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    Insurtech stocks heat up — best returning IPO of 2020 is Lemonade

    Victor Lei — Head of Research

    Victor Lei — Head of Research

    January 5, 2021

    January 5, 2021

    COVID has accelerated one too many industries — amongst them is insurance technology (insurtech). Insurance is going through a digital shift and all it took was a couple centuries to get here.

    Insurtech companies help write better loans using better data/tech to make the process of writing/selling insurance easier.

    Technologically backward

    Insurance is one of the world’s largest, oldest and technologically backward industries — in 2019, over $1.32t worth of premiums were insured in the US.

    Over the past 5 years, we’ve seen a surge in funding towards insurtech startups and now, we’re starting to see these companies grow into publicly traded companies.

    These aren’t your traditional insurance companies…

    • Millennial/Gen-Z friendly way of shopping for insurance — digital-first and modern branding.
    • Insurance simplified — insurtechs simplify the purchasing and product comparison process.
    • New models — usage-based insurance, micro-insurance (i.e insurance on smaller items).

    Insurtech landscape

    The best IPO of 2020 turned out to be an insurtech company, Lemonade, a digital provider of home and pet insurance — surging over 350% after going public in June.

    Other insurtechs are following Lemonade’s success in going public…

    • Oscar, a health insurance provider, filed for its IPO in Dec. to go public in 2021.
    • Other notable IPOs: SelectQuote ($SLQT) in May 2020, GoHealth in July.

    SPACs are also getting in on the action…

    • Health insurance provider, Clover, is going public via SPAC led by Chamath Palihapitiya — who took Virgin Galactic ($SPCE) and Opendoor ($OPEN) public.
    • Auto insurance provider, Metromile, is going public via SPAC led by Cohen & Co., who’s already raised 3 SPACs to take insurance-related companies public.

    For investors… Insurtechs age well

    It’s not only millennials that are driving the use of insurtechs — Insurtechs selling Medicare Advantage plans to seniors have also benefited.

    Medicare Advantage plans are private insurance coverage for seniors funded by the US government. Over the next 40 years, the number of Americans over the age of 65 is expected to double — increasing the adoption of insurtechs that make buying and comparing Medicare plans easier.

    These plans are sold through health insurance companies like SelectQuote ($SLQT), GoHealth ($GOCO), Cover and Oscar.

    Today’s big idea: SelectQuote, an online marketplace for insurance plans and distributor of Medicare Advantage plans.

    Here’s what we like about SelectQuote:

    • Hypergrowth… In its past two quarters, SelectQuote has grown its sales by over 90% while remaining profitable.
    • Strong trend… Aging population and a move towards purchasing insurance digitally could continue to benefit SelectQuote.
    • Reasonable valuation… At a price-to-sales multiple of 6.2x, SelectQuote is trading cheaper compared to other similar insurtechs (i.e. GoHealth at 7.1x).

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