Konsileo Ltd.

Konsileo Ltd.

STRUCTURESingle company deal
MIN. INVESTMENT£15,000
SECTORFinancial Services
CLOSING DATE30 October 2020
The content below has been provided by Committed Capital Financial Services Ltd who are authorised and regulated by the Financial Conduct Authority under firm registration number 192203.
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Summary

Konsileo is an innovative scalable insurance broking firm for businesses. It was founded by an industry veteran and a proven technology leader and seeks to disrupt the commercial insurance distribution market.


Konsileo is a new form of insurance broking firm for businesses that emphasises the quality of risk advice. It does this by providing technology to professional insurance broking individuals that enables them to be radically more efficient and to advise on risk in a more comprehensive, data derived way.  


Konsileo is growing rapidly and predictably, having written over £3m of premium via its network of 24 risk advisers; run rate sales now over £1m p.a. in March, and continuing to grow.


Company Differentiators/USP Technology


▪ The Konsileo platform enables risk advisors to deliver high quality, data derived, risk management and insurance advice to their clients in a consistent and efficient way.


▪ The Konsileo platform technology improves transparency and changes the way that risk advisors are employed and managed.


▪ Since using the platform Konsileo’s partner firms have recorded:

- higher renewal rates for clients

- an increase in the overall cross-sell of products

- a c.50% reduction in the time taken to complete an RFQ


First Mover Advantage


▪ The technology has been in the research and development stage since 2015 and is now deployed to live users.


▪ One of the biggest challenges the industry faces is to update the complex legacy IT infrastructure that is currently in use, giving Konsileo a clear first mover advantage.


Having proven key tenets of the model, further funding is sought to scale the risk advisor network and to continue the R&D trajectory.

Highlights

  • Konsileo is a new, scalable, type of insurance broking firm for businesses. It was founded by an industry veteran and a proven technology leader and disrupts the commercial insurance distribution market.
  • Konsileo has been developing its technology for three years, creating a significant barrier to entry.
  • In pilot projects with a mid-size broking firm, Konsileo’s systems have transacted over 4,000 clients and £12m of premium across all products, demonstrating the completeness and efficiency of the technology.
  • Konsileo is growing rapidly and predictably, having written over £3m of premium via its network of 24 risk advisers; run rate sales now over £1m p.a. in March, and continuing to grow.
  • The Konsileo opportunity has the potential to be global in nature and, in a very liquid M&A sector, to create significant value for shareholders.
  • The Founding team have a long and successful track record in the insurance industry and software development and have worked together since 2015.
  • Various investor exit options will be available at strong EV/Revenue multiples between 2x to 10x.

Investment strategy

For granular detail please refer to the Company IM below.


There are three sets of market problems that Konsileo addresses:


-      Poor management and use of technology and data in broking.  Insurance brokers are subject to inefficient technology and processes, poor management culture and lack of data and are unable to develop and deploy the relevant risk management advice to their clients.


-      Poor Risk Management amongst SMEs. SMEs value advice from their brokers but do not have sophisticated risk management understanding, and therefore make sub-optimal decisions and grow more slowly than would otherwise be the case.


-      Frustration amongst insurers at consolidating the market. Insurers have found consolidation amongst insurance broking firms challenging; consolidators tend to demand additional commission without delivering operational or risk information benefits. The concentration of broker technology providers impedes innovation in data exchange. 


The mid-market is therefore open for disruption by a new technology led, efficient broker, which can grow at low cost by acquiring advisers and business from the inefficient incumbents, improving on:


-      Legacy Technology. Advice is generally delivered without the benefit of technology as brokers use one of four legacy platforms. The four major technology vendors invest in their platforms to some extent but most of that investment is spent on maintenance or on automating certain commoditised insurance products for very small “micro-SME” clients.


-       Tech in the SME sector. There has been an upsurge in investment in “Insurtech” businesses in recent years but only 10% of total global Insurtech investment of US$12.5bn has been in Commercial Insurance. Most of that has been in copying self-serve B2C insurance platforms for Micro SME’s (1-5 employees) who pay less than £500 in premium a year. 


- Poor broking innovation. Innovation in the industry has largely been confined to executing rollup strategies in order to unlock buying power with insurers. 


-      Dissatisfied client owners. As a result, employees in broking firms feel disenfranchised, and unsupported by suitable tech, tools and processes. 


