Today, on June 8, the stock worlds of Insurtech and Reddit memes collided. What a difference a day makes!
The Reddit investors who built AMC Theaters, Bed Bath and Beyond, Blackberry and a few other stocks found Insurtech today. At the close of trading Clover Health, an Insurtech startup that went public last year through a SPAC merger closed up 85%. More staggering was the trading volume 721.3 million shares was 2905% higher than the average 24 million shares traded daily.
For those of you who don’t follow Clover Health, they were an Insurtech startup that raised $1.3 billion in venture capital to tackle the Medicare Advantage market. They merged with a Chamath Palihapitiya (large SPAC player) investment company and went public on January 8 of this year.
Like many other Insurtechs that have gone public in recent years, they have not yet made a profit. In fact, Clover Health’s net loss in the first quarter of 2021 was $48.4 million on $200.3 million in revenue. In other words, they lost 25 cents for every dollar of revenue they made. In P&C Insurance terms, their combined ratio was 125. In fact, the numbers were much worse when you look at the ratio of operating expenses to revenue, which was 319.4 million on $200.3 million in revenue. Closer to a combined ratio of 160.
Why should you care?
This is another example of how capital markets are decoupled from insurance fundamentals. Whether it is venture capital money or private investors, a rising share price is important for these groups. It does not matter whether the company has solid fundamentals.
This gives these startups the freedom and flexibility to invest in technology, product development, and customer acquisition at costs that an incumbent carrier either cannot or does not want to invest.
What can you do?
You need to pay attention to these external queues. You need to critically evaluate your project pipelines to ensure that you remain competitive and relevant in the eyes of your customers and distribution partners. These startups are at the forefront of minimizing friction points and maximizing the experience and benefits they bring to customers.
I’d like to share more. Would you be interested in chatting more about it? Let me know or book a time to talk here.
Kaenan is a professional in the areas of block chain, telematics, wearables, analytics, artificial intelligence (AI) and Insurtech. He has played a key role in innovating many start-ups and established carriers. His advice has been widely appreciated in the financial community, which resulted in multiple quotes and publications in various media.
Most recently he was Practice Lead for Innovation, Fintech, and Strategic Insights at EY. Throughout his career he has held leading roles within Marketing Strategy and Decision Management with top Insurance, Banking and Finance companies, including USAA, Citibank and Sallie Mae.