Always a suspect!

I’m not going to spoil it this soon, but I’ll drop a pretty big hint…there’s only one obvious suspect (and it’s not Sideshow Bob). Keep reading and see if you can solve the mystery before I reveal the answer.

Insurtech valuations (both public and private) have benefited greatly from the tech bull market. While I’m sure all the leaders at the various insuretechs believe it is their hard work and sheer brilliance that have driven valuations so high, the honest truth is they have created businesses during a once in a generation period where valuations go to excess.

That doesn’t diminish the operational success (or those who exploited the boom to raise capital freely). However, that is not today’s topic. The issue is at hand is when will excessive valuations go away and what will be the cause.

In other words (insert dramatic music), what will kill insuretech valuations?

Now, you might ask how can I purport to solve a crime that hasn’t happened yet! But are you sure about that? Lemonade is 30% off its January highs and Root 40%. Metromile is down 25% in just two weeks. Clearly, a criminal is on the prowl!

Is it too late to stop the perpetrator before it strikes again? And can the victims recover or will the wounds prove terminal? Before we can answer those questions, we need to identify the suspects.

Suspect #1: The Vaccine

As the vaccine rollout has gradually picked up momentum, covid cases have been on the decline. Guess what day covid cases peaked in the US?

January 8th. That was a Friday. Guess what happened the next Monday? The high in LMND stock. Coincidence? I think not!

But does that prove guilt? No, not really. Sure, you can suggest that optimism over a return to normalcy would change which groups of stocks are in favor, but, the thing is, the NASDAQ and S&P kept going up throughout January.

Is there really a reason to think positive vaccine news would only impact insuretech? I can’t see why. I mean, you can make an argument that return to work = more miles driven and more miles driven = more claims so sell auto insurance (and thus ROOT and MILE) but that’s kind of a stretch.

So, Pfizer and Moderna, I’m declaring you free to go about your business. You’re no longer a suspect.

Suspect #2: ERCOT

Did the Texas freeze losses cause panic over outsized catastrophe losses? Possibly, but then why are most other insurance stocks flat or even up over the last few weeks? It seems like the market has taken the catastrophe losses in stride.

In related news, evidence points to a certain nuclear plant operator being behind the spike in electricity prices after the power came back on.

Suspect #3: Reddit

Could it be that all the mania around GameStop and Robinhood squashed speculative activity across the market and thus provided the fatal blow to speculative insuretech valuations?

It makes for an interesting theory, but the GME mania happened in late January. Perhaps it added on to the insuretech pressure, but this seems like a report from an unreliable witness. Let’s keep looking.

Suspect #4: The NASDAQ

OK, here’s an interesting piece of evidence. While insuretechs peaked in early January, the pressure really picked up in the middle of February. You know what else happened in the middle of February? That’s right, the NASDAQ began to roll over!

Could the NASDAQ have tried to murder insuretech? I think we have probable cause! Let’s bring the NASDAQ in for questioning!

What’s this? The NASDAQ wants to squeal? Better talk fast before Fat Tony finds out!

The NASDAQ says it’s not it’s fault it rolled over. It had no choice! It was being blackmailed by the Treasury market!

I think that’s enough for an accessory charge. Now, let’s go find the mastermind!

Suspect #5: Interest Rates

That’s right, 10 year Treasury. You’re under arrest for attempted murder. Book ’em, Lou!

It all went down like this…On or around the 10th of February, the 10 Year started to rise. From a low of 1.13%, it climbed 40 basis points in just two weeks spooking investors, especially those in the most speculative names.

It’s partner in crime the NASDAQ was set up to take the fall. And fall, it did, down 7% off the peak. But that was just a scrape. It inflicted more damage than it took. The insuretechs are all down over 20% in the past two weeks.

So there you have it. Higher rates are guilty of trying to kill insuretech valuations!


So what made the 10 Year do it? Fear of inflation? Prospects of higher real growth? Too much stimulus? Yes, yes, and yes.

The aforementioned improving Covid data is certainly increasing expectations of economic growth. On top of that, the government is adding record amounts of stimulus and the Fed is piling on with no plans to stop easy money.

The result of all this? M2 is up 25%, the fastest growth in money supply ever reported. Of course bond yields are going up! You can’t blame them, really. It’s guilty by reason of (economic policy) insanity.


So how did it execute this dastardly plan? Asset valuations have been propped up by low, low rates for over a decade now. These low rates made it easy to borrow cheaply and lever up returns.

Of course, leverage has risk, but that’s only when capital markets are allowed to function independently. When the Fed puts a thumb on the scale by erasing the possibility of loss, then leverage has no risk and many investors will borrow as much as they can.

Side note: This doesn’t just apply to institutions or corporate treasurers. All the option buying on Robinhood is another form of cheap leverage.

When money is free and central banks won’t allow losses, money flows to the most speculative activities. Like startups. Among them insuretech startups. And that’s how we ended up with Insuretech Hares and the like.

If bond investors get their way and take rates higher, at some point, the Fed will not be able to stop them any longer. Investors will start taking losses, lenders will get nervous and call in leverage, and then speculative valuations don’t go down 20 or 30%. They go down 80 or 90%.

And that’s when most insuretechs (and other startups across the economy) likely take their last breath.


So we now know higher rates are attempting to kill insuretech valuations. The victim has been taken to the hospital for observation and is in stable condition. The good doctors at the Fed are sure to do their best to enable a full recovery.

But the criminal is still on the loose and will no doubt try to strike again. These are dangerous times! Take all necessary precautions to protect your balance sheet and be vigilant! Hopefully a hero will come along to save us!

2 thoughts on “An Insuretech Murder Mystery: What Will Kill Today’s High Valuations?”

  1. Ian – Love the playful tone given the conclusions are pretty dour and the message, while tongue in cheek, is dead (= carnage likely) on. Keep up the great writing! Pam

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