Konsileo Solution


Konsileo is a new form of insurance broking firm for businesses that emphasises the quality of risk advice.  It achieves this by providing risk assessment and process management technology to professional insurance broking individuals that enables them to be radically more efficient and to advise on risk in a more comprehensive, data derived way.


Proposition to Individual Insurance Brokers (Risk Advisers)


In order to drive productivity, motivation and professionalism, Konsileo has innovated the way insurance broking firms are run via a “Virtualised Organisation”.


The elements of Konsileo’s model for individual insurance brokers are:


-      No line management – but will choose a mentor to support with motivation

-      Efficient Tech – will free up the broker’s time to spend with clients

-      Unlimited variable compensation – no ceiling to the earnings that can made

-      Easy Collaboration – revenue sharing between brokers is designed to be easy

-      Supportive Peer-Peer Culture – on and offline community for similar interests

-      Secure employment structure – maintain the security of employee status


Proposition to Businesses (Risk advice to Clients)


Towards clients, Konsileo emphasises “Data Enabled Risk Advice”. The intention is to build on already strong client relationships between trusted broker clients and to delight those clients with additional risk insights, efficient service and data-derived services.  Key elements for clients are as follows:


-      Real, continuous person as adviser – Konsileo emphasises the virtual “ownership” of clients by Konsileo advisers.

-      Efficient execution in relation to risk data – fast turnaround times and additional time spent with the client, allowing for better quality documentation.

-      Easy access to risk data – Through the Riskube, the client will also be able to see all information, including risk information, about their insurance programme.  

-      Advice on managing ALL risks – brokers will be able to support a full range of risks in the business and offer to set up and facilitate a risk committee.

-      Tools to capture and interpret data – Konsileo will seek to provide tools to clients that will enable to capture useful, risk relevant data.


Proposition to Insurance Companies (Risk of Claims)


The impact of Konsileo’s entry to the market is regarded as a very positive development by insurers. Insurers see a “Digitally Empowered Broker” as very useful. Konsileo is:


-      Efficient counterparty – trading with Konsileo is more efficient because queries are answered quickly, and risk information is more consistent.  

-      Constructive market participant – Konsileo’s strategy is to encourage the continuation of strong trading relationships with existing underwriters. 

-      Provider of unique insights from captured data – Konsileo data gives insurers additional insights and the chance to improve their underwriting outcomes.

-      Product innoavator – Konsileo’s data delivers insights into emerging and/or unmet risks that could provide stimulus for insurers’ product innovation efforts.

-      Alternative to consolidator models – Konsileo is seen as a more positive and value-added model than other private equity funded roll up “consolidator” models. 


Exit strategy

Please refer to the Company IM below.


Risks

Prospective Investors should consider carefully all the information in this document including the risks relating to the Service set out below (although this list is not exhaustive). In addition, there may be additional risks which are currently not apparent or not considered material by the Manager which become apparent later. 


This document does not constitute a recommendation or advice to Investors. An investment is suitable only for investors who are capable of evaluating the risks and merits of this type of investment,  or are able to consult a person authorised by the FCA who specialises in advising on investments of this kind;  and who have sufficient resources to bear any loss which may result from such an investment. 


We do not give investment or tax advice nor do we give personal recommendations with regard to investments or decision to invest. Any person considering an investment should consider carefully their personal circumstances and are advised to take advice from an independent professional adviser qualified to advise in relation to investments of this type. Any person in any doubt or who feels he or she does not understand any part of an investment should not invest.


a) Performance Risk: Past performance is no guide to future performance. We can make no guarantee of investment performance or the level of growth that will be generated. 


We recommend you review your investment objectives regularly and update us if you need to make any changes. However, there is no guarantee that our investments will meet your investment objectives. Force majeure events may delay or prevent the Manager from fulfilling its obligations.


b) Risk to Capital: Investments into unquoted companies are likely to be more volatile and present a higher risk to your capital than those on the Official List of the London Stock Exchange. Your capital and the investment return are not guaranteed and you may not receive back all the money you invest. You should not invest unless you have thought carefully about whether you can afford it, and whether it is right for you. You should consider any investment as a high risk and long-term investment.


