POP goes the launch: New digital M&A insurance offering for SMEs

“We have designed a new product for SMEs that is offered fully online that achieves the transfer of risk for a buyer or a seller of a small or medium sized business,” said Katherine Simmonds (pictured above), managing partner at Fusion Specialty, the underwriting agency run by POP.

Simmonds said Mio is unlike traditional M&A insurance offerings such as warranty and indemnity (W&I) insurance which is designed for large sized businesses.

“Insurance for an SME transaction was previously unavailable in the market,” she said.

A global rollout by an Aussie firm

POP is launching the offering in Australia, the United States and the UK at the same time. David Rogers (pictured immediately below), is co-founder of both Fusion and io.insure, the insurtech technology that runs Mio. He said the offering’s creation was driven by its customisation for Australia and Asia-Pacific.

“What I think is most exciting about this is we’ve designed it in a way that we’re able to roll out a very similar Mio product in whatever country we choose,” said Rogers. “We’re launching simultaneously, which is quite rare and unique.” 

Simmonds said this online M&A product offers a “full digital experience” for the buyers, sellers and their brokers.

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“Underwriting questions and answers, for example, are fully online,” she said. “It’s a digital experience for something that’s very specialized and highly complex.”

She said her firm put considerable work into simplifying the process and achieving digital efficiencies.

“We were working on this last year and did a soft launch,” said Simmonds. “We’ve also done a lot of work at fine tuning our offering, like lab testing.”

Designed for brokers

Brokers are an essential part of the proposition.

“It’s not a direct platform,” said Simmonds. “It’s designed for brokers as principal advisors because we’re offering insurance for something that is highly specialized and the client needs to have advice.” 

She said the workflow is also simplified to suit a generalist broker and assist them to give appropriate advice and value add for clients.

Rogers said that small to medium sized businesses couldn’t buy this insurance previously.

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“The way we’ve designed it is because they haven’t had access to this insurance because no other insurer globally has ever provided a solution and/or focused on these types of clients,” he said.

Rogers said the offering is designed for a business valued at $25 million or less.

“The Mio policy limit for the transaction is often less than the total purchase price,” he said. “A company being sold for $10 million, as an example, might buy $5 million or any number up to a $10 million policy limit.”

Typically, mergers and acquisitions in the world of small businesses are impacted by holdbacks, said Rogers.

“So a seller sells their business and what the buyer used to often require is that they’ll earn out some of that, so the seller won’t get all the money up front, because the buyer wants to de-risk,” he said.

For example, half the transaction might be paid when the deal is done, and the rest transferred over the next year or two. In the US, escrow accounts, or neutral bank accounts, are often used for these transactions. The full amount of money is released 12 to 18 months after the deal is done.

“Mio allows them to replace that solution with an insurance policy,” said Rogers.

Simmonds said she expects buyers to hold the M&A policy on most transactions using their new insurance offering.

“Similar to what has occurred with W&I, it’s the sellers who often drive the decision to purchase transaction insurance, with the buyer ultimately being the policyholder,” she said.

An online M&A insurance process in four steps

The process of applying for the coverage involves four steps.

“First of all the broker would join our platform, io.insure, as a partner in order to gain access to the io.insure platform for their clients,” said Simmonds. “Secondly, the transaction is set up confidentially within the platform with access for other stakeholders to that transaction able to be granted.” 

Those stakeholders might include board directors and accountants.

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“Then, as with all insurance, there’s a series of questions and answers,” she said. Then Fusion’s underwriters assess the risk and deliver a response via the digital platform.

Simmonds said the length of the process is dependent on how long the client, broker and other parties take to answer the questions and upload information.

“The platform itself and the underwriters can respond as quickly as required,” she said. “The process is automated, but the underwriters have 100% oversight at every step and there is help and support as well.”