LOOP, a insurtech company that is launching a new concept of AI-driven auto insurance polices, was able to land $21M in Series A funding last week. The group of investors varied from venture capital groups to media companies to celebrities like hip-hop star Nas. The company claims to do auto insurance differently by changing the way they design premiums and qualify discounts.
“We get rid of all the stuff that doesn’t matter in pricing [customers],” said John Henry, Co-CEO and Co-founder of LOOP, when explaining how the ways traditional insurance companies price their customer’s rates. This is where LOOP separates themselves from the pack. Things like credit scores, education, and income are not considered when pricing out their customer’s rates according to Henry, rather it’s how and where they are driving that determines the cost of insurance.
As an [Managing General Agent] MGA, LOOP underwrites its own risk and chooses the services they partner with to operate their claims. “This is not some digital brokerage or a quoting engine,” said Henry. “When you are insured by LOOP, it’s our actual product you’re insured by. We don’t sell any other products, we don’t sell leads, we are in the business of insuring people.”
LOOP will provide information to its customers that enables them to improve their driving and decrease their future rates. They will send customers tips on where and when to drive, and how to drive if they are driving erratically via a phone-based app. Their initial rate is based on population-level statistics from the respective area, and their personalized rate is a standard 6-month premium, meaning that the monthly rate won’t change month-to-month based upon how customers drive at certain times.
“We have millennials encumbered with student loan debt, we have immigrant populations with consumer loans, baby boomers selling their homes and losing their home and auto bundles, and the realities of the post-pandemic era means that we need more flexible and contemporary insurance solutions, and we are proud to be emerging as that,” Henry said.
“We are the third step of insurtech,” he said, when asked how LOOP compares to others in the AI-based insurance sphere. “We’ve fundamentally built a novel insurance product from the ground up. Rather than sprinkle a digital layer on top of a legacy product, we completely rearchitected it.”
Henry boasted about how his company is the only one writing policies without traditional demographics in mind. “Today, I’m really proud to say that LOOP is the only insurance product that is a standard auto product that doesn’t have any of those demographic factors, it’s completely technology driven,” Henry said.
According to Henry, LOOP’s status as a public-benefit corporation, or B-Corp, will give his company the moral obligation it needs to fulfill its mission of being a fair, non-biased, and non-discriminatory auto insurance provider. The B-Corp status creates a “double bottom line” as Henry put it, creating a legal obligation for the company to hold the values in its mission statement for its customers, as well as the traditional corporate obligation to what’s best for its shareholders.
“From a business perspective, it’s kind of a risky thing,” Henry stressed when talking about the obligation to their customers as part of the public-benefit agreement. “The public can sue us if they ever feel like we are straying away from our mission.”
Customers are saving an average of 35% on their auto insurance premiums when quoted by LOOP, according to Henry. The company name directly correlates with the envisioned series of events that a LOOP customer will experience while holding a policy. A LOOP customer signs up, gets a good rate, utilizes the information given by LOOP, their driving is tracked and the data is analyzed, and the rate drops upon renewal after the policy expires. By repeating this, the customer “loops” around a cycle of better information leading to better rates.
“This is a mass market product. There is mass consumer demand. Our waitlist has grown to over 30,000 people across all fifty states, with different age groups and backgrounds,” Henry said. “I think people are excited to have an insurance company they can love again.”
A new asset class is emerging and it’s taking top talent away from the alternative lending space. Insurance technology, or insurtech, is a nascent market segment that presents a similar market opportunity that fintech did back in the day, sources say. And while there are parallels between the two niches, the market landscapes are unique in many ways, too.
Former OnDeck exec Paul Rosen recently decamped to insurtech startup CoverWallet where he’s been named COO. CoverWallet is an online marketplace for small- and medium-sized business insurance policies. Rosen left the alt lending space at a pivotal time for the industry and his former employer, both of which have experienced realignments to their approach in 2017.
So why would Rosen, the former chief sales officer at OnDeck, depart a proven market opportunity in alt lending for newer waters in a less mature segment in the insurance industry? In short, he’s not the only one.
Earlier this year, James Hobson, former COO of OnDeck, left to take the helm at insurance startup Attune. According to LinkedIn, OnDeck’s former SVP of operations Martha Dreiling made the same jump, joining Attune as head of analytics and corporate operations. Josh Wishnick, another OnDeck alum, is now spearheading business development at PolicyGenius.
One might question whether the trend is specific to OnDeck, given that the newly minted insurtech execs are originating from that company. The interest in insurtech, however, extends beyond the C-Suite and into the investor base, which is indicative of a broader trend unfolding.
