Abacai has an 'opportunity to drive' insurtech consolidation but will not pay over the odds, says co-founder Hay

Insurance Post TV

Private equity-backed digital insurance venture Abacai will not be a “consolidator for consolidation’s sake”, although it is inevitable that there will be activity in the insurtech space, one of its co-founders has told Insurance Post TV.

Backed by Sun Capital Partners, the new insurtech business fronted by former Aviva group CEO Mark Wilson has already added non-standard motor specialist Complete Cover Group and temporary cover broker Day Insure to its stable since its February launch announcement.

Initially targeting motor, the business has also committed an initial £50m investment in a new artificial intelligence based platform.

Speaking to Insurance Post TV, Jamie Hay, the managing director, finance, strategy and mergers and acquisitions, Abacai Technologies, said: “Our M&A approach will follow our strategic approach and not the other way around; which is to say if we see businesses like Day Insure that we think is additive strategically to what we are trying to do, […] deliver a better experience for the customer. Then we will definitely prosecute [deals].

“There will be opportunities that come up in a range of different scenarios. So we have the opportunity to invest into insurtechs in either a minority or majority position and you’ll continue to see us doing that.

“[So] we have an opportunity to drive consolidation in the insurtech space.  And I don’t think that is required now. But per capita there are more insurtech start-ups in the UK than in any other market, including the US. And not all of those guys are going to survive and so there will need to be insurtech consolidation at some point and we may participate in that.”

However, Hay noted that it might widen its M&A appetite to include more traditional players, especially in light of the Financial Conduct Authority’s general insurance pricing practices market study.

“[Based] on what is going to happen with the FCA study, you will also find some consolidation activity in the incumbent space,” he continued. “More so in home than motor, but probably in motor as well, and again we will look at that strategically where it is additive to what we are trying to do and help us grow scale. But we are not going to be a consolidator for consolidation’s sake. We are going to focus on delivering the value to the customer and if we do that we will prosecute more M&A.”

Hay also warned it will take a dim view if selling businesses hike up prices.

“If people put a premium [for] us participating in a process because of who we are, or our backers, then we will assess that objectively relative to the return we will make on organically driven investment and not play.”

Backers

Reflecting on how Abacai came to work with Sun Capital Partners, Hay commented that “things happened fairly quickly” from November 2020 onwards.

“We only had we only had conversations with a small number of people, a handful. And we were very fortunate that there was quite a bit of interest in what we were doing,” he continued. “And what stood out to us about Sun Cap, [co-chairman] Edward Spencer Churchill and the lead partners managing our relationship was the ability to speak with a common strategic language straight away. So Mark Wilson, the CEO, describes it as him and Ed finishing each other sentences almost from the first meeting they had.

“And we like the long term orientation of the Sun Cap fund. We have quite broad ambitions and we like the flexibility that comes with [their] longer term horizon for us to [achieve] something really big.”

Indeed, Hay noted that Abacai is under “no pressure” to seek an IPO in two or three years, adding: “Ed, the lead partner has extremely grand ambitions for the business, he describes us as trying to become the Netflix or Amazon of insurance, and we are not going to be able to do that in the short term.”

Premiums

Asked whether he had any concerns about the timing of Abacai’s launch into the motor market, given that the Association of British Insurers recently reported that the average price paid for private comprehensive motor insurance was £465 in 2020, a four-year low, Hay said: “Premiums are moving in a difficult direction right now. But it is important to say we are not intending to launch the Abacai go-to market brand until the end of the year and who knows how premiums will react as people come out of lockdown and driving behaviour begins to recover to where it was pre-lockdown.  

“If we look over a longer horizon we are pretty fortunate in that we are starting a business with no back book to defend, with an objective to deliver more accurately priced, better insurance to the customer. And those are the areas that the FCA is focused on in their general insurance pricing practices review. And so there might be some market volatility that plays to our disadvantage right now, but if we look at over a two year horizon that probably plays to our advantage.”

Abacai has already revealed that it has teamed up with Munich Re as a long-term strategic partner for data analytics for underwriting/pricing and reinsurance; and CVC Credit, the dedicated credit arm of international private equity and advisory firm CVC Capital Partners, to provide a combination of equity and debt financing for the acquisition [of Day Insure] and the group’s future development.

And Hay noted it will continue to build these as it gears up for launch: “There will be others in fraud detection, claims management and [at the] front end with the comparison sites that will come out in due course. And we are really going to rely on our strategic partners to deliver ultimately a better experience to the customer and that is what we are all about,” he concluded.

To see the full interview, tune into the first episode of Insurance Post TV online tomorrow, including Hay’s views on the benefits of owning the legacy business Complete Cover Group, including Mulsanne; how it aims to differentiate itself from incumbents and other insurtechs; and plans for international/product diversification.

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