Vouch is not able to proceed with my application because I run a bootstrapped business – zero funding and no debt. Vouch's current underwriting guidelines require at least $150,000 in funding, which seems odd.
I'm not sure why this is the case - if anything, my business has a much lower risk profile, since I have fewer counterparties, and don't have the exposures that would necessitate D&O, EPL, EB, or FD.
I hope this is something that Vouch will discuss with the reinsurer. I've been looking for a service like this for years now, and I'd like to vote with my dollars.
I think it is kind of a Potemkin village approach. Let's be honest, they don't want to actually solve the hard problems of underwriting things, they want to appear to solve them so they can impress VC's and get millions of dollars in funding for themselves. Unfortunately you can't help them with that goal.
For them, what better group to work with than the very companies that were funded by the same VC's they're trying to impress?
This approach works in both directions, since for one these companies are by definition well connected and well funded so they don't have to make tough underwriting decisions, and two VC's are for the most part living in a bubble, so by signing up a couple dozen venture backed startups they can create an "everyone is using it" impression.
Needless to say there are problems with this approach. The main one being the addressable market of VC backed startups is tiny and probably not worth that much to corner unless your revenue per customer is massive. And the other problem is that it's not clear you're actually learning anything if you're not really exposed to the wider marketplace.
They'd counter by saying they're getting good at their business and achieving scale and building a great product, and that expanding beyond their own bubble eventually will be easy once they get that product built up.
Maybe they're right. But until they do it's hard to consider any of the companies employing this model to be successful yet.
I have not used Vouch, but I know that insurance is vast and a very messed up industry. It is unrealistic to think they can solve all problems as a tiny company. However, it is heartening to see them try to solve some problems, at least for some people -- hopefully this spurs change in the industry. I wish them luck on their particular effort.
Honestly speaking, even if the underwriting approval process takes months, there is no reason in 2019 that ANY insurance company should direct you to faxed forms, as some incumbents do. Even if no other problem gets solved, e-applications would be a huge win.
Also, to be fair to this company, sometimes, what you underwrite is not up to you. This small company (not sure how they are structured) is probably not holding the risk. They either broker the risk, or take it on and later bundle it away. That means they are forced to only accept applications they can actually offload after origination. Don't hate the player, hate the game.
All of that said I definitely agree, as an outsider, it seems like a bootstrapped business would have a lower risk profile, but a venture-backed business would have faster growth potential and thus be worth more in premiums, so maybe that's their reasoning?
VC backed companies have a route to capital and lines of credit if they tank. What is Brex/Vouch going to do if your bootstrapped business tanks? Take your house?
In my opinion, Insurance has lots of paper-work and is a time-sink because the insurance brokers/companies needs to do lots of due diligence to determine the counter-party and the risk at hand. You are selling something that could potentially be worth $100k for $300/year, you better be right that the litigation is not happening, at least not that often.
These guys do not do that, and it is not clear how they do for the counter-party risk and insurance fraud. Instead, for now, they'll just accept their friends who have a common risk-profile and are easier to serve/predict their liability. After they raise a few rounds, they might get to the actual problem and try to solve it.
It looks like you're taking a very different approach of not comparing options from outside insurers and working with a single insurer instead. Why is it better to go through you than a more traditional broker (ie. https://foundershield.com/)?
I'd offer a strong word of caution against the attractive idea of viewing brokers as rent-seeking middlepersons. As a seller, you are probably very well-informed on the relative quality of your product. From that perspective, it's a simple mistake to assume that consumers have better information than they do, and thus don't need a broker.
The reality is that insurance (just like any kind of financial instrument) is extremely complicated. Brokers are a individually-tuned filter of information, telling clients exactly what they need to make an informed decision. In the insurance industry, consumers can often get this value at no cost to them (the insurance carrier pays the commission). Premiums are priced identically, whether you purchase through a broker or not; so, as a consumer, why not choose a broker?
To help people (investors?) escape this mindset, I like to compare brokers to Certified Financial Planners. To the informed, CFPs seem like an embarrassing inefficiency in a marketplace that's vibrant with free information. In reality, CFPs provide a real value to a large segment of the population: decent returns, accountability and agency, a human to soothe them through tough times, and a filter for information that feels irrelevant to daily life. Most people want to think about insurance exactly once per year, for as little time as reasonably possible, and no COO got fired for purchasing insurance through a broker.
Bottom line, if your value prop to investors is selling directly to avoid commissions, you're selling them on:
(1) your ability to convince consumers that your information funnel is a better UX (arguable)
(2) your customer support is more versatile than a broker's (unless you're open to encouraging customers to go to a competitor, this is impossible)
(3) while you're accuring brand value to satisfy (1) and (2), you're comfortable with having a growth curve with a low ceiling.
