Behind CXA’s difficult journey to launching its ambitious insurtech platform

Like many others that have taken the same road, Singapore insurtech startup CXA Group is finding that it isn’t easy to transform itself into a technology company.

Scaling its insurance brokerage business into a technology-led, software-as-a-service (SaaS) platform required a hefty investment, but the challenges haven’t stopped at spending.

The increasing demands of its new platform have placed pressure on its cash flow and forced the company to retrench staff, according to some employees. Last week, Tech in Asia reported layoffs at the startup, a move that was necessary to keep its business “trim,” according to founder and CEO Rosaline Chow Koo.

“What we got rid of were either non-performers or roles that were automated, or were made redundant with this new model,” Koo tells Tech in Asia. “As a startup, you don’t have that much money for extra fat.”

The job cuts come amid fundraising efforts and negotiations with current investors. The new funds will help sustain CXA’s operations before the platform’s launch, which is expected sometime this month or in April.

“Many of our existing investors – either from series A, B, or our US$25 million round – are topping up right now,” Koo says. “We need more money because we have 150 tech people now. It’s an evolution of our business.”

While Koo had announced that CXA was looking to raise a fresh US$50 million round last September, she clarifies that this current fundraising is part of an earlier tranche of investment.

Becoming a tech company

Koo set up CXA in 2013 after a stint at Mercer Marsh Benefits, using US$5 million of her life savings. “I was in this industry for eight years and I ran 14 countries,” the chief executive explained in a 2014 interview.

Photo credit: CXA Group

She observed that companies faced similar issues around corporate health insurance, irrespective of geography.

“Companies’ insurance benefits are rising exponentially fast, yet employees don’t understand insurance. At the same time, every employee’s health is getting worse, but because healthcare and insurance are so paper-intensive and there are so many different vendors in the supply chain, HR has way too much work,” Koo said at the time.

For years, CXA was dependent on a brokerage team that went door to door to acquire new clients, but its new software-led platform has the potential to change that. Large banks and insurers that have signed long-term contracts with the startup will instantly give it access to the “hundreds of thousands” of corporate clients.

“So if they license the CXA platform and offer it to all of their SMEs (small and medium-sized enterprises), and then the apps are used for each employee of those SMEs or large corporate clients, I don’t have to go door to door anymore,” Koo says.

CXA’s ambitious platform will be licensed to major banks and insurers, which can then sell healthcare benefits to their clients at a cost savings of between 15% and 35%. It does this by eliminating third-party administrators fees and connecting directly to doctors, clinics, e-pharmacies, gyms, and more.

At present, CXA’s brokerage business accounts for 95% of its revenue. But that will change as it becomes a SaaS platform, where it will earn a licensing fee on top of a cut it gets from every transaction that takes place in its ecosystem of health and wellness partners.

An expensive platform

CXA couldn’t build the platform alone. To do so, it hired global software consultancy ThoughtWorks, which also helped to build Gojek’s platforms, under the recommendation of Openspace Ventures, one of its series A investors. ThoughtWorks would help to fast track CXA’s transition into a software-led platform with minimal configuration so it could be replicated for multiple clients.

ThoughtWorks has a reputation for being costly: It charged CXA between US$500,000 to nearly US$1 million monthly for the 10 months it was engaged, according to estimates by former employees.

Koo declined to disclose the exact amount, but she admitted that the software vendor’s services were “very expensive,” adding that CXA is “still paying off” the bill.

Representatives from the CXA engineering team for the Global Challenge journey. Photo credit: CXA.

It was believed that the potential value of SaaS platform would justify the expense, an ex-employee familiar with the matter says. In theory, a SaaS model achieves better unit economics and is easier to scale compared to a customized solution.

Several former employees say “opposing forces” between strategy and execution teams have delayed development, as clients continued to be assured that they would get customization, even though that’s incompatible with the newly built software platform.

At the same time, migrating existing clients to a new SaaS platform would have entailed “difficult conversations” about losing the customization they were promised, and “nobody wanted that,” an ex-employee explains.

“There’s not going to be much customization,” Koo clarifies. “75% to 80% of the platform we’re building is completely reusable.” While the platform has been co-developed by HSBC and other clients, it will be one that “many clients can use.”

