A Glimpse of the Future of Insurtech

The Bold Penguin acquisition of RiskGenius exemplifies what I suspect will be the dominant insurtech model for some time to come.

Today's announcement that Bold Penguin is acquiring RiskGenius marks a milestone in the maturation of the insurtech movement. I've known Chris Cheatham, the co-founder and CEO of RiskGenius, for years and have closely followed the developments of what I have often described as my favorite insurtech. So, under embargo, I chatted with Chris to ask him to summarize how he surfed the first wave of insurtech so successfully and where he sees the movement going from here.

The deal feels to me like maturity because it exemplifies how insurtech has moved past some early ideas (e.g., that a Big Tech company like Amazon or Google would invade insurance and lay waste) and some early models (such as peer-to-peer provision of insurance coverage) that have yet to pan out. Instead, the Bold Penguin acquisition of RiskGenius exemplifies what I suspect will be the dominant model for some time: one where a company acquires a smaller firm for a particular skill or technology and incorporates it into the acquirer's products and services.

I realize that Bold Penguin is itself only four years old -- I wouldn't be surprised to see it eventually acquired by an even bigger company -- but it already had some heft, having raised over $50 million, and has added RiskGenius' 24 employees and $13 million of capital.

As Chris explains the fit, "Bold Penguin focused on delivering commercial insurance faster, getting the insurance bound and issued faster. We help people analyze insurance coverage faster."

Bold Penguin provides an online exchange where brokers can request quotes for clients, which tend to be small and medium-sized businesses seeking nonstandard coverage. The exchange automatically matches those requests with carriers that might be interested in providing coverage, solicits quotes and feeds offers back to the broker and its clients. The process still requires manual underwriting, so it's not like you hit "Done" and instantly get your car insurance quote, but going from start to finish generally takes days, not weeks, as can happen with completely traditional processes.

RiskGenius fits in because it uses artificial intelligence to analyze policies, down to the level of individual clauses. Want to know how cyber coverage compares across policies? RiskGenius can find the relevant language for you, arranged for easy comparison. Want to see at renewal time how an insurer's policy has changed? RiskGenius can help you sort that out, too.

While Chris built a successful stand-alone business (out of that well-known insurtech hot spot Kansas City, Mo.), it seems to me that RiskGenius nests better inside Bold Penguin. Brokers using the Bold Penguin platform will not only get quotes from insurers but will now have a tool they can use to sort through the details of policies and to help customers understand those policies.

Bold Penguin's acquisition of a feature/technology for its platform very much fits the model in Silicon Valley, where some startups don't even try to build a full business. Why bother to build a marketing or legal operation when the acquirer only cares about the technology and would surely shed all the operations people anyway? So, I expect to see more narrow-bore deals like the takeover of RiskGenius.

"If you think about commercial insurance," Chris said, "there are just so many complexities. An innovator should just focus on one thing to fix."

He said he thinks the first wave of insurtech is ending, while wave two is just getting going. (I've seen people say that the first wave has passed startup phase and is into "scale-up" phase, as the best prospects have now identified themselves and are attracting big chunks of capital.)

He is seeing more focus on back-office technologies that can create much-needed efficiencies and less on the sorts of distribution opportunities that showed up so frequently in the first wave of insurtechs, but he generally sees a host of opportunities because of the pandemic.

"COVID-19 has just changed the way commercial insurance will be purchased," he said. "The number of people buying online has surged in the past six months, and that isn’t going to change. That cup of coffee to get to know someone or to review policy details just isn't going to happen."

Chris picked his own niche in classic fashion: He got annoyed at a problem and started a company to fix it, then pivoted when a customer pulled him into a new area that resonated much more broadly. Oh, and he got a little lucky, too.

After law school and a stint at a large firm, Chris became a solo practitioner and worked with clients on claims in the surety and insurance realm. Frustrated with all the paper he had to deal with, he started a company to digitize claims documents.

A customer had a better idea. An underwriter from a big insurer called him in 2014 and asked if she could use his technology with policy documents. Chris and his co-founder, Dan Burchett, agreed and began applying AI to the documents to do even more to help brokers with policy reviews.

"Policy reviews can take days to weeks if they're really complex," Chris said. "Even if a review just takes an hour, if you have lots of small accounts that's still a huge amount of time."

Chris' approach to attacking that problem made so much intuitive sense that he quickly developed a following among those of us following the insurtech world. He was still scrounging for customers, but then the good fortune kicked in. Rick Huckstep wrote a piece about RiskGenius in the Daily Fintech newsletter in January 2016 and called the company "the Google of insurance."

How can you ask for anything better than being called the Google of insurance?

"I was in Iowa doing the conference circuit," Chris said. After getting off-stage, "I opened my phone, and it was flooded with messages. I was standing next to my sales guy, and I thought, 'My gosh, we found a problem that is massive and worth solving.'

"We wound up with hundreds of leads. We never had leads before. I thought, I like this better."

The rest, as they say, is history -- except that I suspect that the RiskGenius deal is also the future. While a few companies like Lemonade will try for massive scale on their own, I think there will be a lot more deals that will pull a capability from an insurtech into a company that can deploy it as part of a broader offering that will have much more impact.

Stay safe.


P.S. Here are the six articles I'd like to highlight from the past week:

Why Haven’t More Startups Failed?

Insurers appear to be focused on tactical initiatives that can produce more immediate results in the pandemic, and insurtechs have the tools.

Optimizing Insurance’s Role in the Pandemic

Policymakers must thoughtfully position insurance industry capabilities where they can have the greatest impact. Here is a proposal.

COVID, and How to Pivot to Innovation

The pandemic has almost shut down entire industries, forcing companies to adapt -- and doing incredible things for a pivot to innovation.

6 Cybersecurity Threats for Insurers

The insurance sector faces a bigger threat than most industries because insurers deal with extremely sensitive data.

Secret to Leadership in Insurtech Innovation

You need more than a product. You need to surround the product with proper execution, the right people and sustainable partnerships.

Managing Customer Opt-Ins in New Normal

Insurers need a single source of truth on opt-ins and opt-outs across the enterprise to solidify the relationship with the customer.

Paul Carroll

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Paul Carroll

Paul Carroll is the editor-in-chief of Insurance Thought Leadership.

He is also co-author of A Brief History of a Perfect Future: Inventing the Future We Can Proudly Leave Our Kids by 2050 and Billion Dollar Lessons: What You Can Learn From the Most Inexcusable Business Failures of the Last 25 Years and the author of a best-seller on IBM, published in 1993.

Carroll spent 17 years at the Wall Street Journal as an editor and reporter; he was nominated twice for the Pulitzer Prize. He later was a finalist for a National Magazine Award.