Health insurtechs post huge losses after going public with multibillion-dollar valuations

Finding and enrolling in the right health insurance plan can be a burdensome task for many people, and navigating claims can be downright daunting.

Enter insurtechs: tech-driven startups that promise to disrupt the industry and make navigating health insurance more accessible.

The first insurtechs popped up in 2010, and in 2017, consulting firm McKinsey projected the startups would see success similar to what the fintechs that had disrupted the banking industry saw. At the time, McKinsey partners projected insurtechs would extend innovation and create “a competitive threat to incumbents but also potentially valuable opportunities for partnering on the changing terrain.”

But while insurtech’s popularity peaked in 2021—when at least three insurtechs IPOed with multibillion-dollar valuations and venture capitalists had invested $11 billion (double the amount invested in 2020, according to McKinsey)—several of the top companies have since reported huge net losses. Since then, insurtechs across all industries have seen stocks fall significantly, according to the Wall Street Journal.

What happened

Three insurtechs—Clover Health, Oscar Health, and Bright Health Group—all went public in 2021 with large valuations.

Clover Health went public in January 2021 with a $7 billion valuation, Oscar Health went public in March 2021 with a $7 billion valuation, and Bright Health Group went public in June 2021 with an $11 billion valuation.

All three insurtechs subsequently reported large net losses.

In 2022, Clover Health reported a $339 million net loss, Oscar Health reported a $610 million net loss, and Bright Health Group reported a $1.4 billion net loss.

What went wrong

Melinda Durr, a principal in consultancy EY’s health sciences and wellness practice, told Healthcare Brew that insurtechs in general “didn’t understand the dynamics of the health insurance ecosystem.”

“I think they didn’t understand that they were in a risk management industry,” Durr said. “The business that they were in, they weren’t actually prepared to be successful in.”

Atul Pathiyal, director and president of the payer advisory services practice at healthcare consulting firm Chartis, said that insurtechs on the market today haven’t differentiated enough from incumbent health insurers to make a big splash in the market.

“A company that strives to be a disrupter needs to look really hard in the mirror and make sure it’s doing something different,” Pathiyal said. “In the case of several of these health plans, I think you could argue that they were working with the same revenue and cost levers that the established incumbents have been working with for years.”

Insurtechs “grew incredibly fast and had a ton of money invested in them […] the expectation that they started from was just not realistic,” Durr said. “If they had started from a lower baseline with fewer members, and maybe not as much of an aggressive growth path […] we might be having a different story.”

Some insurtechs have a “great member experience,” but “don’t have the teams and the infrastructure set up yet to be able to capitalize on that,” Andy Davis, a principal in Deloitte’s healthcare practice, told Healthcare Brew.

Eventually, insurtechs “had medical costs that were higher than the revenues they were getting,” Pathiyal said. “That’s a very core dilemma for a health plan.”

How the insurtechs are faring now

As of December 5, Clover Health had a $484.2 million market cap, Oscar Health had a $1.9 billion market cap, and Bright Health Group had a $52 million market cap, according to Yahoo Finance.

Andrew Toy, Clover Health’s CEO, told Healthcare Brew that the company has decided to “move away from a growth mindset to a profitability mindset,” and that the company has adjusted its strategy in ways it believes “are working well.”

In its most recent earnings released on November 6, Clover showed “continued improvement in financial performance,” Toy added.

“We mentioned [during our earnings call] that we believed our results so far this year reflect the continued momentum toward sustainable profitability, and also noted that this progress gives us increasing optimism in our ability to deliver profitability on an adjusted EBITDA basis for full year 2024,” he said.

Scott Blackley, Oscar Health’s CFO, told Healthcare Brew the company expects to be profitable in 2024, and that its past performance “was primarily driven by investments to build out the technology and infrastructure required to support a large-scale health plan—investments that we expect will serve us well for years to come.”

Bright Health Group did not return Healthcare Brew’s request for comment.

Looking ahead

Insurtechs, in general, are rethinking strategies and exploring new lines of business, like Medicare Advantage plans and the Affordable Care Act marketplace, Durr said.

Despite a rocky couple of years, Pathiyal said he believes that “there’s room for disruption and innovation.”

“I think there’s plenty of room for the new players to be successful, especially if they can bring something different to market,” he added.

It’s hard to project whether incumbent insurers will scoop up insurtechs in the future, Davis said, but he said there will be an increasing need to match the kind of member experience these companies offer with incumbent players’ experience in the health insurance industry.

“I’m a firm believer that disruption will happen,” Davis said. “The insurtech organizations that have been in place have already created a sense of urgency around that change.”