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What happens when Wall Street falls out of love with your sector?

Either the neoinsurance companies' long-term models will come to fruition thanks to large cash balances providing runway to prove their point, or Wall Street is correct -- they were always overvalued.

It’s been an awful week for public neoinsurance companies. A subsector of the larger insurtech world, neoinsurance providers tackled a number of insurance categories using a blend of modern app design and machine learning in hopes of creating more user-friendly and profitable insurance products.

The idea proved attractive to venture capitalists, who invested in a host of companies working on the problem space. And it went so well that in the last year or so we saw a number of U.S. neoinsurance companies go public.

The Exchange explores startups, markets and money.

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That’s the extent of the good news. Since the IPOs and SPAC combinations that took MetroMile, Hippo, Lemonade and Root public, the group has seen their values either decline sharply below their initial trading prices or far under their recent highs.

We’ve covered some of these declines in recent weeks and wondered if we should be worried about neoinsurance valuations and how they may impact startups. This morning, we’re examining what happened to neoinsurance companies this week, why, and which startups could be impacted.

Grounding our work is an interview that The Exchange held with Root CEO Alex Timm in the wake of his company’s earnings report. It’s a pretty illustrative example of where the sector finds itself today: Flush, busy and somewhat unloved.

Recent declines

Measuring from last Friday’s closing price to yesterday’s, here’s a digest of where the market is for public neoinsurance companies:

  • Hippo: -20%
  • MetroMile: -30%
  • Root: -23%
  • Lemonade: -6%

Declines from recent highs are more extreme for several of the now-public neoinsurance companies, something that we discussed last Friday. The point we made then has only become more acute. We could add names to this list, like Oscar Health, but health insurance feels sufficiently distinct from the above companies that I don’t want to muddy the waters.

What’s new in all of this is that the value of some of these companies is getting close to their cash balance. Or more simply, they are trending toward basement-level enterprise values. Here’s the data:

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