Honey Insurance raises $108 million, rules out overseas expansion
Honey Insurance has just raised $108 million in Series A but is bucking the Aussie startup trend by not using it for international expansion.
A typical narrative for Australian startups is setting one’s sights on international expansion – particularly following significant funding rounds. Honey Insurance is taking a decidedly different tack after closing a monumental $108 million in Series A. Despite this significant influx of capital, Honey has chosen to focus its efforts solely on the Australian market.
Insurance 2.0
Utilising a combination of artificial intelligence, satellite imagery and smart home technology, Honey is redefining the traditional insurance model in Australia.
This tech-forward approach streamlines the insurance journey for customers, from policy purchase to claims processing, making it more efficient, transparent and user-friendly.
“We want to be able to offer services to support people the same way as you have a doctor when your body gets sick. Can we offer a service which is really a doctor for your house,” Honey Insurance founder and CEO, Richard Joffe, said on a call with SmartCompany.
“We’re investigating and piloting ways to do that to really shake things up for Australian consumers so they view insurance as a product that actually gives them value every month, as opposed to just cutting a cheque and never hearing back from the insurance company unless something bad happens.”
According to Joffe, the company’s use of technology enables the company to go beyond the typical insurance model based on the asset and doesn’t take further contextual information into account.
In the case of a house, that may be who lives there, what their behaviour is, and other relevant data.
Joffe says that Honey aims to offer Insurance 2.0, which involves more precise risk assessments, leading to fairer pricing and policies that are more closely tailored to the individual needs of homeowners.
“No differently than if you hit the gym, you should have lower health insurance, if you do things to reduce the risk in your house — replacing Flexi hoses, having a new roof and doing maintenance in your house — you should absolutely be rewarded with a meaningfully reduce home insurance quote,” Joffe said.
The company has also integrated free smart sensors into the product offering for customers, which serve to enhance safety by monitoring for risks such as fire, water leaks, and unauthorised entry.
This not only helps in preventing potential accidents but also aids in gathering data that Honey leverages to offer personalised insurance solutions. In this case, an 8% discount on their home insurance.
Looking ahead, Honey sees a future where insurance policies become more personalised and dynamic.
Honey sees itself as an insurance company first
Technology is the foundation of Honey’s differentiation in a largely legacy insurance market. However, a critical aspect of the company’s philosophy is its self-identification as an insurance company first, rather than as a tech company venturing into insurance.
This distinction is significant, as it frames Honey’s approach to navigating the complex regulatory landscape of the financial services industry. By acknowledging and embracing the intricacies inherent to insurance, Honey sidesteps the pitfalls that can entangle tech-first entities entering this space.
“When you look at other fintech players, some of them have gotten in trouble by not really accepting that they’re fundamentally financial services companies, not technology companies,” Joffe said.
“We are very thoughtful, and have been from day one, about the speed we move, how we ship products and how we design — from security right through to regulatory approval.”
Joffe also mentions Honey’s partnership with the RACQ to assist in keeping its regulatory practices copasetic.
“That partnership has been the cornerstone to really protecting Honey — to make sure that we didn’t just take off and optimise for speed at all costs, which could really end poorly for us,” Joffe said.
Redefining success on the home front
The focus on Australia is a strategic choice that differentiates Honey from its peers. While many Australian startups view significant funding rounds as a springboard for international growth, Honey sees its capital infusion as an opportunity to deepen its impact within the Australian insurance market.
“Our goal is to be famous for home insurance in Australia. We have zero ambition or plans to ship to move outside of Australia. We want to really own this market,” Joffe said.
According to Joffe, Honey is aiming to get a 10% market share, which equates to one-in-ten Australian homes.
“That’s going to require laser focus and our point of difference is that we’re not doing six products in six countries. We’re doing one product in one country. That focus is actually a massive advantage when it comes to winning,” Joffe said.
Overseas cash for an Australian-focused business
Despite Honey’s explicit intention to concentrate on the Australian market, it was an overseas investment firm, Gallatin Point Capital, that led the $108 million Series A funding round.
“There was a universal view amongst Australian investors that we have to go global even when the data supported that you didn’t need to do that because of the market size,” Joffe said.
“Whereas international investors seemed to have a lot more appreciation for the long-term value of just focusing on one large market and owning it.”
This occurrence underscores a somewhat ironic twist: this foreign investment came without the expectation for Honey to expand its operations globally — despite Australia being a smaller market compared to the US and Europe.
“Most of those investors told us not to see Europe. They said it’s a big market in Australia that is underserved. No one’s doing a great job and you’ve cracked the code. Keep going.”
“Whereas in Australia, there was almost a universal view that you have to get to America. Australia is never good enough.
“I think that’s largely pattern recognition, because there’s not that many addressable markets in Australia, where you can build a multi-billion dollar business without leaving.”
However, in Joffe’s view, industries such as financial services, health and insurance do offer the opportunity to build multi-billion dollar companies without expanding outside of Australia.
Joffe said that part of the appeal of staying within Australia exclusively is because it’s easier to cross-sell new products to existing customers than expand into new regions.
“The cost to serve those customers in a new country, the language issues, the implications of that core team in the new country not working out — it can completely destroy your core market that you’re already successful in,” Joffe said.
In stark contrast, a number of potential Australian investors Honey met with held a mandate that their investment be contingent upon the company’s commitment to international expansion within 12-18 months.
“I think that sometimes these are very shiny objects. Global expansion is used as a way for average companies with weak value propositions to feel a sense of growth when really, they haven’t cracked the code on a killer value proposition to the customer,” Joffe said.
This expectation underscores a significant divergence in investment philosophy between local and international investors, with the former often viewing overseas growth as a critical metric of success.
Honey Insurance’s journey is emblematic of a new paradigm for Australian startups, one where success is not necessarily equated with international expansion.
By leveraging cutting-edge technology in the historically stale space of home insurance, maintaining a steadfast focus on regulatory compliance and customer trust and committing to growth within the Australian market, Honey is not just attempting to redefine home insurance, but also challenge conventional narratives about trajectories of startups following major funding milestones.
