European insurtech is showing strength that you can’t spot if you only read the data on venture capital that’s available today. Indeed, some startups are showing strong fundamentals that will likely help them through this volatile landscape and then some. We made this point a couple weeks ago and we still stand by it.
However, it’s not all rosy for companies that put growth first back when it was sexy to reach for the skies and now find themselves in a market that favors a quick, viable and visible path to profitability.
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Case in point: French insurtech Luko, which neared insolvency before agreeing to be acquired by British insurer Admiral Group. The deal itself makes a lot of sense, but the rumored price tag — €11 million plus an additional €3 million tied to specific milestones — is raising eyebrows.
That’s because Luko had previously raised €72 million in total, aiming to build a European leader in insurtech.
Starting with digital home insurance, the company quickly set out to pursue its goal of achieving European insurtech dominance by offering a speedy onboarding process, a better customer experience than incumbents, and other nifty features. It even acquired two startups: Coya, a German company licensed as an insurer, and Unkle, a French company protecting landlords against unpaid rent.
But things didn’t turn out as well as Luko hoped. Unkle’s founder is suing Luko following his dismissal from the company after the deal, and according to reports, Admiral isn’t buying the two startups as part of its own deal. And, due to the structure of the acquisitions, Unkle’s investors might not see a dime from its €22 million takeover.
Neither Luko nor Admiral commented on the specifics or financial aspects of the deal, which is still being finalized. But they were willing to talk to TechCrunch+ about the fit between the two organizations, and to touch on some of the reasons that stopped Luko from fulfilling its journey on its own.
It’s the latter that we’ll explore today, with additional insights from insurtech experts.
It’s a tough world out there
There’s quite a bit of spin to sift through in the LinkedIn post that Luko’s CEO, Raphaël Vullierme, wrote about the company’s sale to Admiral. It’s a “huge achievement,” he writes, but if you look deeper, the post also has various insights about the insurtech market and the struggles that startups have to face.
“Winning in this market requires time and money: it takes eight to ten years and €100-€150M to build a sustainably profitable B2C insurer in the P&C space,” Vullierme wrote. [P&C stands for property and casualty, the type of insurance that protects people and their belongings.]
Meanwhile, Luko’s solo journey was only four years long. While it was apparently enough to claim “more than 450,000 customers,” per Vullierme, it also came at the cost of about €45 million in debt.
Customer acquisition is a particularly tough nut to crack, and Luko took a good shot at it. According to Vullierme, 43% of Luko’s clients were acquired organically, partly thanks to a focus on customer experience that rewarded the startup with a net promoter score of more than 70.
Still, insurance is a difficult category to get new customers on the cheap, even when you don’t have to pay rent for any brick-and-mortar outlets. Startups have it particularly tough when it comes to online advertising, said insurtech VC Florian Graillot, a partner at Astorya.vc. They simply can’t afford the same Facebook or Instagram ad spend as insurance incumbents whose yearly budgets can stretch into the billions.
Going digital is a necessity, but a company needs to do more and add value on the insurance side, Graillot pointed out.
Luko’s innovation, in contrast, mostly involved selling its insurance products online, with a few features added on. Such an approach could be enough once an insurtech startup bundles its insurance offerings with other products or becomes part of a big group that can afford to invest in growing the customer base. But on its own, a young startup can only do so much without the support of willing investors.
It’s no surprise, then, that Luko failed to sell that strategy to investors in 2022 as well as it had in 2020, when it raised its $60 million Series B round.
So after giving up on raising the kind of round it was hoping for in spring 2022, Luko decided to change its strategy. “Since we could wait, we’ve decided to become profitable three years ahead of schedule — i.e., within the next 45 months,” told French newspaper Le Figaro in December 2022.
We’ll never know if Luko stood a chance at becoming profitable in that time frame, but one thing is for certain: It couldn’t actually wait.
Instead, the company filed for a procedure that’s somewhat similar to a Chapter 11 bankruptcy filing, only to come back shortly afterward with the announcement about the Admiral deal.
Insurtech consultant and advisor Bertrand Robert had some thoughts on the deal:
Leaving the price aside, I don’t think it’s necessarily a bad deal from an entrepreneurial point of view. . . . In fact, I think Admiral is a very good fit, because Admiral is British, and the Brits know how to do digital insurance very well. Admiral was one of the pioneers of rate comparison in England, so B2C is something they know a lot about. They have a tech sensibility.
I think it’s a much better continuation than if any traditional French insurer had got their hands on Luko. In addition, Admiral is also present in France via L’Olivier, but which mainly does car insurance. So I think they complement each other.
Talking to TechCrunch+, and L’Olivier’s CEO, Pascal Gonzalvez repeatedly pointed out this complementarity. Admiral, Gonzalvez explained, already has 2 million home insurance customers in the U.K. and had been testing the waters in France, a large market where customers seem particularly keen to have the same insurance provider for their car and housing.
Luko’s acquisition should now accelerate Admiral’s growth in this segment, while fitting into the group’s strategy to launch more products.
In a LinkedIn post, Robert also pointed out some conclusions that one shouldn’t draw from the deal. “In my opinion, Luko illustrates the difficulties encountered by a new entrant in a mature market. This is not the failure of digital insurance, and even less so, the victory of ‘phygital’ or of traditional networks,” he wrote (translation ours).
We agree with Robert, and in our view, neither is Luko’s failure an indictment of the B2C insurtech space, or of focused offerings (i.e., home insurance) as opposed to multiproduct ones. The story here is much more nuanced, and it has a lot more to do with profitability and value-adds than anything else.
For insurtech investors and entrepreneurs right now, Luko’s saga is a signal to pay close attention to CAC and loss ratios — and to M&A opportunities with big companies that can do what a startup can’t.