A former carrier executive, a strategy consultant in the InsurTech space and a banking expert are teaming up to launch the first InsurTech carrier of the Italian market.
Andrea Battista, the former chief executive officer of Eurovita Assicurazioni, Matteo Carbone, founder and director of the IoT Insurance Conservatory, and Giampiero Rosmarini, an Italian manager with experience in the banking space, announced last week that they are moving forward with an initial public offering of Archimede, a Special Purpose Acquisition Company (SPAC) founded by Battista, on the AIM Market of the Italian Stock Exchange. With a target funding level of 30-47 million euros (roughly $36-57 million), and with a nonbinding letter of intent to combine with an Italian specialty insurer already in place, the goal is to turn the insurer—Net Insurance Group—into an InsurTech player in the non-life non-motor bancassurance niche.
Net Insurance Group currently specializes in a sector of insurance coverages for loans that are secured with a percentage of the borrower’s salary paid to the lender. (According to online reports, the loans are commonly referred to as Cessione del Quinto loans, CDQ loans, loosely translated as Cession or Transfer of the Fifth, referring to the 20 percent of a salary that backs the loan.) With Battista at the helm, new management aims to extend the underwriting portfolio in the future.
Battista and Carbone bring insurance expertise from varying backgrounds: Battista, a former consultant with McKinsey (2014-2017) who held executive and manager positions at bancassurance company Eurovita Assicuranzioni and at Aviva Group in Italy and Cattolica Assicurazioni Group; Carbone a former consultant with Bain & Company (2006-2016), recognized today as a insurance industry thought leader and strategist with a specialization on innovation.
“The view is that all the insurance players have to become InsurTechs to compete and stay relevant in the future.”
So how will Archimede’s acquisition—the first Italian InsurTech carrier—stand apart from incumbents to put it on the road to success?
Responding to the question via email, Carbone said that non-life insurance for small and medium-sized banking players is a unique niche that Net Insurance—revamped as an InsurTech—will target. He explained that the big banks in Europe have captive companies or joint ventures with incumbents. “The middle and small banks don’t have this opportunity. In this perspective, that distribution channel is not exposed to the competition of the large incumbent.”
“Small and medium-sized banks are now looking for non-life insurance products to compete with the main banking players that have already built offering in house or in partnership with insurers,” the SPAC promoters said in a press release.
Other important trends: Current and projected future growth rates for carriers operating in non-life bancassurance are in the 20-50 percent range, and combined ratios hover around 70, they said.
The SPAC promoters also outlined three main objectives of the business combination. Besides launching “a new independent carrier for non-life non-motor bancassurance,” they aim to “develop an independent, specialized and innovative offering platform for insurance distributors,” and to start up an “InsurTech inside” strategic model, the press release said.
Explaining the second goal, Carbone told Carrier Management that Net Insurance today only has banks as a distribution channel. While banks will be the core distribution channel of the new entity, “we will bring the innovative SME and micro business products to middle and small brokers (no agents) through a ‘no-underwriting touch’ approach—fully digital,” he said.
In Italy, non-life distribution is still very traditional—dominated by agents tied to incumbents—compared to other European Countries. In an investor presentation, the SPAC promoters noted a five-fold growth potential for broker distribution, and two-times for banks, when Italy’s current levels of distribution in these channels are compared to the top levels that have been achieved in other European countries.
As an InsurTech, direct-to-customer distribution isn’t being contemplated. Instead, “we will enable new fintech players and incidental channels to sell out products through an API [application programming interface] approach,” Carbone said.
“New fintech players and incidental channels are niches [that have] not been focused by incumbents,” said Carbone, who is not only known for founding the IoT Observatory but also for his recent book, “All the Insurance Players Will Be InsurTech.”
Asked about the third goal—What does it mean to start up an “InsurTech Inside” strategic model?—Carbone said, “We will leverage data and technology in [every] step of the value chain: from underwriting to claims to service delivery, [while] also providing to our distributors the tool to become more effective in their sales activities.”
“One of the pillars of the project is the pervasive InsurTech following the view of my book, where I am focusing on the usage of InsurTech in order to improve the core insurance activities (assess, manage and transfer risks),” he said. “The view is that all the insurance players have to become InsurTechs to compete and stay relevant in the future.”
Another innovation here is that Archimede is the “first SPAC dedicated to the Italian insurance sector,” according to the Archimede website. What exactly is a SPAC?
Online investment dictionaries define SPACs using terms like “shell” and “blank check company” and “publicly traded buyout companies,” explaining that SPACs go public with no operations but with the intention of merging with or acquiring a company with proceeds from the SPAC’s IPO. The Archimede website (translated from Italian using Google Translate) provides this more detailed definition: “SPACs are corporate vehicles, specifically set up with the objective of finding, through the placement of the related financial instruments with investors and the consequent admission to trading on the AIM Italia, the necessary and functional financial resources to put in place, after carrying out a research and selection activities, an investment in one or more operating companies (so-called targets). Therefore, until the time of the investment, they contain only cash (shell company).”
The Archimede website definition goes on to distinguish SPAC investors from private equity operators, noting that SPAC investors are not burdened by recurring management costs. It also outlines the rights of investors to withdraw if they do not favor the relevant transaction.
In this case, the relevant transaction is a combination with Net Insurance Group, for which a non-binding letter of intent has already been signed.
According to the Net Insurance Group’s website (translated to English), there are now two existing companies—Net Insurance and Net Insurance Life. While the press release refers to the launch” a new independent carrier” for non-life non-motor bancassurance, Carbone confirmed to Carrier Management that contemplated InsurTech carrier will be a new improved version of Net Insurance, not a third company. “Net Insurance (both legal entities) will become a player characterized by a pervasive usage of InsurTech along the value chain.”
“We will bring a new top management and Andrea Battista will be the CEO. I will chair the innovation advisory board,” he said.
With an era of deep digital transformation is impacting the insurance sector worldwide, and moving beyond distribution, the founders of Archimede envision significant competitive advantage for carriers that integrate InsurTech innovation in each phase of the insurance value chain.
“The approach will be a mix of make-buy-ally, leveraging my international network of relationships,” said Carbone.
Although Italian news articles available on Net Insurance Group’s website (and translated into English) mention the carriers’ foray into writing insurance for landlords leasing rental properties and some crop insurance on the non-life side, Carbone said that almost all of the business now is related to CDQ loans. The lines of business written by Net Insurance will be progressively extended, he said. “The first step will be to optimize the current business and progressively to add additional products that fits with bancassurance distribution”—extending from other credit protection products, to other personal lines non-auto product, and to small and micro business insurance products.
With a non-binding letter of intent in place since early April, the business combination is subject to the signing of a binding agreement and regulatory approvals.
“The possible business combination with Net Insurance Group would ensure to the project a fast go-to-market, enabling the possibility to leverage on a distinctive operating model, valuable human resources and a wide set of distribution agreements with high-standing financial partners,” the press release noted.
Asked whether Net Insurance has had any struggles with profitability or difficulty in adopting new technology, Carbone said that some past troubles with profitability are now solved. “Our goal is to obtain a substantial improvement on the current business when we will manage the company due to the experience of the new top management.”