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Insurtech stocks maintain momentum, among top performers so far in 2024

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Insurtech stocks maintain momentum, among top performers so far in 2024

Insurance technology companies have been some of the best-performing US insurance stocks thus far in 2024, according to an S&P Global Market Intelligence analysis.

Through March 5, Root Inc. has had the strongest rally among publicly traded insurance companies in 2023, surging 273.1%, thanks in part to announcing its best-ever quarterly results on Feb. 21.

Another insurance technology (insurtech) company, Hippo Holdings Inc., has posted the second-largest rise, at 58.6%.

Even with the big run-up, Root CEO Alex Timm said in an interview with Market Intelligence that he has learned not to focus much on market fluctuations.

"We've been deeply misunderstood by the market for quite some time and we've tried to stay focused and disciplined on the fundamentals of our business, driving near best-in-class industry loss ratios, disciplined growth and expense management," Timm said. "We want to focus on our customers, and I believe that the market eventually figures it out."

Shifting narrative

Insurtech stocks have experienced something of a turnaround after being beaten down for several years.

"It's clear that both [Root and Hippo] understood, probably two years ago, that they needed to materially change their business models in order to survive," said Kaenan Hertz, managing partner for Insurtech Advisors. "I think Root took much more drastic measures earlier on and are very much seeing the fruits of that now."

Those steps included reducing marketing expenses, laying off employees and revamping business models. Underwriters across the board benefited from a less painful catastrophe season in 2023, Hertz said, while Hippo also enjoyed more revenue diversification.

"I think the narrative is shifting" away from the notion that insurtechs are in big trouble, Hertz said, though it is still too early to know how the story ends.

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Oscar healthy; managed care sector catches cold

Insurtech Oscar Health Inc. also ranked among the best-performing insurance companies, posting growth of 52% so far in 2024 and continuing a trend from 2023.

Oscar Health has seen success by focusing on marketplace growth, the consumerization of health insurance and by selling its technology to other healthcare organizations.

"Like a small pirate ship, Oscar is nimble today," analyst Blake Madden wrote in his Hospitalogy newsletter. "They've exited bad markets, narrowed focus to core competencies, and shed off the fat from the past 'growth at all costs' mindset."

However, more traditional managed care insurers have ranked among the worst-performing stocks of 2024 so far. Higher-than-anticipated medical costs associated with Medicare Advantage programs plagued fourth-quarter 2023 earnings results.

Alignment Healthcare Inc. and Humana Inc. experienced the largest declines, with their stocks falling 36.5% and 26.2%, respectively, from the start of the year.

Alignment's fourth-quarter 2023 key metrics were mixed, according to a research note from Stephens analyst Scott Fidel. While revenues beat consensus estimates, the company's medical loss ratio came in worse than expected, Fidel wrote.

While elevated utilization was noted by managed care insurers earlier in the year, the 2023 fourth quarter exceeded expectations for insurers like Humana and UnitedHealth Group Inc., the latter being also among the biggest losers of 2024 so far, posting a 10.1% decline.

During Humana's fourth-quarter 2023 earnings call, company executives said the increased costs were not related to COVID-19 or respiratory syncytial virus (RSV) season but to a combination of unrelated outpatient and inpatient services.

Humana would treat the fourth-quarter elevated medical utilization as a new baseline. CEO Bruce Broussard said he expected industrywide Medicare Advantage repricing in 2024.