SPACInsider contributor Matt Cianci this week compiled his three favorite potential SPAC targets in the insurance technology space. We look at why they are compelling and why each could be a fit for a blank-check merger.
SPACs love disruption in part because they are a disruption in these wild times of ours. We’re now watching the initial waves of EV and lidar deals completing their transactions, and their SPAC partners are now out with new deals in the market, hunting potentially for different game.
As much as it seems clear the world of the internal-combustion vehicle is bound to change, the insurance market in the United States seems to be similarly calling out for disruption. For one, Americans largely mistrust the insurance industry, and for another, it’s larger than the market for cars in the first place.
In 2019, $1.32 trillion in insurance premiums were paid, spit almost evenly among property and casualty (P&C), which includes auto, homeowner and commercial insurance and life/annuity, which includes annuities, accident and health insurance. By contrast, the value of all automotive vehicles and parts sold that year in the US amounted to slightly less at $1.25 trillion.
Regardless of sector, most insurance processes are paperwork-intensive. HyperScience takes over the normally manual processing of applications and can automate up to 95% of all menial work.
For insurance, this means automatically ingesting and classifying medical exam questionnaires, regulatory disclosures as well as processing claims and opening retirement accounts. It uses machine-learning tools to digitize the information from low-quality images and ropes in human workers only when necessary.
Many of the big names in insurtech are players who have internally developed digital systems to accomplish some of these efficiencies like Lemonade (NYSE:LMND). Lemonade is ultimately the role model that insurtech companies strive to emulate as it continues to trade at 62.6x its relatively modest $94 million in revenue posted over the past 12 months.
While HyperScience does not handle the insurance policies themselves, it could be the engine for multiple legacy players to shape up and chase the Lemonade model. Its applications are not limited to insurance as well and could potentially serve clients in financial services and government.
This opens it up not only to broader avenues of growth, but a wider array of potentially interested SPACs as well.
Four SPACs are currently explicitly searching for insurtech or insurance targets with one more filed. But, of course, insurance touches upon a number of other sectors, particularly healthcare, real estate and even consumer technology to an extent. Fintech and financial services is the stated area of focus for 33 of the 401 SPACs currently hunting and many of these may stray outside of direct payments space into HyperScience’s domain due to the competition.
HyperScience has so far shown little trouble in attracting investment, having raised $188.9 million through seven rounds, most recently a $80 million Series D in October after a $60 million Series C raise four months earlier.
This evidently followed a tripling of the company’s revenue in 2020, when it saw a 10x increase in platform usage as companies shuttered physical offices and looked for ways of automating paperwork.
While HyperScience works to digitize paperwork behind the curtains, Human API works to do the same for the end patient.
For the consumer, the company aims to provide a one-stop shop from connecting to doctors and medical records down to tracking fitness goals with wearables and finding pharmacies and immunization sites. This has taken on new demand as consumers seek out information for COVID-19 vaccine availability near them.
But, ultimately as with many mobile apps, the consumers and their data are still the product and one that Human API sells to the insurance and healthcare industries. Similar to Sharecare, which announced a $3.9 billion combination with Falcon Capital (NASDAQ:FCAC) last month, Human API takes over the customer communication duties for healthcare providers.
It also provides data inputs that streamline the underwriting and distribution process for insurers looking to get set up with their new customers faster. Human API can also help employers verify that their employees have been vaccinated as workplaces reopen.
Human API’s network is now connected to 85% of hospitals, patient portals, pharmacies, and labs in the US, putting it at the data front door of 264 million Americans. That platform provides opportunities for many other developers and partners to overlay on. Sharecare has used Human API as a part of its network as well as fellow SPAC target 23andMe, which has a pending $3.5 billion merger with VG (NYSE:VGAC).
In its $20 million October Series C, Human API brought in additional strategic investors in the form of insurers Allianz (DE:ALV) and CNO Financial Group (NYSE:CNO). This added to Guardian Life, which invested in its 2019 Series C.
Newfront aims to take a swig of the Lemonade energy with digitized insurance offerings towards business insurance both on operations and employee benefits.
It operates as a technology-enabled brokerage house that eliminates a lot of pen and paper processes. For one, most policy providers have wide variety in their onboarding forms while asking mostly the same questions. Newfront’s software works as a sort of universal adapter for customers, while also giving them analytics on which providers for their business sectors have offered the most competitive rates over time.
Founded in 2017, Newfront charges a commission ranging from 5% to 20% on every policy sold through its brokerage. At the time of its $100 million Series C in October, it had about 5,000 clients and had posted growth 3.5x growth over the past year.
It received a $500 million valuation in this raise, but if the company has maintained the same pace of growth in the six months following, it may have once again doubled its sales already.
But, if a SPAC were to secure a valuation near this Series C number, this would not necessarily make it too small for the teams that are out hunting. The four SPACs explicitly looking at the sector all raised between $200 million and $300 million at IPO. Newfront could be a particularly intriguing fit for INSU III (NASDAQ:IIII), whose team completed its deal with innovative car insurer Metromile (NASDAQ:MILE) last month.
Metromile closed Thursday at $12.51, which counts as particularly warm trading for SPACs and their recent deals in this current market.