Billionaire investors Mark Cuban and Chamath Palihapitiya are challenging Warren Buffett in car insurance
- Mark Cuban and Chamath Palihapitiya are challenging Warren Buffett in the car-insurance market.
- The "Shark Tank" star and Social Capital chief are part of a group investing $160 million into Metromile, which offers pay-per-mile insurance and personalized pricing to drivers.
- Buffett's Berkshire Hathaway owns Geico, one of the biggest US auto insurers and a key component of its business.
- Metromile is poised to go public via a "blank-check" company at a projected $1.3 billion market capitalization.
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Billionaire investors Mark Cuban and Chamath Palihapitiya are taking on Warren Buffett in car insurance.
The pair are among the investors plowing a total of $160 million into Metromile, which offers pay-per-mile car insurance and tailored pricing to drivers. The startup relies on a device that subscribers install in their vehicles, which tracks their mileage and reports other data with their permission.
Metromile announced the PIPE (private investment in public equity) on Tuesday as part of a deal to go public at a projected $1.3 billion market capitalization. It has agreed to merge with NSU Acquisition Corp II, a special-purpose acquisition vehicle (SPAC) set up by asset manager Cohen & Co.
Buffett's Berkshire Hathaway conglomerate counts Geico — one of the major US auto insurers that Metromile is seeking to disrupt — among its largest and longest-owned subsidiaries.
The famed investor personally bought Geico stock in the early 1950s. He shelled out $47 million to purchase a third of the company for Berkshire in 1976, and acquired the rest of the business for $2.3 billion in 1995.
Geico has added more than $50 billion to Berkshire's intrinsic value since 1993, and generated more than $22 billion in insurance float to invest elsewhere, Buffett said in his 2018 letter to shareholders. The investor also praised the auto insurer as a "jewel" and "incredible company" at Berkshire's shareholder meeting that year.
"Buffett had Geico," Palihapitiya — the boss of Social Capital, Virgin Galactic's chairman, and a SPAC specialist — tweeted on Tuesday. "I pick Metromile."
"The option to pay for insurance by the mile is a game changer and why I'm incredibly excited about Metromile's future!" Cuban said in a press release. The "Shark Tank" star and Dallas Mavericks owner was an early investor in Metromile.
The car-insurance upstart generated $53 million in revenue last year and stomached an operating loss of $57 million, an investor presentation shows. Meanwhile, Geico racked up $35.6 billion in revenue and $1.5 billion in pre-tax income in 2019.
Cuban, Palihapitiya, and Metromile have a long road ahead if they hope to topple Buffett's Geico.