Catastrophe insurance, credit card rewards: Wealth

On today's Wealth, Host Brad Smith guides viewers through the essential details of the 2025 health insurance open enrollment period, comparing key plan options.

The show then welcomes Cardless co-founder and president Michael Spelfogel, who shares expert insights on maximizing credit card rewards and benefits.

Lemonade (LMND) CEO Daniel Schreiber discusses how the insurance industry is adapting to increased natural disasters following the aftermath of Hurricanes Helene and Milton.

To watch more expert insights and analysis on the latest market action, check out more Wealth here.

This post was written by Angel Smith

Video Transcript

Welcome to wealth everyone.

I'm Brad Smith and this is Yahoo Finance's guide to building your financial footprint.

Our community of experts will give you the resources, the tools, the tips and the tricks.

Yeah, you guessed it that you need to grow your money on today's show.

It's the last trading day of the month.

Where is October gone?

We're going to dig into how to position your portfolio for year end and 2025 plus open enrollment begins tomorrow.

We're going to break down all of the different types of employer sponsors health insurance plans that you can pick from and how to get the most out of your credit card points.

We'll talk to an expert about using and not losing your money all that much more during today's show.

But first, let's take a look at some of the market action 90 minutes into the trading day here, folks, we're gonna look at the picture here.

It's a down market right now for the dow the S and P 500 the NASDAQ pulling back by about 2.3% today, the last trading day of the month.

So as we head into the final stretch of 2024.

How can you best position your portfolio?

Joining me now, we've got James Reagan who is the D A Davidson, Director of Wealth Management Research here, James.

Great to have you here with us today.

I mean, we, we know that the major averages have seen some solid gains and for the averages that have also seen, uh, what 4647 new all time highs over the course of this year, a little bit of a pull back today.

What would you be telling some of your clients and reminding investors out there?

Yeah.

Uh and first of all, great to be with you again, Brad.

Uh You know, it's been, it's been a good year for investors, as you mentioned.

And so we've been, we've been talking about expecting some volatility out there.

But I think if you go back to late June, uh we've seen a rotation into uh you know, broader sectors, what hasn't been led just by the tech and the growth names and maybe over the la in October that the tech names were starting to outperform a bit, but we're, we're telling investors to, you know, stay diversified.

Stocks are not cheap in here.

We're trading at pretty elevated valuations, but we do see better relative valuations across the spectrum.

And so in an environment where the economy is still growing a little bit better than expected, we're getting decent earnings growth in the third quarter, we think that returns overall, the upside should be limited and we, we find better relative value in many of the sectors that are below kind of the height, the technology and growth centric names.

And, and so let's stay there for a hot second and the technology and the growth center names.

I mean, they've caught so much of the fanfare and the attention not even just over this past year, but you know, dating back even into the initiation of the A I thesis, if you will.

So with that in mind, how, how much more legs to that trade do you believe there may be?

Well, I mean, it's, it's gonna be company specific.

I mean, they're putting up good numbers.

I mean, even today with the market decline coming off of last night, when I think most of the those big companies that reported actually exceeded expectations, perhaps the guidance was a little bit less than expected, but I suspect the bigger issue is just that, you know, investors are looking at the, the massive investment that's being made in A I and, and then hoping to see, you know, return investment down the road.

So there's just with, with the valuations as high as they are, they're priced more for perfection.

We still like exposure to those names, but we, we don't want to get too overvalued.

So we would use strength, which we're not seeing today, we'd use strength to maybe trim positions a little bit and then reallocate and you just see better relative value in uh in some of the other stock out there.

When you think about positioning going into 2025 where are some of the areas that investors would be missing out not to have some exposure in their portfolio?

Uh E especially looking across all the opportunities in the market right now where they would be apt to perhaps lean in or add some uh bit of positioning into their portfolio ahead of 2025.

Yeah, it's, it's really interesting uh because because the the economic data has been better than expected, it seems like the, you know, the recession is not coming.

Uh And uh you know, we're seeing a good trends leading into the end of the year.

So that would tend to support having a little more cyclical exposure.

So that could be, you know, financials and uh and industrials, maybe some in the material sector.

Uh But it's, it's very interesting because we see some good values in some of the like in the health care now where there's uh you know, tends to be a little more defensive.

So what we're focusing on, we can find companies that have strong earnings growth potential, they're still putting up good earnings relative to their, to the rest of their group.

And we're seeing it across, you know, across the various sectors.

