Basel-based insurer Baloise wanted to make history with a German mobile start-up. It isn't going to plan.
«A new era of user experience for insurance services» – brave words from the head of Baloise Group, Gert De Winter, when announcing Friday in 2017. Then the Basel-based group wanted to speed up growth with simpler processes and innovative products, becoming one of Germany's best loved mobile insurers with its Berlin-based startup in the process.
It has been almost five years and things have gone quiet. Despite that, Baloise continues to be unreservedly optimistic when queried by finews.ch: «Our digital insurer Friday has made a great deal of progress. At the end of the 2020 financial year it had over 100,000 clients and it doubled its premium volume from a year earlier to more than 30 million Swiss francs», a spokesperson based in Basel said.
Startup Gene in the Family
Friday is being led by Christoph Samwer (pictured above), a former McKinsey advisor and founder of crowdlending platform Lendico. To give the company as much freedom as possible, it operates completely independently from the rest of the 155 year old group, although it is licensed through a Baloise affiliate in Luxembourg for the European Union market.
Samwer is a cousin of Marc, Oliver and Alexander Samwer, brothers and internet entrepreneurs who have made billions from the Zalando e-commerce site and Rocket Internet, a tech incubator. Indeed, there does seem to be a startup gene in the family.
Cheered on by the CEO
Originally, the insurer intended to breakeven with 100,000 clients. At the investor day in 2016, De Winter announced, «the business case shows it reaching breakeven in 2020». It confirmed the same to finews.ch subsequently and De Winter could not stop praising the project at a media conference just two months ago.
He should know given he is Friday's chairman. Everything is going well, he maintained in August 2021 several times. But how is Friday really doing?
Significant Losses
finews.ch has reviewed the annual reports of the startup. According to the accounts, which follow local accounting principles, the loss for 2020 was 81 million euros ($94 million US dollars). That includes the year-earlier loss of $52 million and 2020's $42 million. No trace of a breakeven here.
Under IFRS rules, the loss was $38 million according to Baloise, which means that it looks like the company is operating with $35 million in annual losses.
Minimal Growth
Premium volumes in 2020 were only $34 million, with roughly 60 percent coming from auto liability insurance and about 37.6 from other kinds of auto insurance. To compare. The premium volume in the non-life business for the whole group was $4 billion. Friday's contribution to group growth is marginal.
The combined ratio (claims and expenses), a profitability measure for non-life insurers, lies at 91.2 percent for the group. Anything below 100 percent means that the insurer is technically making making money from the insurance business. During the pandemic, when many couldn't drive, Friday's combined claims ratio was about 91.1 percent. In 2019 it was at 116.8 percent, which means that its portfolio is, from a purely technical standpoint, a highly unprofitable business.
Profitable in 2025 instead of 2020
Another thing. Friday's management has to certify every page of 2020's annual report. That means that chairman De Winter has a full picture of the situation.
Baloise told finews.ch that it continues to be satisfied with Friday's development. It is being scaled up and it has entered the French market, which will have an impact on when it becomes profitable. The insurer wants to focus on growth which is why it now expects to become profitable in Germany in 2025 instead of 2020.
Third Party Investors
Baloise has invested about $170 million in the project, with almost $35 million coming from third parties. This is going to be the way out for the company given it wants to open Friday to more external investment.
One of Friday's objectives was to become Germany's favorite digital insurer. According to Baloise, they have become that. That is not particularly surprising given the significant losses sustained. The premiums look low in consideration of the risks insured. Although that might please clients at the end of the day, shareholders aren't likely to be quite as happy.