c) Liquidity Risk: Investments are likely to be less liquid than for example, companies on the Official List of the London Stock Exchange. Consequently, whilst we will always attempt to redeem your investment upon receipt of a withdrawal request, this will not always be possible. Specifically, investments in unquoted companies are not readily marketable and may take several years to realise, the timing of which cannot be predicted. Investments are not designed to be held for the short-term. Investments into qualifying companies have to be held for at least three years to retain the EIS reliefs, and may need to be held for much longer in order to realise their full potential value.


d) Other risks associated with EIS qualifying companies: EIS Qualifying Companies are generally considered to be high risk investments. They depend on the skills of a small group of key executives, the loss of which may be particularly detrimental to those companies. Investee Companies may need to borrow funds from third parties. This exposes the Investee Company to additional risk and means that shareholders will rank as creditors behind lenders in an insolvency situation. 


e) Wider economic risk: Valuations will be provided to Investors. No warranty is given that any such valuation is capable of being attained on a disposal, flotation or other realisation and is based on certain assumptions, which may or may not be realised, and valuation rules and guidelines that may be more or less suitable for certain companies.


An investee company may be (i) unable to borrow on acceptable terms or at all, or (ii) may have existing or promised funding withdrawn unexpectedly.


Should an Investee Company not perform as expected (or even if the Investee Company does perform as expected), it may require a further equity investment. In such circumstances, the Service may be faced with a choice of making a further investment in that company (increasing its exposure and potentially its percentage holding) or having its stake significantly diluted.


f) Current Legislation: Rates of tax, tax benefits and allowances described in this information memorandum are based on current legislation and HM Revenue & Customs (HMRC) practice and depend on personal circumstances. These may change from time to time and are not guaranteed. Committed Capital does not provide tax advice and potential investors are recommended to seek specialist independent tax and financial advice before investing. Investments are made with UK resident taxpayers in mind.


g) EIS Approval: We will invest in companies which we reasonably believe to be EIS qualifying companies at the time of investment but please be aware that there is no guarantee that such companies will remain EIS qualifying companies at all times thereafter, or that EIS tax reliefs will be available to investors. A failure of a qualifying company to meet the EIS requirements could result in the withdrawal of EIS tax benefits that have already been obtained and the requirement to repay any rebated tax. There is no guarantee as to the timing of the availability of the EIS3 certificates that are needed in order to claim EIS tax benefits. Your obtaining the EIS tax benefits is subject to you making the appropriate filings with HM Revenue & Customs. Please note, you will need to hold the investment for at least three years to retain the benefit from the EIS tax reliefs.


h) Forward looking statements: This document includes statements that are (or may be deemed to be) “forward looking statements“, which can be identified by the use of forward-looking terminology including the terms “believes”, “continues”, “expects”, “intends”, “may”, “will”, “would”, “should” or, in each case, their negative or other variations or comparable terminology. Forward-looking statements contained in this document, based on past trends or activities, should not be taken as a representation that such trends or activities will continue in the future.


It should further be noted, that where tax reliefs are available, they are only available on the actual amounts invested in the investee companies, and therefore no tax relief is available for charges.


Products and services

For granular detail please refer to the Company IM below.


Konsileo is a new form of insurance broking firm for businesses that emphasises the quality of risk advice.


It achieves this by providing technology to professional insurance brokers that enables them to be radically more efficient and to advise on risk in a more comprehensive, data derived way.


Products and Services


In summary, there are four main drivers of the economics of Konsileo’s business model:


1) Recruit Individual/small teams into a standard model


This involves recruiting broking individuals with client relationships and then transferring these client relationships to Konsileo. 


The key metrics will be the percentage of revenue they are able to transfer and the investment as a percentage of revenue to affect the transfer.


2) Simplify broking operations


This relates to the amount of time that brokers spend on back office tasks relative to servicing clients, thereby increasing the revenue per person that can be handled. It also affects the amount of revenue that can be serviced by a support person (“Account Handler”).


3) Operate as a ‘Platform Business’


The Konsileo organisation structure seeks to achieve a high ratio of operating staff to central staff/ costs via a self-organising, peer to peer model. Broking staff will be added at a high ratio relative to central costs.


4) Innovate to create new data-rich services


The heart of the client proposition will be to provide increasing amounts of data derived risk management information, linked to the advice of a real person. It is anticipated that, over time, data rich products will allow Konsileo to increase margins.


Market approach

For granular detail please refer to the Company IM below.