So we want to be just very diversified into high quality companies that have good earnings, visibility, James, we'd be remiss not to mention, of course, the major events taking place next week and really, that's already begun, which is early voting and then of course, election day next week and ultimately how the markets are seeing some volatility here today, but of course, post event, what the anticipation is.

What, what are you expecting?

Yeah, I mean, I mean, we haven't really seen a lot of volatility uh like you said, up until today leading into the election, I don't know if that's what's causing the volatility that we're seeing this morning.

But um you know, that, uh you know, we've been, we've put out a couple of notes on this, I think over time.

Uh you know, we believe that the election results don't really affect the long term trajectory of say the S and P 500 the market overall.

So we're just, you know, I think it just argues with our earlier point to stay diversified, but that doesn't mean we can't see some diversified, some volatility here leading an election, especially if some of the results are contested.

It's interesting though, uh you know, one of the uh the comments of we get all the time and I think we've even talked about this in the past that, that, you know, the stock market, investors like to see divided government.

We don't really like to see a uh one party control.

And if you look history.

Going back to 1945 we've actually seen, you know, that the data doesn't prove that out.

The S and P 500 has done well, even in the years when we've had either full democratic control or full Republican control.

And even in the last two administrations, when President Trump came in after the 2016 election, you know that they, they had a red sweep at that time Republican sweep market did very well in 2017.

And then when President Biden won in 2020 they, they flipped it back to a, to a democratic control and in 2021 well, that was the strongest year so far of Biden's administration.

So even in the recent past, there hasn't been a lot of change in the market, even when one party is taking control.

So we would just step back even if there's some near term volatility stick to the long term plan.

We don't think it's really, it really should disrupt what investors are doing and certainly investors had been attempted to be spooked by the outcome of the previous election.

And here we are multiple all time highs later and the markets.

What do they do over time?

Well, history suggests they at least have tended to go higher here just lastly, you know, as we're thinking about how someone can set up a portfolio for either outcome of the election, where is the perhaps the best down the middle of the road approach that a person or an investor can take.

Yeah.

Well, I mean, I think, you know, this is very uh very rough but I think uh right now, you know, uh uh Kamala Harris wins, kind of uh I think a lot of people associate that with maybe uh you know, better for the tech industry and some of those growth sectors, whereas a Trump win maybe is, you know, the uh higher nominal GDP but maybe with a higher deficit.

So that would, that would uh uh you know, that that would go for the more the value based sectors or the cyclical sectors.

So I think you do wanna have uh you know, some exposure on both areas down the middle.

I think you want to pay attention to what the weightings are in the S and P 500 technology is, is the by far the largest weighting of about 32% of the index now.

So you want to have exposure there but you want to spread it around and, and as I said earlier into some financial, some industrial materials and, and even some energy stocks, James Reagan, who is the D A Davidson Director of Wealth Management Research.

Good to speak with you once again here.

Yeah.

Thank you, Brad.

Thanks.

Coming up.

It's almost that time of year open enrollment, more on what you need to know.

Next step to the break.

Health insurance.

Open enrollment begins November 1st and runs through December 15th.

Here's a breakdown of the most common options you'll see for your medical coverage in 2025 HMO or Health Maintenance Organization plans limit your coverage to in network providers in a specific area or even a single medical practice.

You must have a dedicated primary care doctor who has to refer you to specialists.

Now, PPO or Preferred Provider Organization plans will allow you to see a network of providers and do not require referrals for specialists.

You may have a specific deductible for out of network care though.

And high deductible health plans have lower monthly premiums, but you must pay more out of pocket towards your care before the health insurance company covers your costs.

And high deductible plans are often paired with a health savings account.

So H SAS, they don't provide direct medical coverage, but they do allow you to set aside money every month tax free that can be used to pay for eligible medical expenses.

Some employers will also contribute to your HS A.

If you don't have insurance through an employer, Medicare or Medicaid, then you can go to healthcare.gov to check your eligibility to purchase a plan on the exchange.

And if you don't choose a plan by December 15th, you can still sign up through January 15th, but your coverage won't begin until February 1st.

The combined insured losses from hurricanes, Helene and Milton are estimated to range from 35 billion to $55 billion according to Moody's R MS and nearly 33 million residential properties are at moderate or greater risk of hurricane wind damage.

According to corelogic, often a standard home insurance policy doesn't cover all hurricane damage aspects to break on how to keep your home safe.

A mid hurricane season we have Daniel Schrier who is the lemonade, Ceo Daniel.

