In September 2019, Prudential Financial acquired assurance IQ, a start-up company in Seattle, for us $2.35 billion, which is known as one of the largest acquisitions in Seattle’s science and technology history. Two and a half years later, a new report investigated how the traditional insurance provider’s “big technology bet” failed
On Friday, the Wall Street Journal reported that Prudential tried to strengthen its digital capabilities by seizing the then three-year-old Bellevue, Washington – the start-up did not meet expectations.
The Wall Street Journal said that the transaction “seriously deviated from the financial objectives, making Prudential face the challenge of regulators”, and Prudential wrote down about half of its investment in February. According to the Wall Street Journal, the insurance company’s annual revenue should have reached about $1 billion last year, but it reached $558 million. A unit that is expected to increase Prudential’s earnings in 2020 and 2021 has a pre tax loss of $239 million.
(release logo via assurance.com)
Andy Sullivan, head of Prudential’s US business, told the newspaper: “in the short term, this is obviously lower than our financial expectations, but I think it is a strategic acquisition and we need to evaluate it in the next five to 10 years.”. “We hope we can pay less,” he added.
The report quoted some analysts as saying the deal was “a headache”, “a very bad acquisition” and “damaging value”
As for what the government is investigating, the Wall Street Journal pointed out that Prudential disclosed in a document in February that it had received a government subpoena and other inquiries “related to the appropriateness of the sales and marketing activities of assurance IQ supplementary health products”
Sales calls have always been the focus of attention. The Wall Street Journal reported that consumer groups questioned assurance’s consent process for such calls and shared customer contact information with multiple partners. Prudential said it was working with regulators.
“This article reflects the details of Prudential and its financial performance, which we have been disclosing regularly since the acquisition,” Prudential said in a statement to geekwire. “We continue to believe in the value Prudential has created for our customers and businesses, as well as the long-term success of Prudential as a part of Prudential. Prudential’s direct consumer facing platforms and talents are helping us better meet the financial needs of consumers at all levels of society and economy.”
Michael Rowell and Michael Paulus launched the insurance business in 2016 to improve the insurance and financial services industry for consumers using technology. The company uses data science, algorithms and machine learning to match potential customers with customized health, life, medical and auto insurance plans that can be purchased online or through agents.
The start-up company is currently headquartered in Seattle and has never raised any external capital. Rowell and Paulus helped it make a profit. They founded a top-level “insurance technology” start-up company and quietly reached the status of Unicorn, valued at $1 billion.
The Prudential deal is the largest insurance technology exit in history and one of the fastest multi billion dollar acquisitions, according to financial technology partners. Pitchbook said that in 2019, it was the 23rd largest M & a transaction in the history of Seattle start-ups since 2002.
Prudential’s goal is to use this upstart with scientific and technological talents, algorithms and machine learning to sell a large number of various types of insurance to middle-class families.
“I know everyone is excited about this price,” Lowell told geekwire after the 2019 deal was announced. “The main focus of our choice of Prudential is their commitment to the mission, our shared mission, and our commitment to serving all markets and providing comprehensive financial services to consumers.