When Prudential Financial acquired Seattle-area startup Assurance IQ for $2.35 billion in September 2019, the deal was heralded as one of the largest acquisitions in Seattle’s tech history. Two and a half years later, a new report examines how the former insurer’s “big tech gamble” went wrong.
Friday, The Wall Street Journal reported that Prudential’s bid to bolster its digital capabilities by taking over the then 3-year-old Bellevue, Washington-based startup fell short of expectations.
The Journal said the deal “largely missed its financial targets and left Prudential facing questions from regulators” and that the investment was cut by Prudential in February by about half. The insurance was supposed to hit about $1 billion in annual revenue last year, the Journal reported, but instead hit $558 million. Pretax losses totaled $239 million for a unit that is expected to add to Prudential’s earnings in 2020 and 2021.
“It clearly underperformed our short-term financial expectations, but it’s a strategic buy that I would say we need to evaluate over the next five to 10 years,” Chief Financial Officer Andy Sullivan told the newspaper. Prudential’s US operations. “We would have liked to pay less,” he added.
The report quotes analysts as calling the deal “a headache”, “a really poor acquisition” and “value destroyer”.
As for what the government is investigating, the Journal notes that Prudential revealed in a February filing that it had received a government subpoena and other inquiries “related to the relevance of the sales activity and Assurance IQ Complementary Health Products Marketing Plan”.
Commercial calls have been a focus of concern, with the Journal reporting that consumer groups have questioned Assurance’s consent process for such calls.
“The National Consumer Law Center argued in a 2020 filing that Assurance’s website failed to properly warn consumers that clicking the ‘View My Quote’ button left them vulnerable to hearing from 174 entities. then listed by Assurance as partners, providing a range of products and services,” the Journal reported, adding that Assurance said its approach “is fully compliant with the rules, and the matter is pending” and that Prudential said it was cooperating with regulators.
Michael Rowell and Michael Paulus launched Assurance in 2016 with the goal of improving the insurance and financial services industries for consumers using technology. The company uses data science, algorithms and machine learning to match potential customers with personalized health, life, medical and auto insurance plans that can be purchased online or through an agent.
The startup, now based in Seattle, never raised outside capital and was launched to profitability by Rowell and Paulus, who built one of the best “InsurTech” startups to quietly reach unicorn status, a $1 billion valuation.
The Prudential deal was the largest insurance technology exit in history and one of the fastest multi-billion dollar acquisitions, according to Financial Technology Partners. And in 2019, it was the 23rd largest M&A deal in Seattle startup history since 2002, according to PitchBook.
Prudential’s goal was to use the upstart with its technological talent, algorithms and machine learning to sell large volumes of various types of insurance to middle-class households.
“I know everyone is excited about the award,” Rowell told GeekWire after the deal was announced in 2019. “Our main focus in our selection of Prudential was their commitment to the mission and how much we have this shared mission together and this commitment to serving all markets and serving the complete financial picture for the consumer.