Core P&C insurance software provider Duck Creek is the latest fintech company to go public. Here's what its strategy tells us about the future of B2B insurance software.
Duck Creek Technologies, a Boston-based insurance software provider, raised $405M in its IPO this month, valuing the company at almost $3.5B. On the initial trading day, the stock opened more than 50% higher than the IPO price.
Duck Creek’s IPO follows a few months after fellow insurtech Lemonade’s public offering. However, rather than selling insurance directly to consumers like Lemonade, Duck Creek sells software to help insurers handle core transactions and better digitize their own customer experiences.
Founded in 2000, Duck Creek is a more established player than most insurtech companies. Duck Creek caters exclusively to the P&C insurance industry offering core software products like policy, claims, and billing administration systems. In recent years, the company has focused heavily on its SaaS product, Duck Creek OnDemand, to better fit the needs of its customers.
Below, we look at where Duck Creek is seeing momentum, as well as where the company might face challenges as it enters the public market.
- Duck Creek focuses on the cloud. Duck Creek has long recognized the value of the cloud in the insurance industry — before many of its competitors — and cloud now represents its primary business model. The company’s SaaS sales volume represented 95% of bookings in the first 9 months in its FY 2020, compared to 48% in 2017.
- Net losses are expected for the foreseeable future, but Duck Creek is cash flow positive. The company’s focus on modernizing its platform and growth has led to operating losses in recent years, and the company stated it expects this trend to continue. However, the company’s Adjusted EBITDA has been positive the past 2 years, which the company claims more accurately reflects its profitability.
- Duck Creek eyes growth through organic and inorganic methods. The company’s S-1 discussed the possibility of pursuing acquisitions to build out its product offerings, while also building out its existing insurtech partner ecosystem. International expansion is also largely an untapped market for the company, with only 5% of its revenue coming from outside the US.
Tailwinds: An established player in a growing market
Insurance technology is a hot space
Funding to insurtech startups has grown rapidly in recent years, with emerging technologies like telematics, geospatial analytics, computer vision, and conversational AI capturing attention. However, insurers still dedicate the majority of their IT budgets on core systems from providers like Duck Creek. These core systems — which act as a record for data and support the transactions necessary to run critical insurance operations — represents a $15B global market, according to Duck Creek’s estimation in its S-1.