OnDeck spokesperson Jim Larkin told deBanked: “OnDeck was among the early pioneers of online lending going back to 2007. Since then, we have seen numerous other fintech initiatives take off. Insurtech is the latest. Several former OnDeck employees are providing their expertise to this new space and I’m confident they will help their new organizations to thrive in the same manner OnDeck has over the last decade. Growing talent and seeing some of them graduate and contribute to the vitality of FinTech ventures across the world is one of the things that we are most proud of here at OnDeck.”
Meanwhile CoverWallet in recent days announced a Series B-$18.5 million cash raise led by Foundation, a new investor in the startup that similarly backed Lending Club and OnDeck. This trend speaks to the comfort level among both alt lending industry execs and institutional investors for the emerging insurtech market.
“So, it’s interesting. A lot of the people that helped to grow and shape the fintech industry have now moved on to this industry. Insurtech today feels a lot like fintech did in 2011,” Rosen told deBanked.
Insurtech stands to disrupt the insurance industry much the same way that alternative lenders did in that arena. The nascent market opportunity is also unique, with nuances that set insurtech apart not only from alternative lending but from the broader insurance industry as well.
“SMB insurance is very different from personal insurance. You can go online with Geico and switch insurance providers in 15 minutes. SMB insurance isn’t built that way right now,” said Rosen.
For instance, most SMBs go to brick-and-mortar insurance agencies to get whatever policies they need. But the process to getting a loan is slow and paper-work driven. They might have to fill out a 42-page application to get a $600 business owner policy.
The differences are even more pronounced between insurtech and alt lending, especially when it comes to compliance. “With this business, there are heavier regulations than there are in SMB lending. All our sales people must be licensed. There’s a heavier compliance component to it,” said Rosen.
As of today, CoverWallet markets to its customers directly. “If you look at the fintech industry, we’re kind of like an ISO. At this point we’re a distribution company going directly after our customers,” said Rosen, adding that they have put brokers using their technology on the back burner for now.
CoverWallet does some of the underwriting themselves. “We’re where insurance and technology meet,” he said. If a SMB went to a typical brick and mortar broker, they might fill out a 42-page application with 80 questions. Considering that CoverWallet is online, the product is extremely simple and intuitive so the SMB owner doesn’t have to answer tons of questions. “You go through the process a lot quicker. And a lot of the underwriting is done on the sales end by our sales team,” said Rosen.
CoverWallet acts like a marketplace in that they will go through the carrier that best meets the need of the SMB. “It’s very similar to a broker. We’re out there doing online marketing. We don’t do a lot of direct mail. A customer comes in and we examine the customer and based off the industry, location and some other things we determine where the best fit for that customer is. We send them to the carrier that’s the best fit based off carrier appetite,” he said.
That Was Then, This Is Now
So, what is it about insurtech that has some top-tier talent in the alt lending space running for the exit? Rosen pointed to a trio of parallels between insurtech today and alternative lending then (back in 2011), which perhaps is what’s compelling alt lending veterans to make a career change.
When Rosen joined OnDeck in 2011, one of the things they discussed was a $100 billion market opportunity in unmet demand in the small- and medium-sized business lending market. Six years later and the industry is probably lending $10 billion to $15 billion now, which suggests there’s still a lot of headway in the alt lending space today.
Meanwhile, Rosen points out that of the $100 billion in small- and medium-sized business insurance premiums that are written today in the United States, “virtually none of them are done online.” And that, he says, is the No. 1 reason why insurtech feels a lot like fintech did in 2011.
“If insurtech can get to $15 billion to $20 billion in premiums, that will be a huge opportunity for the right companies. We think we have a shot at it,” Rosen said, adding that it’s not a zero-sum game.
Secondly, insurtech is highly fragmented similar to how the online lending industry was before. “There aren’t a lot of brokers or distributors with a significant amount of market power, especially in the SMB market. When we started OnDeck, there wasn’t any one company from a lending SMB perspective with a whole lot of market power,” recalled Rosen.
Lastly, Rosen points to industry disruption. “The way SMBs were purchasing loans in 2010 was very similar to how they were purchasing loans 20 years prior. There was not a whole lot of innovation or disruption. Then OnDeck, BizFi, Lending Club, BFS Capital and CAN Capital came on the scene and started disrupting the space. On the SMB side, there has been no technology disruption till this point. Now a handful of companies like CoverWallet are looking to change that,” said Rosen.
Rosen has been fielding inquiries from others in the alt lending space. “There’s definitely interest in the insurtech space from fintech team members,” he said. Meanwhile, even though he has left, Rosen remains “bullish” both on the alt lending space and his former employer, OnDeck. I have kept most of my equity at OnDeck,” he said.