French insurtech Luko has been placed in receivership, after its €14m deal with incumbent insurer Admiral fell through at the end of October.
Court-appointed administrator Hélène Bourbouloux — touted by French press as the “Bankruptcy Madonna” — is handling the new public bidding process, according to a person with direct knowledge of the matter. During the process, Luko has no say in the terms of a new deal.
The deadline for potential buyers to make a fresh bid for Luko’s main business, Demain ES, is December 13. The French commercial court will then decide on the best offer.
It’s a sharp turn of fate for Luko, which had raised €69m to date from investors including Accel and Speedinvest, and once had enough capital to acquire two insurtech rivals — Coya and Unkle — both in 2022.
It seems those were acquisitions it couldn't afford. Luko’s financial position significantly deteriorated after it was unable to raise fresh capital from investors to cover debts of €45m, €12m of which it owed to shareholders of Unkle.
In the run up to Luko’s hearing in the French commercial court on Wednesday, the insurtech had hoped the judge would extend its safeguarding plan so it could finalise a deal it had reached with a new buyer. That buyer was incumbent insurer Allianz, the source tells Sifted, with whom it had agreed a sale under the same conditions as the €14m Admiral deal.
But the insurtech’s cash position had significantly worsened since June, and the court instead placed it into receivership.
Court documents published this week reveal new details that emerged before Admiral withdrew from the deal. Two audits revealed that Luko owed €1.375m in tax contingencies, which were to be distributed between its creditor Triple Point, the acquirer Admiral and Luko’s founders. In addition, a fresh audit last month revealed a €2.3m discrepancy between the insurance premiums collected by the group’s Luko Cover business and those collected on behalf of third-party insurers.
Even if Luko manages to find a new buyer on the same terms as the Admiral deal, its existing shareholders are set to lose a lot of money.
Luko declined to comment on the details of the process.
VCs steer clear of insurtech
Although these accounting discoveries are individual to Luko’s business, it may have avoided this fire sale situation if it had been able to tap investors for more runway.
But investors tell Sifted they’re reluctant to invest in insurtechs right now, as economic headwinds weigh on their business model.
The health of an insurance company boils down to a metric called the combined ratio: essentially a score that charts money in via premiums vs money out via claims. It’s easier to maintain a healthy loss ratio as premium volumes increase with customer numbers — insurance is an economy of scale.
“This makes insurtech the perfect venture bet when interest rates are low, because you can play the long game for a really outsized return if they build a big enough business,” says Ruth Foxe Blader, partner at VC firm Anthemis.
“But in order to get to that scale it’s super capital-intensive.”
Most of the sector’s megarounds — like wefox’s $650m Series C and ManyPets’ $350m Series D — were closed in the summer of 2021, and market conditions have changed sharply from what investors were expecting at the time they wrote these hefty cheques.
A perfect storm of inflation — and storms
B2C insurtechs still rely on incumbent insurers sitting beneath them providing risk capacity — or “insurance for insurers” — that helps them stay solvent after claims. These are typically reinsurers, such as Munich Re or Swiss Re.
But it’s become much harder for insurtechs to access these premiums, thanks to inflation on the one hand — which has particularly affected P&C insurers (property and casualty insurers) — and extreme weather volatility on the other.
One insurtech exec who was recently laid off from a unicorn in the sector tells Sifted that their business began to feel the pain from this inflation towards the end of Covid.
“Suddenly, the cost of repair for everything massively spiralled, especially for cars, due to global shortages of parts,” they tell Sifted.
“So if you’re trying to build your insurtech company through customer acquisition, basically by undercutting incumbents by offering lower prices, you run into trouble very quickly when these prices inflate.”
Meanwhile, when an extreme weather event hits, reinsurers are less likely to give smaller insurtechs the risk capacity they need versus large incumbents.
“All these structural issues are worsened by being sub-scale,” says Foxe Blader, “which makes it really hard for insurtechs to sustain a healthy loss ratio and be a financially growing business.”
