Several carriers owned by insurtech companies significantly grew premiums written in 2022, but claims became a big challenge for two companies in particular — Bright Health and Friday Health Plans — according to a May 30 report from S&P Global.
Five details:
1. The majority of the companies analyzed by S&P boosted premiums in 2022, but less than 25 percent reported a higher growth rate relative to 2021. S&P said this is not necessarily a bad thing.
"We expect the rate of top-line growth to decline in 2023, as the goal of many startups has shifted from supercharged growth to profitability," S&P stated in the report.
2. Claims and policy reserves heavily eroded the surplus of Bright Health and Friday Health plans. Since the publishing of the report, Friday shuttered its business nationwide after several states moved to pause new enrollments or regulate the company's finances.
3. Bright Health's surplus fell 96.3 percent in 2022 to $14.4 million. The situation has worsened since, with a deficit of $23.8 million as of March 31, in large part due to its Florida-domiciled subsidiary, which had a $145 million deficit at the end of the first quarter.
The company is working on a turnaround plan. It is actively winding down its ACA marketplace insurance business and is looking to sell its California Medicare Advantage business. It also sold its telemedicine company Zipnosis.
4. Most insurance carrier groups are in good shape. Of those that wrote more than $100 million in premiums in 2022, only three others saw surplus declines of 10 percent or more. Those companies were Next, Buckle and Root.
5. S&P said there have been a "flurry of small insurtech deals" over the past few months. Since the start of March, Inspop USA (owner of Compare.com), Clyde Technologies, Verifly Insurance Services (now doing business as Thimble) and Policygenius announced sales.
The analysts said they do not know the companies' motivation for selling, but "broadly speaking, broadly speaking, we think many startups are weighing whether they can reach profitability before cash runs out; if they cannot, a sale to a well-capitalized acquirer could be the best option."