It's always a pleasure to have you on here.

Look, II, I wish we could begin with something more bright, more airy, but this is critical.

This is where your business also comes into play for so many policies as well.

What are you seeing early now in terms of some of the claims that are coming through post hurricanes that have moved through?

Well, as you say, Brad, both Helene and subsequent um natural catastrophes have been absolutely devastating.

I think Helene sent set some really awful records in terms of just the human cost, the loss of life.

You spoke about the dollars which were also uh spectacular, but the the loss of life was really the devastating part of Helene.

Um Fortunately, from a lemonade perspective, we were rather lightly hit.

We responded to our customers claims very, very quickly.

We were able to settle those um as we do by and large um automatically and and instantaneously.

But we just reported a few hours ago on our financials and we reported a 73% loss ratio which I think is indicative of uh or suggestive of the fact that we have really mastered loss ratio, that our exposure to natural catastrophes has come down dramatically over the course of the last few years.

You know, just a year ago, we had an 83% loss ratio the year before that 94 seeing us drop more than 20% over the course of two years is pretty much unparalleled in the industry.

And in no small measure due to us proactively limiting our exposure to the kind of natural catastrophes we were just asking about.

And so that kind of gets to my next question.

I mean, is that loss ratio that you're looking at uh a by product of determining who and who doesn't get coverage because of either set of parameters like where they live or what they're trying to ensure.

And, and ultimately, how have you been able to leverage technology?

Because I know that we've talked about A I in the past to really make some of those decisions as well and kind of set a standard service level agreement but also best practices that the firm can replicate.

That's right.

And we've been growing our book dramatically.

So while we've been limiting our exposure to the most naturally natural catastrophe exposed areas, we've been selling a lot of insurance to a lot of consumers around the globe, we just reported a 24% increase in our total premiums year on year we've grown by pretty much 50% over the course of the last two years, 2.3 million customers at the moment.

So very rapid growth in terms of customer account premiums per customer.

Um and at the same time, the loss ratio, which is really the inverse of gross margin if you like.

So our profitability, our gross profit have been increasing very steadily.

So you've seen this steady increase.

In fact, acceleration in top line this time last year, we had 18% growth in 1920 22 and this quarter 24 we think 26 next quarter.

So rapid acceleration on the top line but not paying a price for that in terms of profitable.

Quite the contrary, our gross profit is up 71% year on year three X over the course of the last two years.

So selling more insurance but doing it absolutely based on a is predictions being very smart about what kind of coverage to what kind of consumers when you find that goodness of fit between what the consumer wants and what makes sense for our systems.

We seal the deal with very, very rapid conversion, very good conversion rates, very high levels of customer satisfaction.

But we do skirt around some of the most cat exposed areas where A I doesn't have a marked advantage.

So if we're selling pet insurance and we can use really tens of thousands of parameters and complex models to predict out the life and the health of pets.

Same with car, same with renters.

That's where our advantage is most pronounced.

Predicting the weather is not something where Lemon enjoys a distinct advantage.

You mentioned pet insurance and it, I mean, it, it sucks to hear when your pet is not gonna be insured because of some pre existing condition or whatever has been baked into the decision making models over at lemonade.

What are the most common cases that you see when a pet is either not getting insured or where an owner has to pay a little bit more of a premium to make sure that that pet can get insured.

Yeah, so the the trick with pet insurance is to pet to insure your pet from the get go.

And in fact, we have a very heavily leaning portfolio towards uh pups and kittens and, and really young pets once they have aged and you wait until some kind of condition has manifested.

It's very difficult much like the health insurance that you were just reviewing before this segment.

It's very difficult retroactively to get insured for something where the damage has already incur uh occurred.

So we do recommend getting it early on and we have a proposed A IAIS will review veterinary reports and we'll be able to sift out pre-existing conditions and preclude them from the coverage if needs be for, for obvious reasons.

But we are one of the fastest growing pet insurance um insurers in the nation.

We're growing very, very rapidly.

This is a profitable and with very high level of customer satisfaction book of business and more broadly, if I zoom out from pet and really across, I mentioned all of our different products are renters and home and pet and car.

We've seen our loss ratios come down across the board and that's resulted in very significant cash flow generation by a business really for the first time at these kinds of levels.

So we've seen 1000 500 increase in our net cash flow year on year.

So the combination of a rapidly growing top line with margin expansion, um You multiply those together and you get to some really nice dynamics in terms of gross profit dollars, cash flow generation, et cetera.

