Last week it was revealed that InsurTech scaleup Lemonade is planning to go public, but the question is what it will mean for its industry peers.
The days of old school insurance are numbered. Where the financial, compliance and property sectors have already embraced digitisation, the insurers have mostly seemed sluggish to ditch their old legacy systems for something new and exciting. However, some industry stakeholders believe the coronavirus could kickstart a transformation process that could see the industry tap in to new technologies to meet the demands of their modern customers. Lemonade’s upcoming initial public offering (IPO) is the first test to see if they are right.
The InsurTech unicorn announced last week that it was looking to go public and raise $100m in the process. If everything goes according to plan, Lemonade will be listed on the New York Stock Exchange under LMND.
CEO Daniel Schreiber, and president and COO Shai Wininger launched Lemonade in 2015. Since then the New York-headquartered scaleup has established itself across 26 states in the US and become a viable option for millennials and Gen Z customers, with 70% of its current clientele being under the age of 35.
Nevertheless, while Lemonade’s leadership is projecting bullishness about the IPO, this is not the first time that the InsurTech unicorn has been rumoured to be planning to go public. The venture never officially announced plans for an IPO, but several reports indicated that it was planning do so in August or September last year. These plans were then reportedly put on hold after WeWork’s IPO collapsed after the office rental company’s finances and business model scrutinised more closely. Both WeWork and Lemonade are backed by mega investor SoftBank. Still, it seems like Lemonade’s plans are now back on track with it having filled with the US Securities and Exchange Commission to go public.
The timing is not without note. The Covid-19 crisis has wreaked havoc on the world economy. All sectors have been adversely affected by the pandemic. Insurance is no exception. Many incumbents have found themselves desperately needing to up their game to deal with an onslaught of customers wondering if their policies cover the healthcare calamity. Additionally, the coronavirus has shown that insurers may want to update their risk management processes by adopting new technologies. This could present InsurTech startups with an opportunity to show off their chops.
“The upcoming Lemonade IPO is very welcome news for in the current market, particularly as we have seen very few IPOs in the tech and InsurTech sectors in the past few months,” says Dhruv Chhatralia, principal associate at law firm Gowling WLG, when speaking with FinTech Global. ”The company’s growth story has been extraordinary and it has succeeded in disrupting more conventional financial services using technology, data and artificial intelligence. It very much suits the younger generations who like to manage most aspects of their lives through their smartphones. Their story shows how innovation is absolutely essential for tech companies during difficult economic circumstances.”
Despite some expecting that InsurTech ventures will be the winners of the pandemic, there are signs that investment in the industry has declined over the past few months. “This is unsurprising, given the current climate,” says Tim Hardcastle, CEO and founder of INSTANDA, the InsurTech company. “But the news of Lemonade’s IPO shows that the underlying message for the insurance industry is clear. The financial markets believe there are better ways to deliver insurance products and services.”
Moreover, if the Lemonade complete a successful exit at a high valuation, it could wet investors’ appetite to back similar startups in the future. Of course, the opposite is also true. “A high valuation would send a positive exit signal to those managing general agent and full-stack insurance businesses operating on a gross written premium (GWP) multiple that simply don’t make sense to insurance companies,” Nikolaus Suehr, co-founder and CEO of KASKO, an InsurTech100 company, tells FinTech Global. “On the other hand, a low valuation would favour more the true SaaS and enablers that are currently less favoured by investors due to long sales cycles.”
And even if Lemonade’s IPO is successful, it is no guarantee that other InsurTech companies will follow suit. “Various factors will determine whether we see other IPOs such as this for InsurTech companies in the coming quarter, including impact of profitability as a result of the current economic circumstances, rises in claims, more stringent regulation and capacity in a company’s target market,” concludes Chhatralia. “I look forward to seeing what the future holds for tech and InsurTech.”
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