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 tech history. Two and a half years later, a new report looks into how the legacy insurance provider’s “big tech bet went sour.”
On Friday, The Wall Street Journal reported that Prudential’s bid to strengthen its digital capabilities by grabbing the then-3-year-old Bellevue, Wash.-based startup hasn’t lived up to expectations.
The Journal said the deal “has badly missed its financial targets and left Prudential facing questions from regulators” and that the investment was written down by Prudential in February by roughly half. Assurance was supposed to hit about $1 billion in annual revenue last year, the Journal reported, but instead hit $558 million. Pretax losses have tallied $239 million for a unit projected to add to Prudential’s 2020 and 2021 earnings.
“It clearly has underperformed our financial expectations in the near term, but this is a strategic purchase that I would say we need to evaluate over the next five to 10 years,” Andy Sullivan, head of Prudential’s U.S. businesses, told the newspaper. “We wish we would have paid less,” he added.
The report cites analysts who have called the deal “a head scratcher,” “a really poor acquisition” and “value destroying.”
As for what the government is looking into, the Journal notes that Prudential disclosed in a February filing that it had received a government subpoena and other inquiries “related to the appropriateness of Assurance IQ’s supplemental health product sales and marketing activity.”
Sales calls have been a focus, with the Journal reporting that consumer groups have questioned Assurance’s consent process for such calls and the sharing of customer contact information with multiple partners. Prudential said it was cooperating with regulators.
“The article reflects details about Assurance and its financial performance which we have disclosed regularly since the time of its acquisition,” Prudential said in a statement to GeekWire. “We continue to believe in the value Assurance creates for our customers and businesses, and in its long-term success as part of Prudential. Assurance’s direct-to-consumer platform and talent are helping us better address the financial needs of consumers across the socioeconomic spectrum.”
Michael Rowell and Michael Paulus started Assurance in 2016 in an effort to improve the insurance and financial services industries for consumers using technology. The company uses data science, algorithms and machine learning to match prospective customers with custom health, life, Medicare, and auto insurance plans that can be bought online or through an agent.
The startup, now based in Seattle, never raised any outside capital and was bootstrapped to profitability by Rowell and Paulus, who built one of the top “InsurTech” startups to quietly reach unicorn status, or $1 billion valuation.
The Prudential deal was the largest insurance tech 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 tech talent, algorithms and machine learning to sell large volumes of various types of insurance to middle-class households.
“I know everybody gets excited about the price,” 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 just how we have this shared mission together and this commitment to serving all markets and serving the full financial picture for the consumer.