InsurTech Firms Take SPAC Path To Wall Street

Oscar Health InsurTech

The only sure things in life, they say, are death and taxes. And maybe the parade of continued special purpose acquisition companies (SPACs) – at least so far as the horizon stretches out before us.

News came this week that Hippo Enterprises is going public via SPAC. The Wall Street Journal reported that the firm will go public with Reinvent Technology Partners, in a deal that values the InsurTech at $5 billion. Hippo is moving more firmly into offering insurance (here, in property insurance), where up until now it has been a partner for insurance carriers, the Journal noted.

But as shown by the initial performance of Oscar Health, which went public this week (though it is, admittedly, focused on healthcare and not on property), there are no sure bets, even in a “hot” sector — and maybe not even for SPACs.

As reported, Oscar went public in a $1.4 billion IPO and now trades below its offering price, which was $39 a share. At the Thursday (March 4) opening, as of this writing, it was trading at a bit more than $34. Technically, we might term this a “busted IPO” — though with the market volatility that has been a hallmark of recent trading days, things can change on a dime. Another firm, Metromile, went public earlier this year via SPAC.

It may be the case that as tech shares trade at large, so too will InsurTech firms, if investors flee anything that smacks of digital disruption of the way things “have always been done.” Perhaps – rightly or wrongly – investors simply see certain verticals getting crowded.

The Financial Times reported that firms such as Oscar are coming to market after other firms in the InsurTech (or, alternatively, “alt insurance”) space have made the leap toward listing. Clover Health, for example, went public early in 2021 through a merger with a blank check company.

Devil In The Details 

The devil is in the details — and on the Street, the details are in the numbers. Earnings season, of course, provides those numbers.

As reported this week, Lemonade reported better-than-expected results, but guidance initially disappointed investors. The company reported a fourth-quarter loss of $33.9 million, or 60 cents a share, compared with a loss of $32.7 million, or $2.90 a share, at this time last year. Revenue also declined to $20.5 million from $23.5 million at this time last year. The top and bottom lines were better than expected. But Lemonade’s forecast for Q1 revenue of $21.5 million to $22.5 million came in short of analysts’ forecasts of $22.1 million on the low end.

Here, then, is the continual struggle when companies go public: They must go up against the expectations of the Street, quarter by quarter, in terms of top- and bottom-line projections. In the meantime, these firms are seeking growth, which requires investments – and that means the red ink may be a hallmark of operating results for a while.

For many of the InsurTech players, the platform model offers the chance to scale and to offer new products in a “horizontal” manner. In evidence of that fluidity: Lemonade CEO Daniel Schreiber noted in his call with analysts that “back in July, at the time of our IPO, we were a monoline business, as we had been since our inception. Yet, a couple of quarters later, we offer three very different types of insurance property and casualty, pet health, and term life — and have more in the works.”

As for Hippo, in an interview with Karen Webster, CEO Assaf Wand said that, in general, online platforms can solve the pain points of getting claims paid – and can help oversee various aspects of home maintenance, bringing contractors and property owners together as needed. Wand told Webster that the market opportunity for tech-driven home insurance — and a range of personalized, follow-up services during the life of the policy — is significant. It moves beyond simply generating and tracking claims and getting them paid.

But as the platforms evolve, the ride may not always be smooth amid the bulls and bears.

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