The US$4.5 billion valuation Wefox gives validation for ASX-listed Gefen. Will its share price follow suit?
Link copied to
German-based Wefox recently cap raised at a valuation of US$4.5 billion, only seven years after starting the business. The valuation has given ASX-listed Gefen the validation for its own business model.
In the past 20 years, disruptive technology has all but shifted power from the product owner to the distributor. Think of riding apps like Uber, or accommodation marketplaces like Airbnb.
Insurance is no different, with nine out of ten policies in the world now being sold by agents or advisors.
But – unlike taxi rides or hotels – the complexities and regulations surrounding insurance contracts will always necessitate a customer to deal with a human advisor.
Gefen International’s (ASX:GFN) technology is disrupting that very agency model by giving advisors the tools to digitise and rapidly grow sales.
The company’s award winning Moments is a highly compliant platform the agent network can leverage – tools such as messaging and sales & marketing which allow the personalisation of service to end consumers.
According to data, the potential addressable market for advisors’ commissions is a huge one, and data says it could reach as high as US$700 billion.
Despite the size, companies that offer a similar product to Gefen are still few and far between, providing participants with a long and wide runway ahead.
German-based insurance tech startup Wefox is probably the current leader in this emerging field, having just raised $400 million in a series D round for a massive valuation of $4.5 billion.
Founded only in 2015, Wefox is a great example of how bypassing the direct-to-consumer model that other insurtech competitors employ could reap big rewards.
Gefen CEO, Orni Daniel, believes that Wefox’s success could be replicated by his company, which currently has a market cap of $5 million, and like the German-based insurtech company utilises agent networks to cost effectively acquire customers.
“Wefox is several years ahead of us, and – like Gefen – their business revolves around empowering the agents and advisors instead of eliminating them,” Daniel told Stockhead.
“Most insurtech companies try to eliminate the human factor and do the direct-to-consumer route, and many are down by 80% to 90% in this downturn.”
Daniel believes that Wefox is a good case study for the potential opportunity that lies in front of ASX investors, as it offers a very similar product to Gefen.
“But when we compare our product to the Wefox platform, we believe our platform is more robust as we not only have insurance, but also financial products. This means the potential target wallet for us is bigger than Wefox,” he said.
Daniel explained that Gefen’s GQL artificial intelligence (AI) technology was built as a generic platform, which means that it could be easily used in other sectors outside of insurance and finance.
The platform does many things to make the agents’ work simpler, and this includes managing compliance risk and updating marketing materials and product terms.
It also automatically generates content and marketing campaigns using highly sophisticated artificial intelligence tools based on predicted customer preferences, creating additional sales for agents using the platform.
“We’ve basically shifted the business model from empowering one enterprise to the entire distribution network, connecting advisors, carriers and products to create a whole new marketplace,” says Daniel.
But it’s a business model that Daniel says is still little understood by investors, especially here in Australia.
The model generates a recurring revenue stream which it earns throughout the whole lifespan of an insurance policy.
Car insurances, for example, offer a shorter lifespan whereas the commissions paid on life insurances could provide Gefen with recurring streams for years into the future.
According to Danel, these recurring revenues are also protected during an economic downturn like today due to the highly resilient nature of the insurance industry.
“Despite the downturn, people still keep their insurance because this is what protects them,” explained Daniel.
According to giant Swiss Re, insurance premiums globally are heading for a record-breaking premium volume of over $7 trillion in nominal terms by year-end.
The growth in the sector over the last two years has led to Gefen’s revenue exploding exponentially over each financial year.
To capture more of the upside, the company has recently changed its revenue structure and began operating a “per-transaction” model beginning in 2022.
Under this model, carriers will be charged between 15% to 50% of the agents’ revenue, depending on the type of product, the commission scheme and renewals.
The new fee structure provides agents with zero upfront costs, and benefits from economies of scale by allowing them to earn more commissions overall. It also creates network effects, driving increased revenues as the marketplace builds.
For advisors, using a platform like Gefen is a no-brainer as it provides them the ability to serve their customers like never before.
“Around 60% of household income is spent on insurance and finance, and without a platform like ours, these advisors may only tap into 5% of this household income,” said Daniel.
“What we’ve done is basically to unlock the value of that potential,” he added.
Daniel believes the Wefox valuation has illustrated that very potential for Gefen, and provides a validation point especially when it was done at the low point in the market cycle.
“It’s a huge opportunity, and people don’t fully understand today what we’re doing, and the potential for the company,” said Daniel.
This article was developed in collaboration with Gefen International, a Stockhead advertiser at the time of publishing.