Over the past year, Chicagoland has seen an uptick in the number of venture-backed insurance tech startups. Some of them provide comprehensive insurance, while others simplify only one part of the process.
But regardless of their niche, insure-tech companies are having a moment in Chicago, and it makes sense. Illinois has a history of being home to some of the nation’s biggest and most powerful insurance companies, like Allstate in Northbrook and State Farm in Bloomington, both of which have sold home, car, and life insurance for more than 80 years.
And consumers are familiar with these companies. How many times have we seen Dennis Haysbert in an Allstate commercial, telling viewers that they’re “in good hands”?
But many of these same consumers are much less familiar with Kin Insurance, Clearcover, DataCubes, and Snapsheet, local insure-tech startups that work to simplify insurance. Cumulatively, they have raised $ 30 million in funding in the past four months.
“[Chicago] is likely to become, if we’re not already, the center of anything going on with technology and insurance,” said Fred Hoch, the founder and general partner at venture capital firm TechNexus and the executive chairman at the Illinois Technology Association.
The insure-tech boom in Chicago can be attributed to the growing and thriving tech community here, but it’s also a breeding ground for insure-tech startups because of the region’s workforce. Many founders of these young startups worked at an insurance company in the area before launching their own venture. Besides Allstate and State Farm, Chicago is home to Zurich, CNA, and Aon. The talent was already here, and much of it has stayed.
“We have a strong talent pool to draw from,” said Harish Neelamana, the chief product officer at DataCubes, who previously worked at both Zurich and Allstate before joining the startup. “And they tend to be folks who have worked in insurance and are coming out of those companies because they feel things can be done differently — that means that most are looking to build in Chicago, versus elsewhere.”
The rising talent
“Insurance right now is clearly an industry that needs to be disrupted,” Hoch said. “So, it’s just a natural evolution that as we as a community grow, as we evolve and mature, companies are starting to pop up.”
Some of those companies, like Kin and Clearcover, are trying to disrupt and compete with insurance companies as a whole, while others, like DataCubes and Snapsheet, work with insurance companies and depend on their business.
Kin, founded in 2016, has built an insurance software system entirely from scratch that allows them to make underwriting decisions quickly based on data from satellite images, public records, and other sources. This not only makes the entire process much quicker, but also generally cheaper for customers because Kin has eliminated many distribution and overhead costs, said Sean Harper, cofounder and CEO.
“Most insurance companies are running off very old technology,” he said. “But we have a very modern and flexible system. It’s good at ingesting these huge amounts of data and applying an algorithm to it to make good decisions.”
Though Kin is based in Chicago, it currently only offers its services in Florida. Harper said that’s because Florida is a riskier market since it’s in a hurricane-heavy region. However, it has plans to expand to most of the country’s population by the end of 2018, Harper said.
Just last month, Kin raised $ 4 million from investors including Commerce Ventures and Chicago Ventures, and the company employs 18 people in its River North offices. Harper says Kin competes directly with Allstate, State Farm, and Nationwide, because it does what those corporate firms do, but better.
“We compete directly with them for their customers,” Harper said. “We’re a faster, more customer-friendly, more efficient version of them.”
Similarly, Clearcover, founded in 2016 by Kyle Nakatsuji, a former VC at American Family Insurance in Madison, Wisconsin, is also trying to compete with insurance providers. The startup, which just raised $ 11.5 million in mid-September, uses AI to help consumers efficiently buy car insurance. It advertises that it can save people up to 50 percent compared to legacy firms like Allstate and State Farm.
Much like Kin, Clearcover can offer insurance at a cheaper price because it eliminates overhead costs like brick-and-mortar offices, expensive ads, and outdated technology.
Compared to Clearcover and Kin, though, Snapsheet has a slightly different business model, one that depends on existing insurance firms. Snapsheet is also one of the first insure-tech startups in Chicago as it was founded way back in 2010, six years before Kin, Clearcover, and others.
Founded by Brad Weisberg, CEO, and C.J. Przybyl, president, Snapsheet provides a platform to insurance companies that allows their customers to file automobile claims virtually using their smartphone camera.
“We’ve built a whole suite of tech that actually helps the carriers process these claims the way customers want to process them, using any form of technology,” Przybyl said. “Our organization completely helps them change their mindset and their workflows to be able to absorb and handle this virtual channel.”
Snapsheet, which has more than 50 clients and about 400 employees, raised $ 12 million in June, bringing its total funding to more than $ 43 million.
Like Snapsheet, DataCubes, founded in 2016, also sells its services to insurance companies directly. Neelamana says it isn’t in the business of disrupting the insurance industry, just the underwriting process.
