InsurTech Exit Routes Explored: Lessons Learned from Hippo Holdings' SPAC Engagements
In 2021, Hippo Holdings, an insurtech, merged with a special purpose acquisition company (SPAC) and was valued at $5 billion. Fast forward to 2023, and Hippo wishes it hadn’t taken part in the SPAC euphoria. Hippo’s valuation has fallen by nearly 93% to $353.6 million, and its CEO, Rick McCathron, admits they would have done better with a traditional IPO. Hippo’s experience with SPACs highlights the importance of careful consideration before choosing to go public. Insurance executives can learn from Hippo’s decision and avoid them by following these five tips:
- Don’t be swayed by the hype: SPACs were wildly popular in 2021 due to the advantages promised by blank-check companies. However, the SPAC euphoria came to a brutal halt in 2022 when a broad market downturn resulted in fewer IPOs. Insurance executives should carefully consider the pros and cons of SPACs before jumping on the bandwagon.
- Be aware of increased SEC oversight: The Securities and Exchange Commission has increased oversight of the SPAC sector, proposing a sweeping set of rules in March that would effectively even the playing field among IPOs and SPACs. Insurance executives should stay up-to-date on regulatory changes and ensure compliance.
- Consider the stigma of insurtechs and SPACs: Hippo has suffered from an “insurtech broad brush,” and the stigma of SPACs has weighed on its share price. Founders should be aware of the potential negative perceptions associated with insurtechs and SPACs and take steps to mitigate them.
- Don’t underestimate the importance of analysts: If Hippo had gone public with a traditional IPO, it would’ve had an easier time attracting analysts who could have helped explain the company’s complexities. Insurance executives should consider the importance of analysts and ensure they have a plan in place to attract them.
- Consider alternative options: While SPACs may seem like a quick and easy way to go public, insurance executives should consider alternative options such as direct listings or traditional IPOs. They should carefully weigh the pros and cons of each option and choose the one that best fits their company’s needs.
Hippo’s experience with SPACs serves as a cautionary tale for insurance executives considering going public. By following these five tips, insurance executives can avoid the mistakes Hippo made and increase their chances of success. Additionally, insurance executives should consider the benefits of parametric insurance, which can help mitigate risks and provide more accurate coverage. With Riskwolf, insurance executives can turn real-time data into insurance and build and operate parametric insurance at scale. Simple. Reliable. Fast. Learn more about Riskwolf and how it can help your company succeed in the insurance industry.