The first insurance company, Lloyd's of London, was founded back in 1686 as a place for merchants on the sea to insure their cargos. For a fund management fee, Lloyd's of London collected premiums from the merchants and paid out claims to the merchants who lost their cargos.
This same infrastructure of having an expensive human organization act as the trusted fund holder hasn't changed in the past 300 years. In fact, 25% of insurance premiums that U.S. consumers pay today are never paid out. Instead, they went to cover insurance companies' own operational costs. That "fund management fee" is effectively $300 billion per year.
San Francisco-based startup Kover.ai is reinventing the 300-year-old insurance infrastructure from the ground up by using decentralized software, instead of human organizations, as the trusted middleman.
Kover.ai recently closed a $1.5 million seed round from some big names in the Silicon Valley and Chicago tech ecosystems. The round was led by West Loop Venture, with additional investments from Afore Capital and Techstars Venture. Kover.ai was also one of the nine companies that came out of the 2019 MetLife Digital Accelerator Powered by Techstars.
Any business can use Kover.ai's infrastructure through a simple API to build and distribute coverage products to its own customers, bypassing the need to involve any insurance company. For example, a rideshare app company with lots of drivers can build and distribute a self-insured "Driver Income Protection" (by the way, a live product found on Kover.ai's website) to its drivers just by making an API call to Kover.ai's API. In contrast, it takes years to build a new product on the traditional insurance infrastructure.
Premiums collected for each product go into a pool managed by a smart contract. This is called "autonomous coverage" since neither Kover nor the smart contract serves the interests of profit-driven insurance companies. Instead, the contract serves the community of members themselves. In other words, by using code to replace unwieldy carrier back-offices, autonomous coverage is cheaper, safer and a more scalable risk-hedging solution than traditional insurance.
Co-founder Zack Peng defines the business this way: "Insurance is an important societal infrastructure. It takes care of our downside so we can focus on pursuing the upsides of life, like a meaningful career, a happy family, and so on. However, insurance is tremendously inefficient today. The cost of inefficiency is hurting the consumers in the form of overpriced premiums, slow payouts, and lack of accessibility. We have a unique opportunity to fix this fundamental yet obsolete social infrastructure. When Kover.ai succeeds, insurance will be as accessible as running water."
