There is a structural bias in car auto-insurance from legacy providers. It uses metrics such as credit score, income, marital status, and education to ascertain insurance rates, which ultimately harm low-income individuals through higher rates and lower protection.
Loop, co-founded by John Henry and Carrie Anne Nadio, hopes to launch an alternative model that is the same for all communities.
“Structural bias is cooked up in financial services and institutions that are sustainable and robust. [it], “Said Nedu, who has worked at the Brookings Institute and studied at MIT around the topics of mobility.” We can’t just focus on banking, [and] Insurance is like the ugly stepchildren overlooked in the world view of financial services. “
How to rewrite rules
Loop is a managing general agent (MGA) business, so it can act as a broker and seller in the insurance space. It acquires and serves customers, rather than serving as a manufactured vendor as an existing insurance provider. The startup, B Corp, is also prioritizing profit with environmental and social mobility.
The startup is trying to rewrite the rules of auto insurance to track, create and charge insurance rates using two key metrics: the condition of the roads and the behavior of the driver. The loop turns off usage rates, while a legacy provider may base rates away from demographics.
The loop is a mobile-only product that is vertically integrated with the insurance carrier.
Once a user downloads an app, the loop will get a quote for the user based on its location. The secret sauce is Loop’s technology: Loop creates a citation for a user based on their location, using a database of more than 100 million car accidents in 27 states. Henry, who co-founded the Harlem Capitol, describes the Loop figures as “a God-level understanding of accidents occurring on almost every road, individual street.”
Uses data around traffic volume, roadway infrastructure and weather data to determine startup rates. Artificial intelligence capability can allow the loop to drive a driver who is off the road, with a high risk of crashing. Or it could simply reward them for clearing the road without bumper scratches.
The other part of its business is based on telematics technology, which allows loops to understand how and where the driver is going all the time. While legacy carriers can use the reduction of crashes to encourage lower rates, the loop is using data to determine the rate and reduce it.
Exchanging data for more flexibility may raise some eyebrows, but the co-founders think their customer-base, largely millennials and Gen Z, are comfortable with the model because it promises reasonable prices. Loop makes a gross commission on every policy it sells.
Loop also cited Ohio-based Route Insurance as an example of how consumers are becoming more comfortable with data sharing. The car insurance startup went public as a successful IPO for a Midwestern high-growth tech company. Route likewise uses metrics such as driver performance and history with telematics technology.
“They use telematics, but they are still using the legacy insurance model on a large scale,” Henry says. “We like to change this with our AI-based approach.”
The route may be the most obvious competitor, but usage-based pricing has been dynamic in insurance in various forms for more than a decade. Flexible Insuretech has been on a tear lately, with MetroMile’s SPAC, Lemonade’s IPO and, at an early stage, UK-based auto insurance startup Marshmallow, last valued at $ 130 million.
The co-founders are confident that their technology has been differentiated enough to avoid heated competition.
A racial protest and a tweet
The idea for the startup began in July 2020, when George Floyd, a black man, was murdered by police. Protests took place around the world, rallied for change and addressed systemic racism. VC firms raced to support black founders, and Henry saw a difference in solutions committed to change.
Henry tweeted in response:
“It occurred to me that the change we were looking for was not just going to bring about itself,” Henry said. “It deliberately tackles systemic issues.” He knew that Nadio had focused on transportation and mobility, and the two eventually decided they would make “big swings”.
While the co-founders consider the goal ambitious, they have secured investors who think the loop may one day be a big business. The startup tells ClearTips that it has raised a $ 3.25 million seed round led by Freestyle VC, with partnerships from Blue Fog Capital, Fontinalis Capital Partners, Concrete Rose, Approaching Ventures and Backstage Capital. Participating angels include Kristen Dickey, Steve Schlafman, Sag LaRone, Craig J. Lewis, Gerard Adams and Joshua Dworkin.
The money will be used to hire and develop its data science infrastructure. It is not currently on the market, but is launching in Ohio, Illinois, Pennsylvania and New York (pending regulatory approvals, of course).
The team met with 77 investors, 25% of whom were female investors, who had to obtain the necessary funds to start the loop.
“It was more difficult than we thought,” Henry said. “We knew by leaps that we wanted to raise a big seed round to signal to the market that we were growing up.”
The loop eventually closed the round and evaluation. For the tipping point that investors get for returning a company disrupting the $ 256 million industry with about $ 3 million in seed funding?
Mission, says Henry.
“I really have goosebumps right now, because the doors of the mission won’t open up,” he said.