Insurance giant Prudential is shutting down Assurance IQ, five years after spending $2.35 billion to acquire the under-the-radar tech startup based in the Seattle region. “As we look to the future, we believe that directly investing in our core businesses and capabilities will help us become a higher growth, more capital efficient company,” Caroline Feeney, head of Prudential’s U.S. businesses, wrote in an email to employees obtained by GeekWire. “After a careful review of our businesses and strategic initiatives, we have made the difficult decision to wind down our Assurance business.” Prudential noted in its first quarter earnings report on Tuesday that it “decided to exit” the Assurance business. The company confirmed the shutdown in a statement to GeekWire. Assurance uses technology to match consumers with insurance plans that are purchased online or through an agent. Its acquisition to Prudential was one of the largest in Seattle tech history, and the largest insurance tech exit in history, according to Financial Technology Partners. The startup, founded in 2016 by Michael Rowell and Michael Paulus, never raised any outside capital and quietly reached unicorn status as a $1 billion company. At the time of the deal, Prudential said Assurance’s “rapid-growth model offers compelling economic advantages with low fixed costs and low capital requirements that produce high margins and high degree of scalability.” “Assurance accelerates the strategy and growth potential of Prudential’s financial wellness businesses, bringing us closer to more people across the entire socio-economic spectrum to better serve the full picture of their needs,” Prudential CEO Charles Lowrey said in 2019. But just a few years later there were signs of trouble. A story by The Wall Street Journal in 2022, “How Prudential’s Big Tech Bet Went Sour,” cited missed financial targets and government inquiries over regulatory matters. Many insurance technology companies struggled amid the broader tech downturn that started in 2022. Prudential stopped reporting Assurance financial data in January 2023, in part because “its financial results and operations are not considered significant,” the company said at the time. Assurance reported adjusted operating income of $29 million in the fourth quarter of 2022, compared to a net operating loss of $10 million a year prior. Prudential took goodwill impairment charges, used when a company’s value decreases following an acquisition, of $177 million, $903 million and $1.06 billion in the fourth quarters of 2023, 2022 and 2021, respectively. Assurance had around 1,700 employees as of December 2022 and now has 1,000 employees, in addition to contract workers who help customers find insurance plans. Update: A filing with the Washington state Employment Security Department shows 112 workers in Seattle being laid off, starting July 3. In an email to employees on Tuesday, Assurance CEO Allison Arzeno wrote that “I realize this news comes as a shock and creates uncertainty.” She said a majority of the company’s employees will be laid off. “Together, we built something special here,” wrote Arzeno, who took over as CEO in 2020. “Our work made a difference. We helped hundreds of thousands of people navigate complex insurance tradeoffs and secure coverage that improved and protected their personal and financial well-being.” Prudential reported first quarter net income of $1.1 billion, down from $1.46 billion in the year-ago period. Asked about M&A deals on the company’s earnings call with analysts Wednesday, Lowrey said Prudential “anticipated a different outcome when we purchased Assurance.” “As we look forward we will focus on acquisitions of more established businesses that present opportunities to expand our capabilities and scale in our existing market-leading businesses,” he said. The company’s stock is up nearly 30% in the past 12 months. It has a market capitalization above $39 billion. Read the full memo from Feeney below. “As we look to the future, we believe that directly investing in our core businesses and capabilities will help us become a higher growth, more capital efficient company. After a careful review of our businesses and strategic initiatives, we have made the difficult decision to wind down our Assurance business. Assurance was acquired by Prudential in 2019 to expand the company’s direct-to-consumer access to the U.S. mass market. Since then, the team has made meaningful progress in realizing Assurance’s vision to help people improve and protect their personal and financial well-being, while navigating a challenging business environment for the broader insurtech industry. However, as we sharpen our focus as an enterprise on growth, it is critical that we prioritize core businesses and capabilities where we have a competitive advantage. Business decisions like this are never easy, and we are working with the Assurance leadership team to support our employees, customers, and partners throughout this process. I want to thank all of our employees and other partners at Assurance for their dedication over the past five years. And more broadly to our teams across the U.S., thank you for always keeping our customers, clients, and each other top of mind.”

At least one company asked state regulators for permission to raise rates by 93.4%, according to data obtained from the New Jersey Department of Banking and Insurance (DOBI).

Insurance companies are asking for the increases because of a combination of inflation, increasing home replacement value, higher building costs and “increased frequency of catastrophic events” such as severe weather events. It’s a national problem, said Dawn Thomas, the agency’s spokeswoman.

She said the agency has received “significantly” more rate increase requests in recent years.

Under state law, property and casualty insurers are permitted to file requests with the department to amend their rates or rating systems, Thomas said.

