When I think about insurance, be it renters, home insurance or whatever else you insure, I can’t help but think that these organizations I am purchasing from must singlehandedly be providing life support to the paper industry.
The copious amounts of paperwork associated with a policy and the vast quantities of friction associated with applying for insurance are almost too much to handle. And yet for most of us this is business as usual. But in an age where buying a home can be as easy as buying paper towel off of Amazon, there must be a better way.
That is where Karn Saroya, Co-Founder & CEO of Cover comes in. He and his team are reimagining the insurance buying experience by enabling the SnapChat generation to snap a photo and instantly access insurance in line with a new age of commerce. Innovation is upon us. Check out our discussion below to learn more.
CL: Karn, in the past you founded another company called Stylekick in the e-commerce space as well as worked at Shopify post acquisition. What has drawn you to the insurance markets this time around?
KS: Originally, I was part of building an ecommerce marketplace from scratch that ended up gaining about a million users native mobile technology. We ultimately looked at the unit economics, and felt that selling high fashion wouldn’t pan out.
What we gained from building Stylekick was the skills to build beautiful mobile products and distribution tools, and we felt that we could continue to build elegant products and drive customers through our apps. So, we knew that the next thing we would do is build a mobile first business that would have strong unit economics. We came across the idea for Cover, while we were running hackathons on weekends by ourselves. There was a lot of playing around with building ticketing and lottery ticket apps, and trying to determine what verticals we had expertise in.
Natalie was at Russell Simmons in New York at the time and I had worked in tech within the insurance practice at Oliver Wyman, prior to building Stylekick. Ultimately, it was decided that we would pursue insurance largely because we came to see that every part of value chain in insurance delivered a sub-optimal experience.
CL: For those that don’t know can you define Cover as a business?
KS: Cover is a mobile insurance app that makes it as easy as taking a picture and answering a few underwriting questions to purchase insurance for things such as homes, cars, pets, electronics, and speed boats.
We don’t do life insurance yet, but we are working on enabling people to take selfies to purchase life insurance too.
CL: You talked about the value chain in insurance delivering a sub-optimal experience. How do you think Cover is positioned to create value in this space and capture a part of it for itself?
KS: Generally speaking, customer acquisition cost or CAC are extremely high in insurance. Be it Geico or an agency, most insurers are looking at spending upwards of many hundred dollars to acquire a customer.
We saw an arbitrage move on native mobile because we don’t believe anyone will download 8 different insurance apps. But, they may interact with one marketplace for purchasing all their insurance. We do most all of our traffic through the android app, which I think speaks to this thesis that we can win on customer acquisition through mobile.
CL: When talking to customers, what do you find is the greatest pain point you are solving for them when it comes to purchasing insurance?
KS: I think its table stakes to simplify the onboarding process of insurance customer. Customers shouldn’t be subjected to 50+ questions about their house when purchasing home insurance. Not to mention who even knows what roof style or foundation type they have?
Most don’t know the answers to most of the questions they are asked anyway so we are working to simplify the onboarding process by many orders of magnitude. The secondary thing we need to do is find ways to provide value-add to our customers irrespective of whether or not they purchase insurance from us right away. In a commoditized space like insurance, service is still incredibly important.
Most use our service for price check alerts, and we work to replicate customer behavior by automating price checks you might do on your own. For instance, when you find out that a claim or violation has dropped off your record you may go and search for better rates. We do that programmatically and perform these types of behavior automatically. Other features on Cover that are sticky and more technically challenging are our use of computer vision, which enable you to take your camera and walk around your house to identify and catalog existing property so when you need to make a claim you have proof that the property existed in that specific time and place. From an insurance perspective that is hugely valuable because it cuts out the need to deal with an adjuster and enables you to get paid quicker in the event of a claim.
CL: How has Cover been able to enter these massive insurance organizations like Progressive and Allstate and convince them to utilize a new model of customer acquisition?
KS: By and large the customers we cover are the holy grail of insurance customers. Typically, our users are in their late 20’s, have college degree, are active professionals, and are accumulating assets and those are the customers insurers want to go after.
At the same time the insurance companies have no access to these those customers in tradition distribution channels like old school broker houses. So we interact with the channels customers want to interact with based on the level of convenience and transparency we can provide on mobile. That narrative resonated with insurers who understand that if they want to be where the customer is they need to work with organizations like ours, because we are where the young people flock to.
Another advantage is that we don’t ask much of our insurance partners. We ask to be treated as traditional retail brokerages and then we build the tech out on our end to simplify as many pieces as we can. We never shift the technical burden onto our partners, we leave it on our end. In many ways we are viewed as their allies.
CL: Since you are a commission based model, how do you ensure that you are always offering the best value insurance to the customer rather than the best commission for you?
KS: We don’t optimize around commission at Cover. We try and understand who the customer is. If we see on your Linkedin that you’re a doctor from New jersey, we will recognize that if you hit someone with your car you have a great deal more assets for that individual to go after.
