Hippo on track to go public via a merger with SPAC
The Californian insurtech company, Hippo, looks set to go public after a merger acquisition with a special purpose acquisition company (SPAC).
Speculation on the company going public has been evident since July 2020, when leading executives hinted at the move and Hippo raised funds from investors including Dragoneer, Ribbit Capital, Felicis Ventures and Iconiq Capital.
Assaf Wand, Hippo's CEO, reportedly said in July that the company would be ready to go public in 2021. But the insurtech hasn't yet decided whether it will opt for that route.
Reinvent Technology Partners, which operates as a blank check company, aims to acquire businesses and assets via a merger, capital stock exchange, asset acquisition, stock purchase, and reorganisation.
The entity has already acquired Zynga, the provider of social game services, and the merger with Hippo, which was recently valued at $1.5bn, is speculated to set the combined value of the venture at US$5bn.
However, sources report that at this present time, talks are being held privately and the deal may change or fail to go ahead.
Hippo has become one of the most popular, up and coming startups of the decade. The innovative platform can provide quotes for home insurance cover in 60 seconds and is considered a leading insurtech in the insurance market.
The success of the venture has been down to its simple interface, fast service and cost-effective cover. Following a $70m funding round in November 2018, and in March 2019, Hippo insurance is now available to more than 50% of the homeowners in the US.
The insurtech logged a 25% month-on-month sales growth and total insured property value of more than $50bn in 2020.
Hippo also announced in last year that it had received a $350m injection from Mitsui Sumitomo Insurance Co., an affiliate of MS&AD Insurance Group Holdings Inc.
Reinvent Technology Partners raised $690m in autumn 2020 in an initial public offering. The company’s shares rose by 11% this year in anticipation of the move, boosting its market value to $1.1bn.
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.