Marketing


The company’s marketing objectives are to:


1. Become the employer/ network of choice for the 10,000-15,000 client “owning” commercial insurance broking individuals in the UK through:


• Efficient recruitment advertising in the industry press and social media

• Selective headhunting to seed clusters of Konsileo brokers in new markets

• Strong positioning as the innovative/ Insurtech commercial broker in the industry press

• Effective local networking and “member get member” schemes for existing Konsileo brokers

• Participation in industry forums & events, especially the Chartered Insurance Institute


2. Enable the Konsileo brokers to achieve or exceed their customer acquisition (and thereby revenue) targets by:


• Developing a one to three niche marketing campaign for each broker, building on their previous experience

• Developing strong content for each broker, promoting it via social media and, over time, establishing them as thought leaders in risk management for their chosen segments

• Central coordination and purchasing of data and lead generation services where appropriate

• Facilitating joint marketing and development of specific niche products with certain insurers

• Negotiating special terms and enhanced service benefits from insurers  

• Redeveloping the core Konsileo website to support client acquisition in addition to recruitment


Go to market plan


The Company’s core plan is to develop a strong broking business by:


1. Recruiting Cohorts of Brokers: insurance broking people who have expertise and relationships into mutually reinforcing “cohorts”. The expectation is that these people will, over time, bring many of their previous clients to Konsileo, motivated by Konsileo’s culture and compensation model and made more efficient by Konsileo’s technology.


2. Developing an “Appointed Representative” Network. (Very) small broking businesses will be recruited into an “Appointed Representative” network. The expectation is that these businesses will consolidate their books into Konsileo, benefit from economies of scale in technology, regulatory support and insurer relationships and that Konsileo will provide a medium-term exit route for the owner/ directors.


As a by-product there will be additional revenue streams as follows:


3. Insurer Overrides. Insurance brokers generally achieve increasing returns to scale. One feature of this is “override” payments from insurers that provide additional remuneration for profitable growth. As insurance premium grows, these sorts of payments will become available.


4. Consulting/ Licencing Income. Konsileo has concluded a partnership with an existing firm to make use of the platform and this approach can provide useful additional revenue and very useful opportunities to build a strong data set to apply Machine Learning to. There is the possibility of additional partnership opportunities. 


Financial overview

Please refer to the Company IM below.


Key team

John Warburton - Founder (Insurance, Digital)

John has 20+ years international insurance and consulting experience at Aviva, Accenture and most recently Allianz where he was responsible for global marketing strategy and digital initiatives. John is an Associate of the CII, holds an MBA from London Business School and a BA in Politics from SOAS, University of London. John is also a mentor at Startupbootcamp.

Peter Henderson - Founder (Tech, Process, Automation)

Peter has 20+ years technology experience including delivering early websites for BA.com, 10 Downing Street and the BBC along with running his own company delivering management information systems for SMEs. Peter has an MA in Maths from the University of Cambridge and most recently worked at Big White Wall where he was CTO.

Benjamin Halfacre - CFO

Ben has 15+ years of banking and investment management experience with Cazenove & Co., SAC Global Investors and CQS. He has been responsible for investments in banks, insurers and other financial services businesses on five continents. Ben holds an MEng in Engineering Science from Oxford University.

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Fee summary

Initial Charge


There is a charge of 1.5% plus VAT to cover set up and administrative costs, calculated on the investment into the Fund less any adviser charge agreed between yourself and any adviser.


Any adviser charge together with the initial charge will be deducted at the outset from the investment. This net amount will be considered the Managed Amount for the calculation of annual management fees as set out below. 


These upfront deductions will reduce the amount invested into investee companies, and will affect the final value of the investment and the tax reliefs that the investor is able to claim.


Annual Management Charge


There is an annual management charge (“AMC”) of 2% applied to the Managed Amount, referred to above.  


Please note that an amount equivalent to the first 3 years’ annual management charges will be calculated at the outset and be held back in cash in your account and will reduce the amount invested into investee companies. This will affect the final value of your investment and the tax reliefs you are able to claim.


In years 4 and 5, the Managed Amount will be reduced by any investment returns (at cost) made to you and the 2% charge will be accrued until returns allow the charge to be paid.


To the extent that you have funds that remain invested after 5 years, no annual management charge will apply.


Performance Fee


There is a performance fee payable equivalent to 20% of the profits returned in excess of the gross amount originally invested upon exit.