Investment Notes #8 – Open

We are excited to announce Movac Fund 5’s eighth investment – Open Insurance. Movac is leading the company’s A$30m Series B round, alongside Five V (Australia), Latitude (UK), and existing investors Airtree and Hollard. This is a growth-stage investment for the Fund. Movac is investing in Open’s New Zealand expansion, with the company’s NZ-based workforce growing from 10% to 40% of the total over the next 12 months as it launches here.

Open is a software company that offers an embedded insurance platform to resellers of general insurance i.e., home, car, travel. The platform enables customers like Telstra and Ahm to sell and manage insurance products in a modern, low overhead, digital way. Open also has a direct-to-consumer product through its own online brand, Huddle. The company was founded by UK ex-pats Jason Wilby and Jonathan Buck in 2016 and is headquartered in Australia, with a growing number of staff, including CEO Jason Wilby, based in New Zealand. Jason and Jonathan are top-tier entrepreneurs who understand the insurance sector inside out, have gone through a few twists and turns to get the company to this point and are a key part of our investment thesis.

The benefit of embedded

The insurance market is being disrupted globally by a wave of insurtech innovation pioneering the sale and management of insurance digitally. Global examples include unicorns Lemonade, Hippo and Root. Australia and New Zealand have been laggards with innovation in insurance, with the sector less developed and more concentrated than overseas, but this means the potential for disruption is larger.

Open have made a purposeful choice in designing their platform product. There are regulatory roadblocks and market dynamics that make the sector unhospitable to new insurance entrants; starting and scaling an insurance business is hard. For starters you can’t easily or efficiently scale an insurance business like a SaaS start-up by adding customers with brute force through sales and marketing spend. In insurance, the customers most likely to change tend to be the highest risk and therefore the faster you seek to grow, the worse the insurance book you end up with. At the same time being an insurer has capital and regulatory burdens that can create overheads and stifle growth.

An embedded insurance product like Open sidesteps these challenges. Open offers insurance underwritten by a 3rd party insurer, and importantly, by selling its platform to partners like Telstra who have large existing distribution, they sidestep the challenges around scalability and attach right at the point of sale – the best place to acquire insurance customers.
This makes Open highly capital efficient when compared to peers like Lemonade, with a much lower cost to acquire $1 of written insurance premium. It also means higher quality customers, with loss ratios also significantly below peers.

What’s next?

To date the company has been selling exclusively in Australia to partners and through its direct-to-consumer brand Huddle. The New Zealand market entry will start late 2021 with an underwriting agreement already signed (Tower) and local recruitment underway.

Insurance is one of the few markets in Australasia where billion-dollar businesses can be built without needing to have success further afield. That said, Open is looking to expand internationally from 2022 and is starting discussions with underwriters and partners in a few potential target geographies.

Open gets revenue from the insurance premium written through its platform and direct Huddle brand. Its written premium and recognised revenue increased 400% over FY21 and is in line to grow another 300% over FY22.

The journey

We think Open fills an important slot in our portfolio, adding exposure to the fast-growing insurtech sector with a world-class product and team. It’s also a venture where there is lots of potential for further investment and a genuine chance of knocking it out of the park, a key part of our Fund 5 investment thesis.

Thanks to Jason and Jonathan at Open for running a great process, existing investors Airtree and Hollard for the support and new investors Five V and Latitude for joining us for what is going to be an exciting journey.

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