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September 21, 2017

Karn Saroya, CEO, Cover

A discussion with a thought leader on the frontier of insurance innovation

Key Takeaway
"The folks in the industry are smart, but if they are going to survive, they have to become like technology companies."

Karn Saroya, along with Natalie Gray, Anand Dhillon and Ben Aneesh, founded Cover as a mobile-first insurance broker. Users download an app, take photos of their possessions and send them to Cover, which helps get them insurance coverage. Cover works with 30 insurance carriers across the US and Canada, and has thus far raised $11 million in venture funding.

You’ve made some bold statements, such as “everything is broken in insurance” and “incumbents aren’t going to change fast enough.” Why are you thinking this way?

Four people working out of a house in San Francisco launched a camera-based app that auto-detects, catalogues and insures property in a handful of months. That’s not part of the DNA of an insurance company. I think people who run insurance companies are smart, but are burdened by legacy systems and bloated organizations that prioritize conservative business practices over innovation. A lot of what they do is replicate what’s been tried and tested on the Internet. They buy leads. They still delegate to their agent. They integrate with creaky software. When our customers come in through their mobile apps, they expect instant gratification. The folks in the industry are smart, but if they are going to survive, they have to become like technology companies.

Tell me about Cover’s genesis and how you saw an opportunity to disrupt the broker end of the insurance industry.

We’re second-time entrepreneurs. Our first venture was (fashion recommendation app) Stylekick. That led to Shopify acquiring us as a team. After that, we moved from Toronto to San Francisco and went to (accelerator) Y-Combinator. We are one of a few teams that have built a consumer product to scale and understand insurance. We went up to Muskok, outside of Toronto. We built simple app. Lo and behold, we had people use it to take selfies for insurance purposes. We didn’t know what to expect. We launched it. We saw a ton of interesting things (that they photographed). Drones. Farm animals. That was us building a simple product.

(At the same time), another thing happened. I walked into an insurance office in downtown Toronto. How could a broker afford all that space in this city? These brokerage owners are sitting pretty, printing cash.

Cover makes use of computer vision. How was Cover able to make that technological leap?

We only build things that we have an indication that people will use. People walking around home taking pictures of themselves, like them washing their cars, showed they had pride of ownership. There is a vast community of people working on computer vision.

What do you think the future is for computer vision, and what challenges do you still think need to be surmounted?

I think these are tools that will improve in leaps and bounds in the next few years. Apple is working on it. Google has computer vision. It’s going to change the way people use the phone, period. It’s just an intuitive way to get (insurance) coverage. It makes sense, from an underwriting point of view. You should be able to just point your camera at something. It’s not going away. It’s going to get way better.

Explain your business model. You started as a lead generation business and evolved. How did that happen?

We make money in two ways. One, we sell insurance. And two, we manage it. We don’t do anything with health coverage. But we do sell life and other insurance. We’ll sell auto insurance. We cover jewelry, electronics. Property, in general. So when we sell policy, we earn a 10% to 18% commission in perpetuity based on the value of the policy. Average age of our customer is 28 years old. They tend to have college degrees, good credit scores. They have an agent they don’t know. So they appoint us as broker of record. It’s very much an advisory model.

You’ve said that, in the future, the industry will be about services plus insurance. Please elaborate on that.

We sell a commoditized product. It’s more or less the same thing. So the way to differentiate is through customer service. For us, that means offering something like roadside assistance (when selling auto insurance) for free across the U.S, 24/7 assistance, or on-staff mechanics. Or, if God forbid, your house is burning down. You don’t have to pull together receipts. In this case, computer vision is beautiful. It’s a record of everything. For the customer, there’s incrementally more utility using your platform than others.

Do you think the pace of change in the industry will increase, decrease or stay the same?

Given the amount of money flowing into insurtech, the ones that will win will be in the distribution end. How do you make your customer happy? What’s the true value of insurance? I think people who win will be there. I don’t think this is a winner-take-all.

Who do you think are other companies and disrupters to watch in the insurtech space?

Mobile is the future. There really isn’t anyone absolutely killing it. It’s not whether someone can offer a super cheap renters policy, because that’s pricing innovation, not technological innovation.

Regulations can retard the process, can’t it?

We’re licensed state by state. As you become a risk-bearing entity, I think the level of regulation spikes dramatically. The regulators are there to, one, make sure the insurer doesn’t discriminate, and second, to make sure the prices you charge are adequate for risk on your books. That’s what they should do. The mechanisms they use to do it may be antiquated, however.

What’s next for Cover? There’s the Android app coming. Update us on that, and whatever else is in the pipeline.

We have a slew of tools we’re launching. There’s a whole bunch of third-party APIs we could hit. We think there’s a lot on the phone we can leverage. We’re starting to think about building APIs on top of our own products, so any technically sophisticated person, or platform, interested in selling insurance can do so.

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