Insurtech companies have certainly fallen out of favor in the last year. This tweet Sent ahead of the recent tech fallout, my friend Rick Zullo sums up market sentiment in the industry well:
You can now buy $ROOT, $HIPO, $MILE, $CLOV, $OSCR and $LMND for a total price of just over $5 billion. These companies collectively raised >$10B. —Rick Zullo, February 23, 2022
How is it that a $5 trillion industry growing more than 6% can’t seem to attract investment capital? Have investors chosen the wrong business models or are there areas within insurtech that have been ignored?
Attempts to replace legacy insurance systems have had mixed results at best. Perhaps trying to optimize these legacy systems rather than decommissioning them is a more viable approach. Perhaps a cover system implemented nearly 60 years ago provides the ideal framework to build on today.
Medicare is an impressive market, both in terms of people and dollars. In the United States, about 11,000 people turn 65 every day, and Medicare spending is projected to reach $1.5 trillion by 2030. Private Medicare enrollments doubled from 2010 to 2020 and are expected to continue to grow over the next 10 years.
Instead of competing directly with independent agents, there is a much greater chance of forging win-win alliances between startups and agents.
We’re not the first to realize the size of this market, so it must be an exciting area to invest in, right? Not quite.
GoHealth, a Medicare plan marketplace, had a blockbuster IPO in 2020, raising $914 million in a massively oversubscribed offering. Today, its market cap is just over $160 million against annual sales of over $800 million, and its CFO abruptly resigned earlier this year.
An established player in the industry since the late ’90s, eHealth has struggled quite a bit too — the stock is down over 90% from its peak.
Why are we even discussing Medicare as an investment opportunity? We have reduced our perspective/thesis to six key factors:
High complexity creates opportunity for takeover
Purchasing Medicare is a complex decision with a multitude of inputs and downstream implications. The average senior has 57 different plan options to choose from, and most can’t tell them apart.