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Nick Lamps's avatar

This is incredibly well researched and written. Thank you for going through the effort.

As an insurance professional, we have now seen quite a few entrants coming in who are moving the needle, but I think there are some elements of insurance economics from which add to the complexity of the analysis. Ultimately, what are the economics that are going to drive the valuation? Is it insurance economics or SaaS/tech economics? The valuations for companies like Oscar and Lemonade where is the SaaS stratosphere. Much of the correction, is that investors are predicting that as much value as the technology these companies bring to the table, ultimately, they will NOT be able to capture that value in the same way traditional software companies can. This is because there are no winner-take-all dynamics at play. Making it easier for someone to buy and interact with insurance is a value creation exercise...but the COGS in the form of claims are unknown at the time of sale and they are leveraged (meaning with the wrong customer population, you can have losses that are multiples of what is budgeted). Because of this, there is not enough capital in the world to support the tail of the losses. So companies like Oscar will be dependent upon reinsurance indefinitely. Because of this, they can only carry poor loss ratios for so long before the costs of reinsurance escalate. Insurance is a great business at scale when the flywheel is positively spinning...but unlike other industries, the flywheel can spin in a negative direction. Long term success in insurance depends on short term profitability to secure less expensive reinsurance deals AND to grow book value to generate the secondary float income. These companies that are growing rapidly don't have any mechanism to the latter and it is the latter that has made State Farm and Allstate and Berkshire and Aetna and all of the other dinosaurs tech enthusiasts laugh at. But you cannot disrupt billions of liquid assets that support the premium volume they have. What investors see, and I think properly, is that these Insurtechs growth, fueled by their technology, could actually kill the companies. Investors are properly valuing these companies as insurance companies and not tech companies.

I do like what Oscar is doing. They are bringing needed value to the marketplace. Until they find a value capture mechanism, investors don't see a need to keep financing a capital burning enterprise, regardless of how much value they create. My $0.02

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OscarPayMeTooPlease's avatar

So Oscar is paying you?

Edit: so Oscar and Thrive are both paying you?!? This investment advice / marketing is blatantly designed to deceive the investing public.

Not ok guy!!

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