“Our goal is to help the carriers,” Neelamana said. “Our intent is not to go up against them and start selling insurance policies.”
DataCubes has only 15 employees right now, but raised $ 2.5 million this September from Seyen Capital and MK Capital.
With all the funding, personnel expansion, and tech-forward thinking from insure-tech startups, are legacy insurance firms threatened?
“No question — they’re threatened by it long-term,” TechNexus’ Hoch said. “Not overnight, because they have huge pools of cash, but long-term — absolutely.”
Allstate makes tech moves
Back in 2011, Allstate acquired Esurance, one of the first companies to sell insurance over the internet. It was a move that made one thing clear: Allstate knew it had to be proactive in remaining a leading insurance company.
And just last year, Allstate launched Arity, a tech “startup” that operates out of the Merchandise Mart, about an hour away from Allstate’s headquarters in the Chicago suburbs. Arity, which now employs about 300 people, was designed to “revolutionize driver safety” by using big data from smartphones and vehicles to help evaluate the risk of a driver. Allstate, of course, uses Arity for its in-house operations, but Arity also works with external insurance companies.
But was launching Arity part of Allstate’s defense to the insure-tech boom? Not necessarily, according to Arity CEO Gary Hallgren.
“I view it less that and more as an opportunity to help transform transportation,” he said. “Allstate launched Arity because we’re sitting at the forefront of this industry with a new way of pricing and a new way of doing insurance, and have been doing that for seven or eight years.”
In addition to Arity, Allstate has made other moves to remain tech-forward. Just this August, Allstate laid off more than 500 people around the country after launching QuickFoto, a program that allows policyholders in car accidents to take their own photos of car damage and submit them through an app. Sound a lot like Snapsheet? That’s because it is.
With Arity and QuickFoto, Allstate is making strides to remain competitive in a marketplace that is becoming more crowded with insure-tech startups, some of which are aiming to take its business. And competition isn’t isolated to Chicago.
On a national scale, insure-tech startups raised $ 1.7 billion in 2016, according to CB Insights data. One of them is New York-based Lemonade, which offers renters and home insurance, mainly for those living in cities. The company advertises on its website that 19 percent of its customers switched from Allstate and 16 percent from State Farm.
The startup, which has raised $ 60 million in funding to date, powers an artificial intelligence-based app that processes claims quickly and cheaply. Renters’ insurance starts at $ 5 per month and homeowners’ starts at $ 25 per month. Additionally, Lemonade donates any unused claim money to a charity of the user’s choice, eliminating their conflict of interest with keeping customers’ money as profit. It operates in New York, Illinois, California, Texas, and New Jersey.
“Insurance should and can be different,” said Yael Wissner-Levy, director of strategic communications at Lemonade. “We see a lot of switchers.”
Change is inevitable
As consumer perceptions of the insurance industry continue to evolve, legacy companies will have to keep up with them if they want to remain in business.
“They’re going to have to adapt,” Kin’s Harper said. “They’re going to have to up their game, and it’s going to be good for the consumer. That’s what capitalism is.”
Some of that adapting could be similar to Allstate’s trajectory — launching their own data and tech-based tools for simplifying insurance.
State Farm says it is aware of the innovators entering the industry and that the company is taking steps to retain its competitive advantage.
“As our industry and the needs of our customers continue to change, State Farm strives to be a leading innovator within the insurance marketplace,” said State Farm spokesperson Missy Dundov in a statement to Inno. “We understand our business of managing risks will need to adjust and adapt to this changing landscape. We are focused on the big picture — how we can adapt to these changes and continue to deliver value to our customers.”
And representatives from CNA, another Chicago-based insurance firm, say that if nothing else, insure-tech companies have created a new standard for customer experience.
“Insure-tech has given a new focus and talent at the space, and is creating more ideas, more quickly,” said Joel Schneider, the assistant vice president of business process optimization at CNA. “Some of the companies you see out there are really highlighting what they’re doing and creating that new expectation for everybody. It creates more clarity around what the future needs to look like and how we start to build toward it.”
Could that mean acquisitions down the line? Schneider said it’s possible. But just like in any staple industry, whether it’s banking, health care, or automotive, acquisitions are a market trend that never seem to stop.
“In order for any company of that size to deal with disruption, they have to look at what’s going on internally, but then also acquire technology,” Hoch said. “If they don’t and just stay with the old model, they’ll live for a long time because they’ve been around for a long time and got a lot of cash, but things will change. Everybody goes out of business at some point.”
This story first appeared on Chicago Inno.