Lemonade has become one of the first insurtechs to announce their IPO, which may strike fear in some insurance executives. But the recent wave of tech IPOs have been causing headaches for an entirely different reason.
According to Reuters, IPO-related settlements have totaled almost $1Bn since 2017. Among the ~60 IPOs this year, there have been 25 lawsuits filed against 19 companies.
Some high profile tech IPOs have disappointed (see Uber and Lyft) and shareholders have accused executives of misleading them on the value of their business in the run up to their offerings. Lyft was slapped with a class-action lawsuit only 3 weeks after their IPO as the share price was trading 20% below the IPO price.
In response, insurers have doubled or tripled premiums on Directors & Officers policies for tech executives entering IPO territory. Given how the tech IPO market is expected to continue heating up in 2019, premiums are likely to keep rising.
Companies going public in the United States face insurance costs that have increased as much as 200% in the last three years to cover their executives against lawsuits alleging they misled investors.