU Acquisition Corp. II

By Aebjohn Tomas (University of Chicago), Rahul Mepani, Sung Cho, Suchritha Patlolla, Kevin Hwang and Athean Myat (Cornell University)


Overview of the deal

Acquirer: INSU Acquisition Corporation II

Target: Metromile

Transaction Size: $956 Million

Implied Pro Forma Market Capitalisation: $1.3 Billion

Anticipated Close Date: Q1 2021 (Ticker: MLE)

Transaction Advisors:

  • J.P. Morgan is serving as the exclusive financial advisor to Metromile

  • J.P. Morgan, Wells Fargo, and Allen & Company are the exclusive placement agents to INSU II

Warren Buffet had Geico. Chamath now has Metromile. The pay-per-mile automotive insurer is going public via a reverse merger with the Special Purpose Acquisition Company, INSU Acquisition Corporation II (NASDAQ: INAQ). The company should join the NASDAQ, under the ticker MLE, by the first quarter of 2021.

The automotive insurance industry has long been economically inefficient as coverage policies have notoriously mispriced the risk associated with driving. Actuaries have historically utilized group-based statistics like age, gender, and marital status to model one’s projected risk behind the wheel. In turn, consumers have overpaid for coverage plans that do not reflect their respective driving tendencies such as when they drive and how often they drive. Leveraging data science to deliver a dynamic usage-based insurance pricing mechanism, Metromile claims to generate, on average, 47% in cost savings for users over incumbents such as Geico and Progressive.

Leading the PIPE is Social Capital’s Chamath Palihapitiya, the long term-focused technology investor who is largely credited for bringing back the popularity of the SPAC model, and a notable friend of Metromile’s co-founder, David Freidberg. Chamath is joined by angel investor and Dallas Mavericks owner Mark Cuban, as well as investment firms Miller Value, Clearbridge, and New Enterprise Associates.

Company Details: MetroMile

- Founded in 2011 headquartered in San Francisco

- Chairman and Founder: David A. Friedberg (Founder)

- CEO/CIO: Dan Preston (CEO)

- Number of employees: 230

- Implied Pro Forma Market Capitalisation: $1.3 billion

MetroMile is a pay-per-mile car insurance company that provides customized insurance that is personalized to each driver to ensure affordability. It is powered by a customer-centric design that is backed by machine learning. This allows for low-mileage drivers to save up to 50% on average compared to their previous auto insurer. MetroMile has thus created a fairer billing system in the industry. Moreover, MetroMile’s customer experience has allowed for convenience. The signup and file handling processes are very much automated, and the company provides features on its free Ride Along app that offers customers cost-saving rates.

Projections and Assumptions

Short-term consequences (< 1 Year)

Heading into 2020, Metromile was one of the fastest-growing Silicon Valley technology companies. It had joined the $100 million ARR club (Annual Recurring Revenue) in the first quarter of 2019 - a year earlier than its InsureTech comparable Lemonade. However, the pandemic restrictions contributed significantly to the recent turbulence experienced by the company. Due to Metromile’s business model, the on-and-off stay-at-home orders directly affected the company’s revenues due to the significant drop-off in the number of miles being driven. While the magnitude of the impact is undisclosed, both by the company and the filing documents, Metromile had to let go of 100 employees in April as a continuation of its cost-cutting efforts. Metromile is expected to get $294 million in cash proceeds at closing. The combined company has announced its intention to utilize a portion of the proceeds to pay down existing debt. Nevertheless, despite the pandemic-induced struggles, this needed financing has come at a convenient time for Metromile. Furthermore, the insurance technology market overall has had a robust year. The robust IPO performance of Lemonade, and the consistent inflow of venture capital dollars into the relatively young industry are some of the positive notes to highlight.

Long-term Upsides

The long era of fixed price auto insurance is coming to an end, and Metromile is tapping into this gap by revolutionizing the fragmented $250 billion + US personal auto loan insurance market. In the long-term metromile will convert more than 2/3rd of U.S. drivers who are classified as low-mileage but overpay on their auto insurance. Metromiles disrupts the auto insurance industry because it ensures that its platform users save nearly 50% on average compared to a traditional auto issuer. From a long term perspective, the new combined company can capitalize on the proceeds from the transaction to reduce its existing debt, expedite its growth initiatives through partnerships, launching new products and features to enter new domestic markets. Metromile is gearing up to expand into 49 states by the end of 2022 and capture a $1 Billion premium run rate by 2024, which demonstrates a long-term viable growth strategy to potential investors in the market.

Furthermore, as Chamath laid out in his investment one-pager, Metromile’s business model facilitates growth in three ways. First, with their B2C model, the company sells insurance through their highly differentiated data-driven pricing model. They are able to efficiently capture the consumer value they create with a reported 3.1x LTV/CAC ratio as of Q2 2020 and, internally, is projected to increase to 5.5x by 2024. Second, the company is looking to grow their partnership with automotive manufacturing OEMs as a part of their B2B2C business. Through their partnership with the Ford Motor Company, Metromile is able to access telemetry APIs that gather real-time user driving data that helps the company provide relatively cheaper insurance coverage to users. Finally, the intelligent pricing and claims analysis technology the company has developed has garnered a willingness to pay from other insurance providers. In their B2B segment, Metromile Enterprise delivers their customer and claims intelligence technology to other insurance companies through a SaaS delivery model, charging them on a per policy basis. This model is analogous to the enterprise business models of public cloud computing companies like AWS and GCP who charge on a per instance basis. Metromile recently hired Bill Chval, a 20 year insurtech veteran, earlier this year as a vice president in their enterprise sales development team.

Risks and Uncertainties

While Metromile seeks to use the funds to expand the coverage of their pay-per-mile insurance, there are potential service issues that might prevent them from reaching any expected growth. One factor is Metromile’s performance as an Insurtech company. Although their loss ratio of 52.4% is lower than comparable companies such as Lemonade and Root, they still fall short of the Average Loss Ratio percentage of 47.3% in Q2 2020. This has been an ongoing problem for Metromile, which has historically had loss ratios in the 70s throughout 2019. For a company that seeks to sell its technology solutions to other insurance firms in the future, a poor loss ratio can signal to investors and future customers that its proprietary technology may not be performing as expected.

An additional service factor is Metromile’s ability to respond to customer complaints. According to the National Association of Insurance Commissioners, their closed claim ratio is 1.4, which is 40% higher than the industry average of 1.0. This suggests that the company has difficulties in resolving service user’s complaints and claims in a timely manner, which would hurt its customer acquisition in the future. While the automobile insurance market remains fragmented, these habits indicate that there are fewer customers available for Metromile to expand to, and as such fewer opportunities for growth.

Metromile’s business model, which focuses on expanding its insurance base, is vulnerable to changes in driving habits due to the coronavirus pandemic. The Bureau of Labor Statistics reported 22.7% of Americans working from home in September, indicating a sharp decrease in driving hours in 2020. Additionally, the use of carsharing and ridesharing services has spiked, decreasing the number of potential customers Metromile is able to acquire in the future.

Perhaps the most concerning nature of the reverse merger is the additional scrutiny placed onto INSU after the deal’s announcement. In the weeks following the merger announcement, three separate law firms have begun investigations into possible breaches of fiduciary duties. These inquiries imply that the SPAC may have not have accepted the offer without completely valuing Metromile, as well as whether or not all information has been disclosed to board members and stockholders. While legal due diligence is common for such transactions, the claims are substantial and may prevent the deal from taking place.



bottom of page