Instead, I'd recommend seeing brokers as external salespeople. If you make a product that is easy to explain and sell, and develop a first-class broker experience (receiving commissions, viewing book of business, CRMing with clients), they will actively convince their clients to switch to you at that one time each year. Brokers already have a rapport of trust with their clients, that you can leverage, even as an upstart, to win market share.
More concretely, in our experience brokers can convince people to change their carrier more effectively than world-class marketing. I'd recommend visualizing your commission spend as marketing spend. Commissions and broker tooling are levers you can pull to grow faster and higher.
It's a harder-to-sell vision, because investors tend to see brokers as an economic inefficiency to be "disrupted" away. But, again in our experience, it's the only practical way to bootstrap some table stakes in the market.
Anyways, hope whoever else reads this finds this insightful. Just my two cents; I think you all have a great vision, and I wish you the best! Learn from our hard-earned mistakes, please :)
>> Instead, I'd recommend seeing brokers as external salespeople. If you make a product that is easy to explain and sell, and develop a first-class broker experience (receiving commissions, viewing book of business, CRMing with clients), they will actively convince their clients to switch to you at that one time each year. Brokers already have a rapport of trust with their clients, that you can leverage, even as an upstart, to win market share.
I think there are two (or more) positive aspects to the Vouch approach:
1. Vouch's distribution is fueled (in part) by relationships with investors (e.g. YC). YC's twice-yearly batch is a wonderful source of start-up business. I don't by any means think it is the only source of business, but that relationship is a positive for Vouch. I've not been through YC but imagine they're happy to recommend Vouch to the folks they're coaching through the year.
2. Intermediaries are rightly lambasted for many reasons, but I think it's silly to assume that the entities that control distribution are doomed. I agree with you that brokers can be valuable, but I think their value to Vouch is different. It isn't to help funnel business in the door (though perhaps that will come), but instead they are partners that can help Vouch scale its offering as start-ups grow and require more complex insurance. Vouch helps create a distribution channel the brokers today don't do a great job servicing, and it enables the business of those brokers when/if the underlying businesses are ready.
With the normal disclaimer that opinions, views, and hot-takes are obviously my own private ones and not those of my company,
I work at https://www.hioscar.com.
1- You say you're live in 8 states. Which ones?
2- Did you have to obtain 1 license per state?
3- How much time did it take to obtain each license? What it entailed? Was a prerequisite being a US citizen or being a US company?
4- are/will your employees that deal with the sales legally required to be individually licensed agents?
5- "Pricing depends on a variety of factors including policyholder location". Could you elaborate on the regulatory aspects, if any, of this?
Have you paid any claims out yet?
In my experience these insurance products (ex: E/O coverage for bespoke software services) are a checkbox on a requirements doc for dealing with large companies. They’re never invoked and it ends up being a private tax. All the customers care about is if you have coverage and if the underwriter has a minimum rating or is from a preapproved list.
We haven't paid out any claims yet -- our oldest polices are only about three months old -- but have built out a claims management approach to ensure we're doing the right thing for our members (while also of course making sure there isn't claims fraud).
In terms of where these policies are needed -- you're right, in some cases business insurance is a requirement to close contracts (E&O and Cyber are frequent contract requirements) but in my own experience other lines are really valuable. I've seen meaningful property claims in other businesses I've been involved with, and there are good reasons to have EPLI and D&O as well.
Thanks for the comments.
Your filing indicates a 10% discount for a data sharing agreement. Can you expand on what data my business would share with you to be eligible to get that discount?
I couldn't imagine anything more important, from a protect my investment POV, than making sure a bunch of no significant corp experience founders / execs have the proper E&O coverage (among other coverage).
The font on the "startup insurance" page with the information on each type of insurance is too small and looks like fine print rather than essential information for anyone looking to see what your product does or offers.
I feel this is partly due to the 1-to-1 selling style of most insurance salespeople... it moves like molasses in a digital world.
Another issue is the wholesale price. You need to be selling a lot of a particular type of insurance to get the best pricing for your clients.
Having the market to place insurance is important. Many small commercial insurance brokerages end up having to send things to a "General Agent" who has more markets then you do but marks up the policy higher so now you are not as competitive.
Advertising is tough, very competitive. Especially now with all of these funded to the hundreds-of-millions companies like eBroker and others coming on board.
I went from sending about $18-$22 per click for commercial insurance keywords on Google Adwords 3 years ago to upwards of $28-$35 per click now.
2. Are you justifying your pricing by saying “me too” and copying an existing competitor’s pricing? If so, which competitor is that? If not, how are you justifying your rates?
3. Are you hiring for software/product?
Filed Loss Ratio (including LAE) is 65%. Basically ISO rates and forms with exceptions...they also copied some Chubb stuff.
