CoverHound has raised $33.3 million in a financing round led by ACE Group, which the company plans to use to build an online commercial insurance platform starting with businessowners policy insurance offerings that could be available next year.
San Francisco, Calif.-based CoverHound announced its Series C financing round in September, just months after announcing its Series B round.
The investment gives ACE a roughly 24 percent stake in the tech company and representation on its board, according to CoverHound CEO Keith Moore.
The C round of financing also includes CoverHound’s existing investors RRE Ventures, Blumberg Capital, Core Innovation Capital, Route 66 Ventures, and American Family Ventures, the venture capital arm of American Family Insurance.
“With ACE being an investor, we will be moving more into small business and commercial,” Moore said. “We’re really going to focus on extremely small business and we’re going to focus on startups.”
CoverHound partnered with Google in March on its Google Compare online auto insurance shopping web portal, a step Moore credits with giving the company the inspiration to forge into online commercial insurance distribution.
CoverHound’s partnership on Google Compare has so far produced a big crop of high net worth business, Moore said.
“Something we didn’t anticipate in this partnership is really more high net worth individuals than we thought,” Moore said.
A lot of that has to do with CoverHound’s carrier partners on Google Compare, which include ACE, The Chubb Corp. and Fireman’s Fund Insurance. All are major players in high net worth insurance, and may be an even more imposing presence combined.
Jeffrey Zack, ACE’s vice president of global media relations and financial communications, declined to offer details about the investment.
Moore said roughly 20 percent of CoverHound’s business on Google Compare is from the high net worth segment buying pricey insurance policies for expensive vehicles. “Everything from Maybachs to Bentleys are coming from that platform, and we’ve never experienced that before,” Moore said. “We’re really looking to expand our product offerings across segments, because we’re seeing more individuals of high net worth and more preferred than anticipated.”
He believes access to the high net worth segment gives CoverHound a foothold into commercial insurance because a large portion of that consumer base are likely business owners or decision makers.
“BOP will be the initial focus, we’re eventually going to expand it out to (errors and omissions),” Moore said.
Beyond those lines Moore foresees offerings for startups and businesses in the incubation phase, which typically only seek coverage under a BOP policy.
Startups are prime targets for online insurance because they run lean and therefore do as much as possible on the Internet, where there’s typically low overhead, he said.
“We think there’s opportunity for new products to emerge from this, so why not by insurance from CoverHound in a 15-minute session,” Moore said.
CoverHound’s interest in providing insurance for startups stems from its membership in New York-based AngelPad, an incubator launched in 2010 by a group of former Google employees.
Moore believes his firm’s involvement with AngelPad gives CoverHound an inside track with its other startups in the incubation phase.
“It’s is a whole new market,” he said. “Nobody’s aggressive out there going after the startups and entrepreneurs.”
Some insurance experts, who view online distribution as the “Googleization of insurance,” believe it’s that same convenience that online insurance buying provides to customers that will drive business owners to stay with agents who can spare them from having to figure out online what risks they need to insure and what coverage gaps they may have.
Such a point was made by Hank Haldeman, president of the board of directors for the National Association of Professional Surplus Lines Offices, who said that he doesn’t “think that will change” in remarks at NAPSLO’s recent annual meeting.
Analyst Cliff Gallant, managing director at Nomura Securities wasn’t surprised by the investment from the carrier.
“It doesn’t surprise me that this is something they would do,” Gallant said. “ACE is a very forward-thinking company.”
Last month Gallant raised his estimates for ACE’s earnings per share for next year to $10.50. The average analyst estimate for EPS in 2016 is $9.34.
Gallant has ACE rated a “strong buy,” and lists it as one of his top picks among the companies he covers, which includes Berkshire Hathaway, Allstate and AIG.
“It’s a very young, aggressive company – for an insurance company that is,” he said. “It is a very tech-interested company as well.”
It’s not unheard of for a carrier to invest in innovators.
In June 2014, American Family Insurance and Microsoft announced the launch of a business accelerator for startups focused on home automation, and earlier this year AXA launched a €200 million ($223.7 million U.S.) venture capital fund backing startups in the insurance, asset management, financial technology and healthcare sectors.
ACE Group Vice Chair John Lupica said during an interview in August with Carrier Management that his company’s most successful innovation is an online insurance program management platform first launched five years ago, known as ACE Worldview.
The platform, available to large commercial insureds with complex P/C insurance programs, allows them to track the issuance of a local multinational policy, electronically sign coverage selection forms, view billing online and access claims predictive analytics, Lupica said.
Will It Work?
Not everyone thinks what CoverHound is doing with commercial insurance will prove successful.
“The fundamental requirement for the digital distribution of insurance requires the industry to be able to allow consumers to shop, compare and buy online,” said Jeff Chesky, president and CEO of Insuritas. “Coverhound has failed to do that with its personal lines insurance and the challenge is even more substantial for small business insurance.”
Chesky views CoverHound as a lead generator that merely keys in consumer requests for carriers and agents to follow up on, but which “does not have the technology to allow consumers to buy online.”
Not surprisingly Chesky said CoverHound compares poorly with Insuritas, the East Windsor, Conn.-based agency arm behind Overstock.com’s home, auto, renters and small business insurance offerings.
“It’d be like going to Amazon and getting pricing for flat screen TVs from Sony and Panasonic and LG and then when you select a Sony, Amazon would require you to go to Sony’s site to buy the TV,” he said of what CoverHound does.
Chesky believes CoverHound can’t offer a “straight-through” quoting-to-buying process because carriers are risk adverse about customers who use an online comparative rater to find the cheapest insurance “and the issues around commercial insurance are even more challenging.
According to CoverHound, the company sold its first pure “straight-through” policy online more than a year ago, and it has sold policies to shoppers from Google Compare.
The company also refuted Chesky’s claim that CoverHound is a lead generator. A CoverHound spokeswoman said via email that the company does not key-in consumer requests for carriers or for agents and it doesn’t sell consumer data.
Moore said much of the software and personnel infrastructure is already in place to quote and sell commercial policies.
“We’ve been working on these things for several years,” the CoverHound executive said.
He said CoverHound is also working in partnership with a large personal finance website as part of its online distribution expansion that Moore believes will bring more commercial customers into the fold. He didn’t provide many details on that deal.
“They’re one of the top three or four personal finance management sites on the web,” Moore said.
CoverHound laid out the plans for its financing in a release issued last month:
Innovative new digital products: As CoverHound insurance product offerings continue to evolve, expansion into small business and commercial insurance is an ideal growth opportunity for the company.
New hires: CoverHound is aggressively hiring in both of its U.S. locations in San Francisco and Westlake Village, Calif. Key areas for employee growth include product management, engineering, and licensed P/C insurance agents.
Expanding insurance carrier options: After recently extending its carrier offerings to include The General, MetLife, Mapfre, Century National, and Stillwater, new insurance carriers will continue to be added to the platform to increase consumer choice.
Expanding marketing partnerships: After launching its partnership with Google Compare in March, CoverHound continues to expand this partnership into new states, and will add more high profile marketing partnerships in the months ahead to continue to reach targeted insurance shoppers.
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