Regulatory Risks in Insurtech: Lessons from SelectQuote's Legal Turmoil and Investor Due Diligence Strategies

The insurance technology (insurtech) sector, once hailed as a beacon of innovation in financial services, is increasingly under the microscope for regulatory and corporate governance risks. At the center of this scrutiny is SelectQuote, Inc. (SLQT), a digital insurance broker facing a perfect storm of legal challenges that expose systemic vulnerabilities in the industry. For investors, the case of SelectQuote offers a stark reminder of the importance of due diligence and risk mitigation in an evolving regulatory landscape.

The SelectQuote Saga: A Case Study in Governance Failures

SelectQuote's legal troubles began in May 2025 when the U.S. Department of Justice (DOJ) filed a complaint alleging the company received “tens of millions of dollars” in illegal kickbacks from health insurers between 2016 and 2021. The DOJ accused SelectQuote of steering Medicare beneficiaries to insurers' Medicare Advantage (MA) plans that paid the company the most, regardless of the plans' suitability for beneficiaries. This practice, the DOJ claimed, violated the False Claims Act and discriminated against less profitable beneficiaries, including those with disabilities.

The fallout was immediate: SelectQuote's stock plummeted 19% on the day of the announcement and continued to decline as a securities class action lawsuit, Pahlkotter v. SelectQuote, Inc. et al., was filed in August 2025. The lawsuit alleges that SelectQuote misled investors by touting its services as “unbiased” while secretly prioritizing financial incentives from insurers. The case seeks to represent investors who purchased SLQT shares between September 2020 and May 2025, with a lead plaintiff deadline set for October 10, 2025.

Regulatory Scrutiny and Systemic Risks in Insurtech

SelectQuote's case is not an isolated incident. The DOJ's action reflects a broader regulatory focus on insurtech firms that leverage data-driven sales models to prioritize revenue over consumer welfare. The Medicare Advantage market, in particular, has become a battleground for regulators seeking to curb conflicts of interest. Insurtech companies like SelectQuote, which act as intermediaries between insurers and beneficiaries, are uniquely positioned to exploit information asymmetry—yet their business models often lack transparency.

The implications for corporate governance are profound. SelectQuote's alleged practices highlight a critical gap in oversight: while insurtech firms operate in a digital-first environment, their compliance frameworks often lag behind traditional insurers. This creates opportunities for unethical behavior, such as steering customers to high-revenue plans without disclosing conflicts of interest. For investors, the lesson is clear: governance risks in insurtech are not confined to cybersecurity or data privacy but extend to ethical business practices and regulatory alignment.

Investor Due Diligence: Navigating the Risks

For investors, the SelectQuote case underscores the need for rigorous due diligence in insurtech. Key questions to ask include:
1. Revenue Model Transparency: Does the company's business model rely on commissions or incentives that could create conflicts of interest?
2. Regulatory Compliance: Has the firm faced prior enforcement actions or lawsuits? Are its operations aligned with evolving regulations, such as the False Claims Act?
3. Board Oversight: Does the board of directors have a track record of addressing governance risks, or is it dominated by executives with ties to the company's core operations?

In SelectQuote's case, investors who ignored these red flags were blindsided by the DOJ's intervention. The company's public claims of providing “unbiased” advice masked a business model that prioritized financial incentives over customer needs. This disconnect between messaging and practice is a warning sign for any investor in the sector.

Risk Mitigation Strategies for Insurtech Investors

To mitigate risks, investors should adopt a multi-layered approach:
- Diversification: Avoid overexposure to insurtech firms with opaque revenue models. Balance portfolios with traditional insurers that have established compliance frameworks.
- Active Engagement: Monitor regulatory developments, such as the DOJ's focus on Medicare Advantage kickbacks, and adjust holdings accordingly.
- Legal Preparedness: For companies under investigation, consider consulting legal counsel to assess potential liabilities. In SelectQuote's case, investors who filed claims with Hagens Berman or other law firms may be eligible for compensation under the SEC Whistleblower program.

The Road Ahead for SelectQuote and Insurtech

SelectQuote's legal challenges are far from over. With the DOJ's complaint and the class action lawsuit still in early stages, the company faces potential fines, reputational damage, and operational disruptions. For the broader insurtech sector, the case signals a shift in regulatory priorities. As lawmakers and regulators crack down on unethical practices, firms that fail to adapt risk losing both market share and investor confidence.

Investors must remain vigilant. The SelectQuote saga is a cautionary tale: even companies with innovative business models can falter if governance and compliance are neglected. By prioritizing due diligence and risk mitigation, investors can navigate the insurtech sector's complexities while safeguarding their portfolios from regulatory shocks.

In the end, the lesson from SelectQuote is not just about one company's missteps but about the systemic risks that arise when innovation outpaces oversight. For those willing to look beyond the headlines, the insurtech sector still holds promise—but only for those who approach it with a critical eye.