“The Department takes seriously its responsibility to regulate the insurance industry in a manner that promotes consumer protection and the stability of the industry,” she said. “All rate changes must be reasonable, adequate and not unfairly discriminatory.”

If the request is “unreasonable, inadequate or unfairly discriminatory,” it will not be approved, she said, noting that it blocked $68 million in homeowner premium increases since 2023.

But for the more than 120 hikes that were approved since 2023, homeowners’ pocketbooks are hurting.

The highest hike request came from Clear Blue Insurance, which is licensed to offer policies in all states except Alaska. After requesting a hike of 93.9%, it was granted a 20% increase. The company did not respond to requests for comment.

The second highest request was for a 34% increase from Palisades Property & Casualty, which is part of Plymouth Rock Assurance. It received a 14% jump. Next was Kingstone Insurance, which asked for a 28.4% hike and received permission to raise rates by 18.7%.

The pain probably isn’t over yet. More homeowner insurance companies have filed requests to hike their rates, including a dozen that asked for double-digit hikes.

The highest pending request is for Allstate New Jersey Property & Casualty, which asked for a 36.9% increase. MIC General requested a 36% hike and Palisades Property & Casualty is seeking a 30.3% increase.

If Allstate Corp.’s customers “quit getting sued every time they have an accident” the company could ease back on some rate increases, according to Chairman, Chief Executive Officer and President Tom Wilson. Medical treatments, medical consumption, inflation and higher legal costs on increased attorney involvement are all pushing claims severity higher and ultimately increasing rates, Property-Liability President Mario Rizzo added during the multiline insurer's first-quarter earnings conference call. Personal automobile physical damage claims are also still rising on higher parts and labor costs, but the rate of increase is moderating on factors such as lower used car prices, said Rizzo. Auto claims frequency was down in the quarter, helped by favorable weather, but it was more than offset by higher claims severity, he said. Allstate fully reopened to personal auto business in California in February, feeling comfortable with business there after a rate hike was approved. Regulators in New York and New Jersey also approved rate hikes, but it’s not enough to lift underwriting restrictions, said Rizzo. In New York, he said Allstate is in discussions with regulators. In New Jersey, a second rate hike, for 13.95%, was approved to take effect in the second half of the year but still more is needed, said Rizzo. Wilson said the company will continue to raise rates in additional geographies due to higher severity. Allstate has worked the past several years to reduce expenses and will keep doing so to remain competitive, he said. “It’s difficult to determine where one’s competitive position is, given how rapidly rates are moving,” across the industry, he said. State Farm increased its market share in recent years but has run “very large underwriting losses,” said Wilson. “That won’t be us.” Allstate seeks growth by significantly increasing advertising, unwinding underwriting restrictions in states accounting for about 75% of its auto brand premium and expanding new products across channels, according to Rizzo. While Allstate brand auto policies in force declined 5.2% from the prior-year quarter, National General auto policies in force rose 12.6% as its nonstandard business grew and the company continued to roll out a new middle-market standard and preferred product called Custom360. The company can adjust pricing more quickly in its nonstandard auto business, Rizzo pointed out, because of high turnover in the line. A new connected auto product is available direct in nine states and is being expanded to the agent channel this year, with more states and an expansion to homeowners planned in coming years, Rizzo said. Allstate brand auto net written premiums rose 8.4% from the prior-year quarter on a 13.4% increase in average gross written premium on rate increases, partially offset by the decrease in policies in force. Allstate brand new auto business was up 7% from a year earlier, Rizzo said, on a combination of advertising, direct sales and more productivity by Allstate agents.

Allstate Corp. applicable net income soared in the first quarter to $1.19 billion, rebounding from a $346 million net loss a year earlier.

Allstate brand homeowners implemented average 11.7% rate increases in 15 locations in the quarter. National General implemented homeowners rate increases averaged 14% across 12 locations. The carrier sees additional growth opportunities in the independent agent channel in homeowners, said Rizzo.

Allstate is pursuing the sale of its health and benefits businesses rather than invest in more complementary distribution, a broader set of products and capabilities such as management of a health network, Wilson said earlier. The businesses generate about $240 million of adjusted net income annually.

The potential sale is progressing as expected, with “robust interest from a large group of quality potential buyers, both strategic and financial,” Chief Financial Officer Jess Merten said during the first-quarter earnings call. “Diligence on a large, complex business takes some time, so does selecting the right potential buyers to stay involved in the process,” he said. “We believe this is a great business” but someone else can do more with it, said Wilson, adding Allstate anticipates selling the health and benefits business in 2024. While the divestiture will free up additional capital, Wilson continued to stress that Allstate is already “very well capitalized.”