InsurTech is in its Cambrian Explosion phase, with lots of new ventures being created. However, we all know how tough the Series A Crunch is (data hounds can get their fix from Pitchbook, which shows 1,891 Angel/Seed rounds going to only 647 follow on deals).
So we pay attention when we see a Series A deal from top tier VC. In this case it is the $7.8M Series A on November 17 for CoverWallet, led by Union Square Ventures.
Small Business Focus
In addition to CoverWallet we also covered:
- Insureon. (They did a $31m round just over a year ago).
- Embroker.(They also did a $12.2m Series A in May led by Canaan Partners)
It looks like this space is hot. This makes sense for 2 reasons:
- The ageing of the traditional agent means the insurance carriers are motivated to work with new digital channels.
- The process complexity (all those paper-spewing fax machines) lends itself well to the kind of UX magic that digital startups excel at.
Robo Agent is more than a Comparison site
The first job of an agent is comparison. You go to a broker to buy Insurance and as long as they are independent (not tied to one carrier), they can give you an unbiased comparison.
We did a roundup of Insurance Comparison sites here. Our takeaway was that they are thriving in developing markets (such as India and China) where many consumers and small business are getting their first Insurance. In those markets, just having a comparison of different quotes is a breakthrough. In more developed markets such as America (where CoverWallet is focused), more is needed.
Using an analogy from wealth management, the comparison site is like going to a Broker and getting prices of the stocks/bonds that interest you. You get the prices, but not a lot of advice. For that you need an Adviser who understands what you need; the advice is customized & personalized. That is why Robo Advisers have done so well in wealth management. They took an expensive high touch service and offered an entry level, cheap no/lo touch service.
That is why we are seeing the emergence of Robo Agents in Insurance. That is the market that CoverWallet could define and lead for small business insurance.
Lo Touch and Customized, rather than No Touch
CoverWallet looks like a Lo Touch rather than a No Touch service as they also offer phone support to complement a digital service. That is a) essential to keep customers happy and b) expensive to do well. So CoverWallet will need the capital that they are raising.
Insurance is too complex and mission critical for a pure digital service. CoverWallet aim to cut through the complexity by offering Insurance that is tuned to the specific type of business. As they put it:
“The coverage you need depends on the type of business you run. A restaurant owner needs to be covered against customers possibly getting food poisoning while an accountant needs to be covered against calculation errors.”
If they can deliver on that promise at scale, CoverWallet will do very well. It is possible that with good data they can do this. A good UX is only as good as the data. UX without great data is often just lipstick on a pig.
Data comes from customers. If you get a good sample size of say restaurants, you will have the data to understand the insurance needs of restaurants.
So CoverWallet will need to scale fast and offer great rates from all the big carriers.
That is why we now dig into a boring old open data standard called SEMCI.
Is SEMCI ready for prime time?
SEMCI has been around for ages. SEMCI stands for Single Entry Multiple Company Interface (SEMCI). It is an open standard that is used to submit the same information to multiple companies. Insurance Agents have used this for a long time to request quotes from several carriers at once. (At time of writing the SEMCI.org site was not available, hopefully it is back now).
Like XBRL, SEMCI uses XML and has been one of those subjects that excites the nerdy among us, but has had relatively little real world impact to date. For the Insurance Robo Agent market to flourish, SEMCI will be critical.
An open interface standard such as SEMCI is critical to rapid scaling because, beneath a simple-sounding “buy/renew Insurance” on the to do list of a business owner, lies all these different types of Insurance that small businesses need by law:
- General Liability
- Workers Compensation
- Commercial Property
- Business Owners Policy
- Professional Liability
- Errors & Omission
- Medical Malpractice (healthcare specific)
- Directors & Officers
The Zenefits Elephant in the Room
We covered the dramatic rise and fall (and possible rebirth) of Zenefits a few months ago. Like Health Insurance for employees, Business Insurance is a boring but essential task for business owners. The takeaway from the Zenefits story is that agents need to have a reasonable understanding of what they are selling. CoverWallet needs to scale fast, without a regulatory blow up.
From Series A Crunch to B a Hero
If you think Series A is hard, try doing a Series B. Now your metrics have to be perfect (better than you needed do an IPO say 20 years ago). And you need to do that in about one year. The opportunity is huge but so is the challenge – its like a speed assault on Everest (getting to the top is not enough, you need get there faster than the other climbers). CoverWallet just left base camp looking strong.