The US insurance technology, or insurtech, market is showing signs of recovery in 2024. Industry consolidation is well underway, and companies that have managed to weather the storm are making progress on their expense reduction plans. Public market investors are also showing renewed interest in growth stocks, leading to a rebound in insurtech stock prices.
According to a report by S&P Global Market Intelligence, insurtech stocks have performed well in 2023, with a market-cap weighted index of these companies up 22.2% compared to a decline of 54.0% in 2022. This recovery has happened sooner than expected, with insurtech stocks bottoming out earlier than anticipated. However, it is important to note that the stocks are still relatively cheap compared to their valuations in 2021.
The resurgence in insurtech stocks can be attributed to a number of factors. Some companies benefited from special situations, such as Oscar Health Inc., which saw a boost in its stock price after appointing former Aetna Inc. chief Mark Bertolini as its CEO. Similarly, Root Inc. experienced a surge in stock price following reports of a takeover bid from Embedded Insurance. GoHealth Inc. also received a takeout offer from its largest shareholders, resulting in an increase in share value.
Short covering, where investors who had previously bet against a stock buy it back to close their positions, also played a role in the stock gains. Five out of the seven stocks that rallied had lower levels of short interest compared to the previous year. Lemonade Inc. was an exception, with a significant increase in short interest during the same period.
Despite these factors, the recovery in the insurtech market suggests that companies now have better prospects and are more appropriately valued. This positive momentum is expected to continue, leading to an increase in IPO activity in 2024. Slide Insurance Holdings Inc. is reportedly evaluating a public offering in the first half of the year, citing its strong growth and ability to work with data as key advantages.
Slide Insurance has been experiencing rapid growth, with its carrier subsidiary, Slide Insurance Co., going from zero direct premiums in 2021 to $481.9 million in 2022. The company specializes in homeowners insurance, with a focus on the Florida market. It has acquired renewal rights from Farmers Insurance Group of Cos. and other companies, which has led to a significant increase in premiums. In 2023, Slide Insurance assumed $122.1 million in written premium from Florida's state-run insurer of last resort.
Another company that might consider an IPO is Kin Insurance Inc., a tech-forward homeowners insurer that targets catastrophe-prone regions, including Florida. While Kin had previously planned to go public via a special purpose acquisition company merger, the company terminated that transaction in early 2022. However, if Slide Insurance goes public and performs well, it could pave the way for Kin to consider an IPO as well.
Overall, the insurtech market in the US is showing promising signs of recovery. Industry consolidation, progress on expense reduction plans, and renewed investor interest in growth stocks have contributed to the rebound in insurtech stock prices. The adoption of artificial intelligence is expected to be a key driver for the industry, transforming the way insurance companies operate and attracting investor enthusiasm.
While a return to the high valuations of 2021 is unlikely, a gradual decline in interest rates could further support the insurtech sector by making venture funding less expensive for startups. With the positive momentum in the market, it is expected that IPO activity will pick up in 2024, providing opportunities for profitable insurtech companies to go public and fuel further growth in the industry.