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Insurer in Full: Insurtech stocks continue to fall in September after short-lived summer rebound

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Topics: InsurTech Rates

The brutal repricing of insurtech stocks that started last September has persisted in 2022 with The Insurer’s insurtech composite index recording a correction of 53.5 percent in the year to date...

  • Overall downtrend continues although some stocks appear to have found support at current prices
  • Market cap of main eight publicly listed insurtechs has plummeted to $10.7bn, down 52% from the end of 2021
  • Unstable public insurtech market conditions resulting in staff lay-offs and nearly complete halt of new go-public plans

The fall in The Insurer’s insurtech composite index has far exceeded the broader market correction this year, with the S&P 500 and the tech-heavy Nasdaq composite down 18.7 percent and 26.8 respectively as of Friday 16 September.

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The slump in the insurtech cohort has been even more remarkable when compared with the insurance industry itself, with the S&P 500 Insurance benchmark recording a loss of only 1.5 percent in the year to date.

Indeed, on a rolling 12-month basis, the insurance-specific benchmark managed to record a 3.2 percent gain compared with a 66.0 percent fall for The Insurer’s insurtech composite.

the-insurer-i-insurtech-composite-vs-s-p-500-insurance-span- (1)

Our review of publicly listed insurtech companies also shows that the correction is now widespread and not just concentrated on those firms with a focus on underwriting – such as Lemonade, Root and Hippo – as was the case initially.

For example, Duck Creek Technologies – which provides insurance software solutions for the P&C industry – has seen its shares slump by 60.3 percent in the year to date and 75.9 percent on a 12-month rolling basis.

Meanwhile, Texas-based personal lines intermediary Goosehead Insurance recorded a fall of 68.8 percent in the year to date and 72.6 percent in the 12 months to 16 September.

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In contrast, high-profile insurtech Lemonade has seen its shares recover some of the lost ground after bottoming out in June.

The stock is now down 45.5 percent on an year-to-date basis having climbed 17.3 percent in August and a further 3.8 percent in the first 11 trading days of September.

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But Lemonade aside, the most brutal destruction of value still seems to be focused among the previously much-hyped public insurtech start-ups which had sought to disrupt traditional underwriting.

Among them, the most impacted has been auto insurtech Root.

The company, which went public at the end of October 2020 with its shares valued at $27 apiece and a total market valuation of $6.7bn, was trading at around a dollar at the start of August.

On 15 August, it implemented a 1-for-18 reverse stock split to rescale its share price in a bid to attract attention from institutional investors.

However, the effect was short-lived and by 16 September, Root’s share price had fallen 82.8 percent since the start of the year and over 98.0 percent since going public.

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Meanwhile, home insurer Hippo was down 68.9 percent so far in 2022 and 91.1 percent from its August 2021 peak.

The company followed the special purpose acquisition company (SPAC) route to going public, entering into a combination agreement with Reinvent Technology Partners Z in March 2021, with the transaction closing in August.

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Two months after going public, Hippo’s CEO Assaf Wand commented that the insurtech thought a SPAC deal was “the right thing” but “in hindsight I am not sure it is the best thing now SPACs are the source of all evil in the world”.

Auto insurance provider Metromile was another company that had used the SPAC route to go public.

Trading since February 2021, its valuation collapsed before announcing a deal to be acquired by Lemonade only nine months later.

A dearth of SPAC combinations has become the norm since, with at least three insurtechs – Qomplx, TypTap and Kin – known to have shelved their go-public plans since the market rout began in August last year.

The sector has also seen extensive downsizing actions this year.

In January, Root laid off 330 staff, representing around 20 percent of its workforce.

In spring, Metromile is understood to have let go at least 52 of its own employees.

And immediately after its acquisition of Metromile at the end of July, Lemonade laid off 60 employees representing 20 percent of its newly acquired workforce, as revealed by The Insurer.

Most recently, Hippo is understood to be shrinking its workforce by 10 percent – or around 70 staffers.

Staff cuts have also spread to a host of privately held insurtechs, with companies such as Vouch and Bestow using redundancies to adapt to changing market conditions.

The Insurer insurtech composite index includes only property casualty-focused companies. Its eight current components are Lemonade, Root, Hippo, Duck Creek, Guidewire, Goosehead, MediaAlpha and Everquote. The composite is built as a chained index weighted on a daily basis by each of the components’ market cap. It also adjusts for the successive addition or removals of components.

 

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