Building a Fast Growth, Cutting-Edge Insurance Brokerage: Karn Saroya, CEO of Cover (Part 4)

Sramana Mitra: There’s some reason why you were drawn to insurance? Why insurance?

Karn Saroya: When we were running Stylekick, we worked with some insurance brokers. One day, I walked into one of their offices. This was in Toronto in the financial district. They had multiple floors wedged between investment banks, consulting firms, and private equity shops.

I was wondering to myself when I walked in how all of the seats could be empty, how the phones weren’t ringing, and they can still be a business. You do a little bit of back-of-the-envelope math. You quickly learn that insurance, especially if you got it rolling, is a strongly cash flow positive annuity business. What we discovered was, there was this business that was potentially consumer scale but has great economics.

We went back with that, thinking the LTVs of customers in insurance are very high. The way that folks are compensated in insurance as a business chock full of middle men seems kind of ridiculous. When you have lots of intermediaries, introducing a technology company forces consolidation. What was the minimum possible thing that we could do to foray into this particular business and start to pick up an understanding of it?

The answer to that was purely, “Let’s see if we can get insurance customers, understand their behavior on our app, and modify our app to conform to the behavior that they expect. That’s how you build a consumer product. Us ramping on insurance is just a by-product. This is why a tech team is high- leverage. They can enter any given space, candidly, and objectively characterize the space and build things to solve problems.

Sramana Mitra: When you got to Y Combinator, how much of that customer behavior had you already experienced on your app?

Karn Saroya: We had already seen people send us pictures of their tree houses or their engagement rings. We have seen people take selfies to get life insurance. They have given us full walk-throughs of their homes. They were giving us 360-degree views of their cars. We got race horses. We got all sorts of things that you would not expect. From our perspective, this validated a behavior but actually took it further than what we expected.

Sramana Mitra: How were you acquiring these customers? It sounds completely all over the place in terms of whom you were acquiring. What was the segmentation of the customers you were trying to acquire? How were you acquiring them?

Karn Saroya: We’re very adept at making sure that we find durable sources of acquisition. Predominantly, that means thinking about where our customers are and building tools to help ourselves access customers wherever they are. A good example of that is we have built a virtual defensive driving school. You go to driving.cover.com, we give away a free course. It helps our customers save money on their insurance.

We’re very product-oriented. We do a lot of thinking on the tools and services that we can spin up as a technology company to help support and add value to our customers. Broadly speaking, we think of it as a composite of paid acquisitions and then products and finding arbitrage opportunities in channels that are non-obvious to incumbents.

This segment is part 4 in the series : Building a Fast Growth, Cutting-Edge Insurance Brokerage: Karn Saroya, CEO of Cover
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