In that case we will identify that you have more exposure to risk than most Americans, and based on that information recommend the associated limits that would make sense for an individual in their unique position. We really try and customize the selection of insurances we recommend based on the background profile of the customer so that they have the best customer experience and feel that they have been treated more than adequately.
CL: What are some of the challenges you face when it comes to utilizing a photo to determine the type of coverage a customer needs?
KS: We do ask a small set of underwriting questions and the rest of the information we source from third party APIs or other vendor reports. The pictures are important for us because they provide proof of insurability that the property you are trying to insure existed in a certain time, place and position.
That way a provider can’t turn around and say, “That TV you filed a claim against isn’t actually 4k or there was some other issue with your property prior to coverage so we deny the claim.” The photo becomes a way for us to enable insurers to know that the property is as described on the forms, and it acts as a defensive barrier for customers in the case of an adjuster going off the rails during a claim.
CL: To date do you have any metrics on stickiness with customers who utilize the Cover platform? And what is preventing them from going around your service once they have signed with an insurer for a certain coverage?
KS: Most carriers we work with operate with independent agency channel. We get paid on a commission basis. We don’t charge our customers. Our service is free, and the rates we display are the rates you will find by looking elsewhere. What it comes down to is we are able to provide a better consumer experience for our customers. We are there when they have questions or claims. And we are right their in their pocket.
That fact has enabled us to have a high cross sell, at north of 40%. And our turn rate is pretty low. We haven’t been selling that long but thus far we have minimal attrition of customers. People like to buy insurance, set it and forget it, and only use us when they need to make claim or have specific question.
CL: What strategies are working well in terms of customer acquisition and will this be the largest area of spend for the organization as you look to grow?
KS: Insurance companies spend enormous amounts of money on customer acquisition. In these early days we are aware that we cant compete with Geico’s $2 billion in acquisition spend per year, but what we are doing is finding arbitrage opportunities available to us and hopefully delivering a positive experience that helps get the ball rolling.
Thus far, mobile has worked well for us. We have also started to see more channel partnerships, especially in the renters insurance market. Given our background in acquiring on mobile, I will say we are taking a portfolio approach to growth, and will try a bunch of approachs and then scale what works well.
CL: As we think about the evolution of personal insurance in the coming years do you see companies like your own becoming actual insurers in place of the likes of Progressive or will partnerships continue to lead the way?
KS: I think the market will eventually move to a more of a hybrid model. We recognize where our insurance partners fall short along the value chain. And this doesn’t mean we are stepping on their toes. Instead, we are identifying where they they don’t perform well, such as with younger folks. I mean there are hundreds of thousands of insurance agents across the country that can really benefit from having a fair and objective marketplace like Cover. So our role will evolve in this space, but will only help to provide value add to the consumer insurance ecosystem.
CL: Your lead investor for the most recent Series A was Social Capital, a highly innovative VC firm with a new approach to investing. What drew you to working with them and what has that experience been like?
KS: The partner on our board is Arjun Sethi, who has built mobile, and video games businesses that he has scaled into major businesses by raising $100s of millions of dollars. What I really appreciate is the fact that they are an operator VC where the individuals have built businesses before, and generated billions in revenue on their own without support, so they have instructive people.
And the secondary Social Capital platform as an organization has bunch of functions we can learn from to helps scale our business, be it biz-ops, customer support, financial management. If new need it, they have it to help us scale. Really, we are lucky across the board with our investors from Sherpa Capital and SV Angels to Angels from Tencent and more. All of them are terrific.
The Minute Rundown with Karn Saroya
CL: If you could provide one tip to someone considering starting up who would it be and why?
KS: Be prepared to fail a lot. Whule building my first business, Stylekick I watched my savings go to zero, I slept on peoples couches to raise money and I was trying to find my way. You need to recognize it will be painful but if you stick through it and are clear minded and objective in the long run things will work out. It is not easy to go from nothing to something but if you keep at it and fail a bunch, you will become a much more versatile, useful, and adaptive person than you started out as.
CL: If you could model yourself after one founder who would it be and why?
KS: There are elements of so many individuals that I appreciate. If I think about someone like jeff Bezos, I appreciate that he recognized early on and quickly that building everything inhouse to increase productivity could eventually become a sales opportunity. That’s how they ended up with the AWS infrastructure, their telecommunication platform with Amazon Connect, and their logistics business. All those things were projects to help focus on continuously improving the quality of their ecommerce product and its created so much value for the business. It’s pretty genius and instructive for me as we think about things to build in-house to support our insurance processes.
Then you have Elon Musk who is a little cleashy at this point but the fact that he has continuously put it all on line to try and bring what should exist into world is pretty awesome. And there are others too that I really respect and appreciate and learn from too.
From speaking with Karn, two things are apparent. Building startups in the tech space can be filled with friction. But the technologies that come as a result of this friction can stand to reduce friction for consumers by many orders of magnitude.
Cover is finding a way to cut out the burdensome process of acquiring customers for insurance organizations and in doing so is providing value add both upstream to insurance partners and downstream to consumers desperately in search of a better way to acquire insurance.
Thank you Karn and the whole Cover team for investing in truly Simple.Innovative.Change