SMALL CAP IDEA: Ondo InsurTech set to plug more leaks

They say you should build when the market is down. A company that takes this axiom seriously is Ondo InsurTech.

Ondo, if you didn’t guess from the name, is an insurance technology company and the creator of a cute little device called the LeakBot.

LeakBot’s home leak detection capabilities have opened the floodgates to a host of business partnerships for Ondo, with insurance companies and, increasingly, water utilities deploying the device to their extensive customer bases.

Since going public in March 2022, Ondo has signed major deals with major insurance companies, including Admiral and Hiscox in the UK, as well as two leading UK water companies, Southern Water and Portsmouth Water.

Southern Water is set to introduce LeakBot to more than 1,000 customers in an upcoming pilot, with the goal of replicating the impressive 60 percent reduction in water leaks achieved in the Portsmouth Water trial.

Ondo has also partnered with Waterwise, a leading water efficiency organization, to promote leak prevention technologies.

Internationally, Ondo signed a five-year contract with Länsförsäkringar Trygghetstjänster, Sweden’s largest non-life insurer, introducing LeakBot to its two million customers.

In addition, a pilot proof of concept is in the works with Firemark Collective, the innovation arm of IAG, Australia’s largest general insurer.

LeakBot expanded its reach to the US through a go-to-market partnership with global business process management company WNS in April.

Further expanding its reach, Ondo recently announced a strategic partnership with US-based PURE Insurance. This collaboration aims to distribute the LeakBot system to select PURE members, improving risk management and reducing preventable claims.

A pretty busy contract signing schedule in the first seven months of 2023.

But why is LeakBot causing such a fuss?

First, the scale of the problem that Ondo wants to solve with LeakBot is formidable.

In the US, more than a trillion gallons of water are lost to leaks each year. Water damage claims comprise 28 percent of paid insurance claims, second only to weather incidents.

In the UK, that figure is closer to 30 per cent, making water damage the leading source of paid claims.

Independent research by insurance benchmarking firm Consumer Intelligence on 43,000 LeakBot devices deployed by nine UK carriers showed a 39% reduction in the frequency of water claims and a 51% reduction in severity.

The cost of claims per policy fell 70 percent, from $209 to $63, suggesting an average savings of $146 on homeowners policies.

LeakBot achieves these results by using highly sensitive heat sensors that detect when a home’s main pipe is delivering water when it shouldn’t.

There are other leak detectors on the market, but they are usually expensive and require professional installation. LeakBot, on the other hand, is relatively cheap to produce and easy to use.

LeakBot makes informed guesses about what are and are not leaks by implementing algorithms that track a home’s average usage throughout the day to detect anomalies.

This is primarily useful for detecting micro-leaks that actually cause the vast majority of water damage in a home, for which Ondo sends out a team to find and fix the leak.

This novel, proprietary approach was developed through an innovation lab led by Ondo CEO Craig Foster during his time at HomeServe home maintenance corporation.

When HomeServe agreed to be deprived of Brookfield Asset Management, the innovation lab was spun off into Ondo Insurtech.

“I never in a million years thought we would end up as a public entity,” Foster mused.

However, through a reverse merger with special purpose acquisition company Spinnaker Acquisition, Ondo became one of the first insurtech groups to be listed on the London Stock Exchange.

Foster had a hard time convincing his group to take their group public, and with the SPAC market effectively crashing right after Ondo’s IPO, Foster’s reserves seemed to be vindicated.

In his words: ‘We went on the market, the market crashed and we lost 50 per cent of the market capitalization immediately.

“I was a bit naive, I thought, ‘we’ve got a great product with a massive accessible market and a lot of news’… But it was actually nine months of new stuff we were signing on and it was literally a tumbleweed.”

The same cannot be said for the stock price in 2023.

Ondo’s market capitalization has increased fivefold by 2023, from just £5m to over £25m today (at 32p), due to a plethora of new partnership announcements, notably the launch of WNS .

Some may put Ondo shares in the overbought category given such a strong rally, especially considering that despite some pretty impressive-sounding partnerships, revenue in the last financial year ending March 31 was only around £ 2.1 million.

But, as research sponsored by Bloom Analytics points out, Ondo’s recent deal with Länsförsäkringar is estimated to generate £30m in revenue over the next five years at a 40 per cent margin. And that’s just one customer.

Revenue is expected to grow tenfold over the next five years, though Bloom conceded that it will take a multi-year development timeline for Ondo to be cash flow positive.

If LeakBot continues to wow customers on a large scale as it has this year, and if Ondo can turn its multitude of pilot programs into healthy recurring revenue streams, then one gets the feeling there’s still time to buy the story while the the market continues down.

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