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Insurer in Full: Reality bites for insurtechs as layoffs mount

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Topics: InsurTech Topical Trends

It appears the divide is growing in the insurtech world between the haves and the have-nots, with an increasing number resorting to slashing their workforces in response to economic and industry trends while a select few are still managing to raise hefty sums at lofty valuations...

The insurtech sector is suffering from widespread job cuts, the decimation of publicly traded stocks and major headwinds hitting some of its participants.

The Insurer has been publishing an increasing amount of headlines reporting layoffs as more and more management teams take the tough decision to address their wage bills. 

Last Thursday this publication revealed CyberCube let go circa 30 percent of its workforce last month. The same day we also reported Next Insurance had made 17 percent of its staff redundant

That followed news earlier last week of Thimble cutting around a third of its staff.

A raft of other insurtechs have also made significant layoffs, including Vouch, Bestow, Ethos, Cover, Loop, TrustLayer and PolicyGenius

The drivers of the job cuts include the worsening macroeconomic environment, sector-specific headwinds and pressure from investors to cut expenses at a time when top- and bottom-line performance at many insurtechs is disappointing.

For example, Next CEO Guy Goldstein in a memo to his employees decried the “incredibly hard decision to part ways with many of our friends and colleagues in an effort to adapt to the worsening macroeconomic environment and to secure the long-term vision of the company”.

Insurtech layoffs

Running out of runway?

One source told this publication last week that the layoffs make sense from a business standpoint.

“This is what essentially every company in the business is doing as opposed to one gigantic layoff,” the source said. “This isn’t some big hatchet, this is trimming.

“Any insurtech company that isn’t doing runway management is probably making a mistake.”

That is all well and good but it seems a good bet that at least a few, and maybe several, insurtechs will run out of runway before they can reach profitability. 

Or run out of road in some cases. The recent spate of layoffs follow auto insurtech Root starting the year by attracting a lot of negative headlines when it laid off 20 percent of its workforce, around 330 people.

Adrian Jones, partner at HSCM Ventures, part of asset manager Hudson Structured Capital Management, in a Linkedin post highlighted the many layoffs at start-ups. But he added it is “miserable for those impacted but maybe good for companies”. 

“Higher interest rates mean a higher cost of capital,” Jones said. “Capital is used to pay salaries, which had risen extremely rapidly for many positions. The imbalance wasn’t sustainable. Fortunately the people affected face a reasonably robust jobs market even if it has cooled since a year ago. And many companies reducing in one area are hiring in other areas.”

The comments in response to the post included Informed Group CEO Ian Gutterman suggesting that the employee counts never made sense for a lot of companies and industry veteran John Goldsmith suggesting “the bloom seems to be coming off the rose in the insurtech space”. 

Although some in the sector will doubtless not make it to maturity, this doesn’t mean the failure of all of those insurtechs reacting to the changing environment.

Indeed, despite his company’s layoffs, Next CEO Goldstein believes the market opportunity and the firm’s goal to become the number one insurer for small businesses in the US remains unchanged as the insurtech said it will top sales of $800mn this year.

But coming on top of the public insurtechs seeing their stock prices plummet in the last year and private funding drying up in the first half of this year, it would seem the wave of hype that has driven the insurtech space for years has truly crashed on the shore, leaving some insurtechs in a sorry state.

A growing divide

Despite the challenging funding conditions, some companies have still had success in raising money.

Last month insurtech Branch, which has emphasised to investors its focus on profitability over growth, announced it had raised $147mn in a Series C funding at a $1.05bn valuation.

Then on Friday cyber specialist Coalition revealed it had defied a challenging funding environment for insurtechs with a successful $250mn Series F funding round that values the business at $5bn, up from its $3.5bn valuation in September 2021.

Speaking exclusively with The Insurer, Coalition CEO Josh Motta said his company is strongly positioned to eventually enter the public markets, adding that with ample capital in hand “everything is on the table” when it comes to the prospect of taking on more risk or pursuing M&A.

And amid the growing divide between the haves and the have-nots of the insurtech world, Motta suggested “the strong will survive and thrive” while “the weak will continue to get weaker”.


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