You can read the more interesting parts in this exhibit
Looks like the major play here is that ISO has very little pricing granularity for tech companies (they are classified as "Offices (Not Otherwise Classified)") and that Vouch will focus on more differentiated pricing (based on policyholder sales, not as much on Limits).
D&O and E&O will be interesting...will look for that later...
EDIT: So that's STNA-132007333, and there they copied Rates and Rules from Great American, and use their own forms (which I'm guessing are somewhat similar as well).
Who insures you in case of a big claim that exceeds your equity?
A calamity like say the Exxon Valdez?
A great service but startups will pony up in good faith, but what happens when the chickens come home to roost?
How do you guys compare?
Technically this is not a new entrant, just a different way to recycle capital. Munich Re (one of the top three reinsurers in the world) will provide reinsurance/capital to Vouch or anybody who could bring growth to them.
The post is a bit misleading. A lot of startups in that field use the standard bashing of “middlemen”, “making the process more efficient”, etc when in fact they are just another broker. Just about EVERY startup in that field uses the same language (Lemonade, MetroMile, etc…).
In this case Vouch is an agent of Standard insurance, a subsidiary of Markel, a company in the business of providing “Fronting” for large reinsurers:
An analogy would be emails: you can go directly to Gmail, Yahoo or whatever or you may access all those emails on your Mac Mail or whatever . What matters is the provider behind (their tech, spam capabilities, etc.)
Vouch is an agent of Standard Insurance, not really a top player in the field of insuring tech. Chubb and Hartford are.
Vouch is thin on experience with only two endorsed agents (I assume the founders) who only got their license one year ago:
And have no classes/credit or whatever to back up the fact that they can “provide advice” to startups: https://interactive.web.insurance.ca.gov/licensestatus/licst...
This is public information. The fact that they are licensed surplus lines brokers is a flag as they may place your business with “non-admitted insurers” instead of established insurers in your state (who have experienced claims people, insurance wording approved in your state, and backed by state guarantees). “Non admited insurers” is an opaque field of various insurers, some are good, some are just shabby. Just be aware.
Most of the time you will be better off with admitted insurers (Hartford, State Farm, Chubb) for a number of reasons: they have the experience, they pay claims promptly, and are cheaper. The state will keep an eye on them if they don’t pay claims promptly.
I assume that Vouch will also farm out the claim process to contractors. I just don’t know.
I am not saying that Vouch is good or bad, just be aware, don’t buy into the BS and be an informed buyer.
Buying from a mid-size insurance broker provides some piece of mind: they know what they are doing, have the equivalent of a large enterprise team dealing with big, publicly traded tech companies, and they can call on those in house folks to help if needed or if you have a claim that the insurance company “initially” denied. They can apply “gentle pressure” because they have buying power.
Of course if you deal with Vouch, an agent of Standard Insurance, your options are limited if you get in trouble.
You may think “I will sue them”. You don’t sue insurance companies, or very rarely (and only if you are a consumer, not a company) because they have in house counsels they pay $50/hr against your $1,000/hr lawyers.
1. It's State National, not sure where you got "Standard" from.
2. Vouch is acting an MGA/Program Administrator, including being involved in underlying insurance product/actuarial design. This is WAY different than being a regular broker/agent. (It's essentially the difference between sales, and sales and operations.)
3.State National doesn't have a reputation for anything--that's what makes them a fronting carrier! Besides providing the paper/AM Best Rating/filing assistance they are not involved in the day to day.
4. Being Surplus Lines Licensed is not a red flag; if they want to offer (possibly in the future) additional options for hard to place risks, then it's being used appropriately. If they are using it just to be able to offer "something" when they know, say, Hiscox would be happy to cover them, then I'm not enthused.
5. Having only a few licensed producers on stuff is not unusual for now; they may be sharing staff with a partner/TPA, plus they may have a large inhouse underwriting team. With so many coverages being offered though, they do need a larger staff than normal to be proficient.
6. It's quite likely that being focused on a narrow class means they can be more responsive/flexible and better able to price risk. I assure you the Hartford does not care at all about the VC funded tech startup market. Program business can be very lucrative AND beneficial to those being covered. Some brokers (large or small) have NO IDEA how to handle tech startups; if Vouch proves itself they may eventually try to place business with Vouch.
7. Some insight in how they will handle claims would be good, I agree--ESPECIALLY for D&O and E&O where legal assistance is critical (and specialized). Being able to offer/get your filings approved for many different coverages is only a piece of the puzzle...you need experienced people on the claims side, irrespective of the bare ability to "pay claims". The fact they don't even discuss claims handling on their site makes me sad :-(
8. Oh, insurance companies get sued all the time for denying claims, not that you want to be in that position...
PS You founded Esurance? Cool!
bubble isn't growing fast enough... need more leverage...
someone build a longer 2x4