Daniel.

Great to speak with you as always, Dan Frier, who is the lemonade ceo?

Thanks so much for taking the time.

Thanks, Brad.

You've been spending all year and have racked up rewards.

So now what we've got the tips on how to put your credit card points to work next, nearly a quarter of reward card holders have not redeemed any rewards over the past year according to a credit cards.com survey, but not all redemptions are created equal to discuss how to get the most.

Bang for your points.

We've got Michael Spell Vogel who is the Cardless co founder and president Michael.

Great to have you here on Yahoo Finance with us.

So when you hear stat like that, how can people kind of reverse the non redemption that they may be doing?

Well.

First of all, thank you for having me today.

I'm excited to be here.

Credit card points are much like cash, they're depreciating assets.

So as you earn them, you want to burn them, you want to spend them as quickly as possible because airlines are like central banks, they can print more points just like a bank can print more cash or or a country can so you want to spend them as quickly as possible.

And so with that in mind, as you kind of evaluate the card landscape right now and really look across the offers that are out there.

Is is there a card that's knocking it out of their pa out of the park or even a card partnership that's knocking it out of the park knowing that it's typically the transaction service provider, teaming up with one of the core, maybe airline companies out there or core retail experiences out there, right?

So you're referring to Visa, Mastercard, amex, those are the largest networks out there today.

Um And if you look at the big banks, right?

Um 1% of us GDP was spent on the Delta Amex card last year, just an immense uh amount of transaction flow.

Um At Cardless, we help brands launch cards too.

Uh Some of our partners are Qatar Airways, Avianca, let to tap Portugal.

So we're bringing international brands into the US and helping consumers get credit card rewards with those airlines too.

How can rewards points be an inflationary hedge for consumers out there that are looking for, for smart spending and, and smart savings as well?

Well, every time you buy something, you have an opportunity to earn some sort of reward their cash back cards, there are cards that earn credit card points, miles, et cetera.

Um And you really want to be very tactical about the cards that you use.

So, uh the best strategy I recommend is a diversified uh one.

So credit cards from big banks, Amex, Chase City, uh maybe some more modern issues.

Fintech, like card list.

You if you have multiple cards at your disposal, you can really optimize it from the consumer's perspective.

You know, there's, there's even more of a digital engagement that companies have with consumers right now where they're saying, hey, just become part of our rewards program and, you know, maybe you don't have to sign up for a card, but we'll make sure that you get points and you're able to track those points because we'll email you and let you know what your total is.

And they're trying to drive even more of an entrenched relationship with that singular consumer versus that consumer going and getting a card and earning rewards elsewhere that they might rack up on a card, but less of that dollar share might go to a specific retailer.

So how can consumers best evaluate when they are getting the best deal either from a specific retailer versus a card transaction provider?

So, from a consumer perspective, it's always best to think about.

Well, what are the underlying motivations?

The brand of the company were earning those rewards cash back those miles from?

Um and the brands want to earn wallet share, right?

They want to win top of wallet, they want to get you to default to this airline to this travel business to this hotel chain.

Um, and as a result, there's a lot of really lucrative opportunities out there right now, both to sign up for new cards, but just be members of the loyalty program where you earn outside of their universe, but bring credit card rewards back into it.

And the best relationships are the ones that uh people really trust the brands and the brands are able to go out of their way to provide benefits like elite status upgrades, lounge passes loyalty points, um in the, in the airline world.

And, and we've seen that develop really, really rapidly in the last 12 to 18 months.

How long should you be sitting on a trove of points or rewards points?

Because a lot of people kind of look at their points and say, all right, I need to build it up to a certain level so I can cash in on something really large or be able to kind of keep a baseline of those rewards points.

Is there a good threshold that you would say?

Well, the that might shock you, but the average cardless customer is redeeming their points within six months of earning them.

So it's a pretty quick turnaround here.

And I really recommend that earn and burn strategy.

Of course, if you don't have any points, you need to accrue a balance.

So it's meaningful.

But the second you can get free trip, the second you can get something that you wouldn't otherwise be able to, I recommend redeeming them right away.

This is a depreciating asset at the end of the day.

Jeez, putting me to shame on some of the cards points I've been saving since 2011 here, Michael Spel Fel Cardless co founder and president.

Thanks so much for the time.

Thanks for having me.

You got it coming up, everyone.

We've got an episode of opening bid.

Yahoo Finance's executive editor, Brian Si sits down with Peter Galbo.

Stick around.