The platform is also still being fine-tuned.

“For one client, we’re probably launching this month or April – depending on when we get all the sign-offs,” Koo says. “Another one is launching in May, [then] another one in June. You’re going to see quite a few launches coming up in the next few months.”

A hiring spree

As development of the ThoughtWorks-built platform reached a certain stage, CXA ramped up hiring in both Singapore and Vietnam late last year. Because the startup wanted to own the intellectual property, it replaced ThoughtWorks with “70 people in Vietnam and a lot of new people in Singapore,” says Koo.

Copyright: duha127 / 123RF Stock Photo

Ho Chi Minh City / Photo credit: duha127 / 123RF

hub set up in Ho Chi Minh houses CXA’s new technology team in Vietnam. A previous employee says that it was critical to recruit quickly in the country in order to reduce ThoughtWorks-related costs.

CXA added a total of about 100 people between 2018 and 2019. “When you hire that fast, you may not hire all the right people,” Koo notes. “In some places, we probably hired too many.”

This rapid upsizing placed pressure on some existing teams and long-tenured staff, hurting the company’s “incredible” culture in the process, former employees contend.

A number of existing and former employees say that teams were asked to drive the company towards unicorn status “at any cost.” Within weeks, a workplace that an ex-staff describes as challenging and fun became one that generated a “strong feeling of being unsafe” in many, with their jobs hanging on the line.

Several employees witnessed colleagues being shouted at and “belittled” in front of other staff, their confidence “shattered.”

I have been fairly vocal about making the hard decisions to push out toxic leaders. 

Those who pushed back on management decisions or who questioned practices quickly fell out of favor and were “shut up and pushed out,” ex-employees allege.

“Questioning has always been fine at CXA,” Koo says. “I’ve found that in startups, leadership and alignment matters much more than in established firms as time and resources are scarce.”

Sources say that the dramatic change in culture led to employees’ subsequent dismissals or resignations as working conditions turned hostile. Many recent hires had an average tenure of just a few months.

“We cannot afford to have leaders who do not perform or [who] spread negativity across the organization,” Koo points out. “I have been fairly vocal about making the hard decisions to push out toxic leaders to ensure that we do not have a hostile or political working environment. Culture really matters for startup success.”

Some have blamed politicking within the company for its internal struggles, citing competing interests as well as differing cultures and expectations between longtime staff and employees hired within the last six to nine months.

“There are some incredibly smart people in CXA and some incredibly great people to work with – from a professional, friendship and cultural level,” one ex-employee says. “That part was fantastic.”

Operational setbacks

Koo believes the Covid-19 outbreak is among the “operational challenges” that the startup faces. But a source tells Tech in Asia that signs of trouble began late last year, marked by high-profile resignations including Neil Persaud, the company’s chief people officer who was also a member of the board.

Several leadership members – including the heads of strategy, product, marketing, ecommerce, and partnerships – have either left or were replaced in the last couple of months, former employees observe.

CXA employees chat in their office in Commonwealth, Singapore. Photo credit: Sim Yanting.

In addition to letting staff go, Tech in Asia understands that CXA is also cutting back on commercial contracts for paid software as the company races to secure new funds to meet vendor and payroll obligations.

Current and former employees have voiced concerns about the startup’s steep expenses and burn rates, based on conversations they had with senior management employees.

In response to queries about CXA’s cash flow, Koo says the startup currently has a runway of six months, but she’s hopeful that the new funds will extend that to nine in order to tide the company over until its series C round.

“We’ve spent a huge amount of money and [now] the platform’s finished and we’re about to launch,” Koo says. “What [the new fundraise] does is it gives us the rest of the runway to finish that part of the platform and launch that.”

Shareholder Openspace Ventures is satisfied with the progress of CXA. “We are confident that the CXA team has built one of the best insurtech platforms in the region and is well positioned for its next phase of growth through its software-driven business model,” a spokesperson for the fund tells Tech in Asia.

Despite the difficulties, Koo remains optimistic. “We’re getting to the really neat stage,” Koo says. “It took me six years, but we’re actually becoming a tech company.”