“Prevention is better than cure” is an aphorism that applies beyond healthcare.
It applies equally well to the insurance sector, for instance.
How much better would it be for all concerned if a water leak could be discovered before it becomes what the insurance industry calls an “escape of water” incident and the typical householder calls “a nightmare”?
That, in a nutshell, is the business proposition of Ondo InsurTech PLC (LSE:ONDO).
In March of this year, Ondo became the first “insurtech” to go public in the UK after the company bought the LeakBot business from home repairs specialist Homeserve PLC (LSE:HSV).
LeakBot is a patented water pipe monitoring system that helps prevent water leaks from turning into insurance claims.
It’s a very, very big market.
According to the Association of British Insurers (ABI), UK insurance companies pay out £1.8mln each day in claims for property damage caused by the escape of water (EOW). Add in the US market, and it is estimated about US$17bn a year is coughed up to settle EOW claims.
The ABI has plenty of advice for homeowners on how to prevent a major EOW incident, and high on the list of recommendations is fitting a leak detection device, which will monitor your usual water use and turn off the water if it suspects a leak.
The ABI also suggests you should use a plumber or a professional to install these types of devices but the beauty of the LeakBot gizmo is that it is a simple device that clips onto the internal mains water supply pipe, so there’s probably no need to call in a plumber; if you can attach a peg to a clothesline, you can probably install a LeakBot.
Competing products are, to use a technical term, much more a faff to install or are more limited in scope.
“Some existing products work on the basis of moisture detection but the drawback is that they will only detect the leak in one particular place,” explained Craig Foster, the founder and chief executive officer of Ondo InsurTech.
“Then there’s in-line sensors but with these, you need to cut the pipe and have a professional install it, and they’re very expensive – about US$400 or US$500,” he added.
LeakBot takes a different approach. Instead of relying on moisture detection, its patented technology works by monitoring water temperature across the whole system.
It’s an Internet of Things device that links to an app that alerts the householder of a problem. OK, at this point you probably have to call in a plumber to fix the leak but remember what we said about prevention being better than cure? Better to get Super Mario in before the pipe bursts than after, right?
It is possible to buy the LeakBot directly from Ondo InsurTech but its bread and butter is B2B – business-to-business.
“The insurance companies have figured out that they can provide all of that [the LeakBot device and the repair service] free of charge to the policyholder and it pays back for the insurer based on the claims that we mitigate,” Foster said. Based on the experience of deploying LeakBot with 10 insurance companies across three countries Foster believes they can reduce an insurer’s escape of water claims spending by over 60%.
In the UK, Lloyd’s underwriter Hiscox was the first insurer to roll out the system to all of their customers after a successful pilot in 2019, and that has paved the way for others, such as Direct Line, to sign up.
In addition to the UK, the company has a presence in Scandinavia, where the incidence of escape of water claims is much higher than in the UK.
What’s more, water is very expensive in places such as Denmark, where Ondo already has three insurance customers, and so the country is understandably very keen to conserve the stuff.
“As well as being a huge financial issue to the insurance companies, it’s a big environmental problem as well, because it is a huge amount of water that is wasted in domestic properties,” Foster observed.
“I think in the US about a trillion gallons of water is wasted each year through leaks in domestic homes.”.
Whether those are UK gallons (160 fluid ounces) or US gallons (128 fluid ounces), that’s a lot of water.
“A huge amount of energy is used up in purifying water,” Foster said. “In the US, I think about three to four per cent of their energy usage is on purifying water.”
With environmental, social and governance (ESG) issues rapidly moving up the scale of things professional investors are looking at, it’s a salient point for Foster to make.
Talking of the US, this is obviously the biggest potential market for Ondo InsurTech and they already have a presence in two states there.
In April, the company appointed Jim Strickland to spearhead the US expansion of LeakBot. He’s had plenty of experience working in the US property & casualty insurance business and will be working to expand the company’s footprint.
Foster concedes that dominated as it is by huge, conservative insurance giants, the US market will take some time to crack but there are plenty of smaller, nimbler operators that typically are swift to see the benefits of LeakBot.
Foster is convinced that once the insurance companies evaluate those benefits, they’ll be keen to sign up and their competitors will be quick to follow suit.
“Whoever owns the technology, owns the market,” Foster believes.
Ondo’s plan is nothing less than to create the world’s leading provider of technology to enable home insurers to reduce claims. The short to medium-term priority for Ondo is to grow the top line so that the company achieves cash-flow break even. Funds raised from March’s stock market listing will be used over the next 12 months to forge more partnerships, grab more customers and enhance the company’s information technology system.