POL I CY The Israeli Insurance, Pension & Finance Newspaper 22 Special edition 2022 Until recently, InsurTech companies traded at significantly higher values relative to their owner’s capital, although some have accumulated significant losses over the years. This is due to a large extent to the market’s expectations that companies will be able to generate significant excess profit in the future than the companies currently show at the time that it generates strong growth trends. The ability to generate excess profitability usually lies in the unique technology that companies have or an innovative way of doing business, which is not yet reflected in their financial statements. This value is aneconomic “intangible asset”, that includes investments in areas other than just R&D, such as companies` customers base, data, human resource and more. All of these create a competitive advantage for the company, improve organizational knowledge and understanding and help the company to make profits. The different “multipliers” between traditional companies and InsurTech companies emphasize the challenges of innovation and technology in quantifying companies’ capabilities and determining appropriate values. In traditional companies, longterm performance measurement is performed based on estimating operating expenses, sales, and management & general expenses, while technological companies at various stages are added an examination of research and development expenses and exceptional advertising expenses (especially for young companies). The expenses described above are supposed to support an increase in the companies’ activity, and in traditional companies we expect to see over the years an improvement in profitability. In the “new”, tech companies, revenues are growing fast, but so are their expenses, and in many cases, they exceed revenues and bring the companies to a heavy loss bottom line in the first years of operation. Many companies explain the loss “as temporary” and claim that it is needed for the purpose of accelerated growth, and that they can mitigate the loss and even make a profit at the expense of accelerated growth. The companies’ financial statements show the company’s past, but the forecast value of the company’s values and its ability to meet the expectat ions placed on it by the market i s deficient considering the measurement problem. In the past there has been a discussion within t he FASB regarding how investme nts or expenses for intangible assets should be presented in the financial statements. It was argued, that this should be separated from the operating part of the income statement and analyzed differently. It can also be argued that an additional disclosure in the financial statements should apply. In this context, there are some factors that will be considered, such as: (1) customer acquisition costs and other expenses ratios (2) the company’s business growth rate (3) its brand familiarity in the market (according to parameters to be determined, exposure to the company’s website, etc.). As a final thought, Pricing of growth InsurTech companies will continue to be a significant challenge for investors and for all market participants. Comparison between InsurTech companies is inevitable, and investors will be the ultimate judge on the right economic value, while considering future growth, but also, an existing bottom line and companies’ ability to deliver. Value proposition in the new InsurTech world By Ziv Cohen, Executive Vice President, WeSure GlobalTech Ltd Jonathan Marcus Translations Hebrew-English-Hebrew translation of Insurance and financial documents Insurance policies▪Appraisals and loss adjusters reports Proposalss▪Financial statements 25 years of professional experience in the insurance sector Phone: 972-54-4757622 ▪ Fax: 972-2-5616099 ▪ E-mail: jmtargum@gmail.com
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